The Affordable Care Act Six Years Later

August 2016

The world of healthcare looks dramatically different than it did two years ago. Three foundational shifts are taking shape under the new administration. At the same time, five revolutionary forces are picking up speed within the industry, unleashing a spate of innovative M&A activity.

The Affordable Care Act (ACA or colloquially, Obamacare) was passed into law on March 23, 2010. To say that the ACA has generated a considerable amount of controversy over the past six years would be an understatement. The law has precipitated constant infighting between the two main political parties and generated numerous lawsuits—three of which made it to the Supreme Court, with one upholding the law as a tax. Below, we explore some of the successes and failures of the ACA.

On March 3, 2016 the Department of Health and Human Services (HHS) announced that 20 million people gained health insurance coverage for 2016 as a result of the ACA, based on the open enrollment statistics from November and December 2015. This includes approximately 12.7 million people who signed up for coverage through the Federal or State-sponsored health insurance exchanges and 7.3 million who gained coverage either through a parent’s insurance plan (18-26 year olds) or through Medicaid expansion. HHS did not mention the 16.5% lapse rate in 2015, which translates to approximately 2 million people who won’t have coverage at some point in 2016, due to non-payment of premiums.

While HHS cites the above statistics as a measure of the ACA’s success, the program has fallen short of its initial goals. In 2010 the Congressional Budget Office estimated that there were 47 million uninsured Americans between 18 and 64, and suggested the ACA would provide health insurance coverage for 32 million by 2019. It appears at this point the program will fall well short of these initial goals.

Further, the program is facing some challenging issues that may actually reduce the number of insured in the coming months and years. On July 5, 2016, the Connecticut Insurance Department placed HealthyCT, a cooperative that participates in the State’s health insurance exchange, under supervision and told its 40,000 policyholders they must obtain alternative coverage no later year-end. This marks the 14th of the original 23 operational cooperatives formed under the ACA that has failed, and several others are currently on shaky footing.

Officials at HealthyCT have attributed its demise on the Centers for Medicare and Medicaid Services (CMS) which billed the insurer $13.4 million on June 30, 2016, as part of the ACA’s risk adjustment program, intended to transfer some of the costs of less profitable or unlucky insurers to the more profitable insurers. Essentially, HealthyCT, according to CMS, actually had better results than other ACA insurers – a frightening proposition for the nine remaining cooperatives.

Ironically, last October CMS funded only 12.6 percent of the risk corridor requests, another field-leveling initiative of the law, which was cited as the root cause of previous cooperative failures. With 14 fewer cooperatives available, many Americans have with fewer, less robust, and, likely, more expensive health insurance options.

There are many factors that led to the shuttering of these cooperatives. Some cite the failure of the federal government to provide sufficient loans, although more than $1.2 billion of now-uncollectible loans were granted to the failed cooperatives. The risk adjustment and risk corridor programs are deemed a factor by some, as are lower than expected enrollment figures and the relative ease with which an individual can enroll in the off-enrollment period. State regulation, which can make selling products across state lines difficult, is another cause mentioned.

While all of these issues contributed to the failure of the cooperatives, the underlying cause is pricing. The cost of healthcare has outstripped the premiums charged by insurers. Many of the cooperatives, as well as some for-profit start-ups, gained market share on price and hoped to make up any losses down the line. Unfortunately, that never occurred for 14 (and counting) cooperatives.

Even the largest health insurance providers have begun to realize that the individual marketplace is a risky and often unprofitable venture. In April of 2016, UnitedHealthcare announced that it would exit 26 of the 34 states where it participated in the health exchanges, leaving 795,000 members looking for replacement coverage. If UnitedHealthcare, a large and diverse health insurance company with a vast network and considerable leverage, believes it cannot make money in the individual marketplace it suggests stormy seas ahead for many of the remaining cooperatives.

Healthcare is indeed complicated and expensive. Ideally, the ACA would have established a mechanism, such as a standing bipartisan committee, to deal with some of the unforeseen issues that have arisen since its passage in a prompt and efficient manner. But, this was unlikely to occur given the political climate at the time of its passage.

So, where do we go from here? There are a few aspects of the ACA that make sense, including the electronic delivery of prescriptions and the ability for people with pre-existing conditions to obtain coverage. But there are also unintended consequences. The healthcare cooperatives have largely been a failure and the rapid consolidation of healthcare providers is concerning to both regulators and consumers. Doctors complain about the added administrative time; time they say takes them away from patients. While plans may be available to all, they are rapidly becoming unaffordable to those that most need coverage.

Six years later, some 30 million Americans are still uninsured. As part of the backlash, insurers are increasingly taking actions to sue the federal government; a coalition of small, nonprofit health insurers met earlier this month to discuss their legal options over the risk adjustment program. One can only wonder if the money spent by the federal government on the ACA initiatives could have been put to use more efficiently.

For better or worse the ACA has changed the healthcare delivery system in the United States. While the ultimate goal of insuring every American remains elusive, healthcare providers have adapted to the changed landscape and will likely need to continue to do so. Success or failure? – probably a little of both and a great deal of uncertainty for providers, payers and consumers. The results of the November 2016 elections may bring some clarity to the future of the ACA. 

This article first appeared in the summer 2016 edition of the BDO Insurance Advisor Newsletter.