Looking past King v. Burwell: Business implications for health insurance plans
Guest post from Paul Keckley, Ph.D., managing director, Navigant Center for Healthcare Research and Policy Analysis
Late last month, the Supreme Court ruled 6-3 against the complaint filed by David King and his three Virginia co-plaintiffs. The majority opinion concluded that the intent of section 1321 of the Affordable Care Act's health exchange provision was to provide tax credits for all eligible enrollees whether the exchange is state-run or not. The court's opinion had the immediate impact of sending hospital and health insurer stocks up, while 2016 presidential campaign aspirants either lauded the decision or promised to undo the ACA altogether if elected.
No doubt, other legal challenges to the ACA are forthcoming. The GOP-led House of Representatives has voted 54 times for its repeal. It remains highly divisive: Kaiser Health Foundation tracking polls have consistently shown the nation almost evenly divided for or against the law over at least the past three years. And many elements of the law, including more constraints in the ways insurers do business, remain popular.
For insurance plans, the King v. Burwell decision affirms tax credits will be available for the 6.4 million who might have lost coverage. It also has the immediate effect of temporarily stabilizing premiums and likely participation in the 19,000,000 enrollee individual insurance market. But beyond this, a number of challenges and questions relevant to insurers remain as part of the unfolding of the Affordable Care Act's implementation:
Medicaid expansion and Managed Medicaid
Might the states that have not yet expanded Medicaid now choose to do so? Will the Centers for Medicare & Medicaid Services concede to Section 1115 waiver requests and allow states more flexibility in managing their Medicaid populations?
And in the 39 states that currently outsource all/part of their Medicaid program, how will regulators exact greater transparency around the performance of the plan while negotiating stricter terms? Managed Medicaid is a growth market, but it is a thin-margin, high-risk business for insurers that face enormous variability in how states are overseeing and funding this program within the constraints of the ACA.
Individual and employer mandates
Will the individual penalty--this year $325 or 2 percent of applicable income for an individual--result in increased access to coverage or an IRS accounting nightmare? Will the threshold for the employer penalty increase from 50 to 100 full-time employees?
The answer to these will dramatically impact the market for payers. Employers are looking to health insurers for cost control: The implementation of these mandates will disrupt plan relationships with employers and plans as premiums increase and many default to less coverage.
This fall, open enrollment Chapter 3 will open—this year with as many as 41 states using the federal hub. Nonetheless, glitches remain in eligibility verification, coordination with navigators and other features of the error-prone system. Problems with Healthcare.gov might be fewer, but there are certain to be more. For insurers, glitches translate to customer service gaps and lost revenues.
In 2014, the Health Insurer Excise Tax fee totaled $8 billion, increasing to $14.3 billion in 2018, and thereafter by the rate of premium growth. The amount is determined by the market share of the health. Should the health insurance industry pay an excise taxes that end up being passed through in higher premiums? The debate about excise taxes will be vigorous as insurer rate filings and their underlying calculus get attention.
Medicare Advantage is wildly popular among seniors and profitable to plans. The ACA is funded, in part, by scheduled cuts to the program's funding. How deep will the cuts be, and when? Most health insurers market MA plans: It seems likely enrollment and utilization will increase, but the underlying economics of the program remain entangled in the Congressional budgeting process.
The ACA encourages hospitals and doctors to become clinically integrated for the purpose of assuming financial and clinical risk for their performance. Through accountable care organizations, bundled payment and value-based purchasing programs and others, it essentially transfers risk from payers to providers and in so doing, opens the door to the sticky question "what value does the insurer provide?" The transition from volume to value circa the ACA forces health insurers to define new strategies--diversification, growth and innovation are table stakes as they plot new courses.
The King v. Burwell resolution settled for the time being the status of the ACA as the legislative framework for our health system's immediate future. For health insurers, it's only a chapter in the unfolding story about the role and scope of its future efforts.