Can the American Health Care Act Stabilize the Insurance Marketplace?

The Affordable Care Act (ACA) received major criticism over the lack of stabilization of the individual insurance market. Major insurers, including UnitedHealthcare and Aetna, withdrew from some marketplaces over serious financial losses incurred through participating in ACA marketplaces.

Critics of the health law cited the withdraws and subsequent premium increases as evidence of the ACA failing to provide Americans with the healthcare they needed. However, those in favor of the law believe that the ACA did not have a change to stabilize the marketplaces yet.

Stabilizing measures are important when implementing new legislation, especially when it comes to healthcare.

In the past, when Medicare Part D was enacted, Congress created stabilizing measures through a reinsurance program to compensate insurers for new risks. They implemented a risk corridor program, a risk adjustment program, and a fallback program for the government to assume risks of providing coverage where there were no private insurers, according to an article published by the Commonwealth Fund.

The Part D program has provided beneficiaries with access to affordable prescription drugs, and has been observed to reduce the mortality rate among this population. Its success can likely be attributed to the stabilization measures that are still in place.

Similarly, the ACA enacted stabilization measures when it was first implemented. For the first time, the health law asked insurers to cover patients regardless of age, gender, or preexisting conditions, which can cause a significant increase in costs for the insurer. Therefore, the legislation also put into place certain measures to offset costs and stabilize the marketplace.

For the first 3 years, insurers were offered reinsurance for high-risk cases and a risk corridor program that allowed the government to share large losses and profits with insurers, according to the article. The ACA also implemented a permanent risk adjustment program that would share the risk of high-cost patients, and increase enrollment through the individual mandate.

While a public option was debated and supported by lawmakers, no federal measures were created to stabilize that option.

Despite the stabilization measures set by the ACA, the marketplace was not stabilized. The risk corridor program was essentially defunded when Congress capped the amount insurers could collect, the reinsurance program ended too quickly, and the individual mandate has not been successful, according to the article.

These failures have fueled GOP arguments that the health law needs to be repealed and replaced. The legislators introduced the AHCA last week in hopes that it would improve access to care and reduce costs for customers.

Under the ACHA, the individual mandate would be repealed, which the Commonwealth Fund argues that this is the prime stabilizer of the ACA. Instead of the individual mandate, the replacement plan would implement a continuous coverage provision that would add a 30% premium surcharge for 1 year for individuals who had a gap of coverage for 63 or more days.

Since the surcharge may make premiums unaffordable, some individuals may not be incentivized to reenroll in coverage. Since this mandate would not be enacted until 2019 and the individual mandate would be retroactively repealed to 2016, the marketplaces would be missing a significant market stabilizer.

Starting in 2018, the AHCA’s main market stabilizer would offer $100 billion over 9 years to support high-risk pools, reinsurance programs, or other efforts. States are able to use the federal funding to create their own measures or for individual market reinsurance. They can also use the funding to provide cost-sharing for low-income enrollees or to pay for provision of care if the states can match the funds, according to the article. However, these funds may not be substantial enough to stabilize the insurance markets.

The AHCA also proposes to increase the amount charged for older adults up to 5 times as much as younger adults. This mandate would likely provide incentive for younger individuals, while reducing enrollment by older individuals, according to the article.

Additionally, the tax credit structure would be tied to age and inflation. This may increase enrollment in lower income areas, while decreasing enrollment in higher income areas.

However, since many aspects of the proposed health law are unknown, it is unsure how the health insurance marketplace will react to the changes. While the provisions are different, they may still be favored by insurers and certain populations, and may be successful.