On Monday, Aetna announced they would "narrow individual public exchange participation", essentially pulling their plans from the public marketplace (Healthcare.gov) starting in 2017. Although other national carriers United and Humana had already announced their plans to leave or reduce their participation in the market place, Aetna's move came as a bit of a surprise. Although Aetna had posted multi-million dollar loses from their exchange business, as recently as April Aetna CEO Mark Bertolini had called the individual marketplace a "good investment" in an earnings call. Bertolini believed that even though the individual market was off to a rocky start, it would stabilize too and it was worth the losses for Aetna to gain subscribers for the long run.
On Wednesday, Scott & White in Texas announced they would be leaving the public exchange too. This was a bit of a surprise too given Scott & White's position in the market (they're a provider too) and eagerness to enter the public exchange market in North Texas this year (they remain one of the only insurance companies still paying broker commissions to issue new policies).
Both companies plan to continue offering individual plans "off-exchange", which means you can get their plans but they will not be eligible for a tax credit or subsidy through Healthcare.gov.
The timing of the announcements speaks volumes: Insurance companies are likely not pleased with 2nd quarter data. Bertolini even hints at it in his press release:
Following a thorough business review and in light of a second-quarter pretax loss of $200 million...
So why did the 2nd quarter matter so much? Haven't the insurance companies been losing money for multiple quarters in a row?
For years, insurance companies have been frustrated (rightfully so) at how poorly the government has estimated how much it would cost insurance companies to insure individuals. Healthcare.gov has also done little to curb rampant cheating on the individual market, especially during special enrollment where individuals can essentially wait until they are sick, sign up for insurance and get treatment and coverage, and then cancel the policy. If the government tells you that you have to insure anyone and that it will cost $100 a year, and then it actually costs $150 a year, oh, and by the way, we're not going to enforce the rules and let some guy that costs $1,000 sign up for just one month...you can see where the insurance companies can easily get burned.
What made the 2nd quarter so critical this year though was it was the first time Healthcare.gov said they were going to start enforcing the special enrollment rules. Insurance companies were promised they would see their claims stabilize.
There's also a goofy regulatory issue at play. In Texas, most insurance companies have to submit their rates for 2017 to the Texas Department of Insurance (TDI) by April and May of 2016. That means insurers have only Q1 data to set their rates on for the next year. If the market is fairly stable, this isn't a problem. If the market is not stable, this is a huge issue--how can you set your 2017 rates if 2016 is a moving target?
I'm guessing Aetna and Scott & White were finally able to review their Q2 data, realized that enforcement didn't get any better, and are now stuck because the rates they proposed for 2017 were based on Q1 data and a hollow promise of enforcement that didn't come to fruition. Now, if they were to proceed and still over their 2017 plans, they are just locking in multi-million dollar losses.
In this case, I think it's fair to spread the blame a little bit. You could blame the insurance companies for being big ole' dinosaurs who aren't adapting to the market fast enough, politicians, regulators, and consumers. You'd be right in all cases.
However, I think by continuing to offer "off-exchange" plans and just pulling "on-exchange" plans, Aetna and Scott & White are giving big hints. Although all plans must meet Obamacare/ACA requirements, there are some important differences in general on who shops on and off exchange and the controls insurance companies have over their clients:
| On-Exchange (Healthcare.gov) |
Off-Exchange (everywhere else) |
|
| Shopper Profiles | Individuals that qualify for tax-credits, subsidies, and cost sharing have to apply through Healthcare.gov. The result is most of the on-exchange shoppers are low income or immigrants. | Consumers choosing plans here either have strong relationships with a broker or don’t qualify for tax credits because their income is too high. As a result, off-exchange shoppers tend to be more wealthy professionals. |
| Approval and Verification | All applications are reviewed and approved by Healthcare.gov. Carriers just get a notice of who to issue a policy to. Any follow-up verification is handled by Healthcare.gov. | Carriers must abide by ACA rules, but carriers can review and approve applications. They can ask for verification documents directly. |
| Control over payments | No payment is required to complete an application. Applicants have a 30-day grace period to make their first payment. If they make one payment, the grace period becomes 90 days before it can be terminated. Carriers must accept checks and cash-based payments. | Carriers can control payments. Most require payment of the first premium before the plan is activated. Although grace periods still apply, carriers can limit payment-types to credit cards and bank drafts and require auto-billing, reducing non-payment risks. |
Given the dynamics above, I would primarily focus the blame in two places:
For now, we need to hope that these announcements don't cause a landslide with other insurance companies. As of now, Texans would still have plenty of on-exchange choices from Blue Cross, Molina, Oscar, US Health Group, and others. Not bad, but definitely a reduced lineup with United, Humana, Aetna, and Scott & White now out.
If you're not looking or not eligible for a tax-credit, then you'll still be able to find plenty of plans off-exchange. Just get ready for another boost in premiums too as younger, healthier individuals who would have purchased an on-exchange plan now decide to go without. You're not immune just because you don't get a tax-credit.
At TakeCommandHealth.com, we're dedicated to building consumer support tools to help you get the most out of your health insurance dollars. When it's time to choose a 2017 plan, we'll help you see all of your options--on and off exchange, and even faith-based plans--and search for your doctors and prescriptions to find the best fit for your needs and wallet. Health insurance will be expensive in 2017 so you'll want to make sure your dollars are optimized.