Building on the ACA: A Legislative Agenda to Protect and Strengthen the Marketplace

Despite ongoing attempts to undermine and repeal the Affordable Care Act (ACA), independent industry analysts have consistently reaffirmed that the individual market under the law was continuing to stabilize and improve as of early 2017.¹ Despite that fact, a number of threats have emerged that could jeopardize the future stability and profitability of the marketplaces that comprise the ACA. In order to mitigate these threats, Congress should take immediate action to safeguard the stability of the marketplace for 2018 and beyond.

This fact sheet outlines the scope of challenges facing the marketplace, including immediate federal threats that could seriously damage marketplace stability moving forward, challenges facing specific regions of the country, and remaining policy barriers to maximizing enrollment and ensuring affordability of coverage for all marketplace eligible individuals.

This document also provides a short-term roadmap for Congress as it considers bipartisan legislation to stabilize the market. Specifically, we recommend that Congress immediately enact legislation to:

1. Appropriate permanent funding for cost-sharing reductions (CSRs)
2. Extend the ACA’s premium stabilization programs
3. Increase funding for outreach and enrollment

In addition, we recommend a set of longer-term policy options that Congress should consider to build on the progress of the ACA by improving affordability of coverage and maximizing enrollment for all marketplace eligible individuals.

Understanding the Threats and Challenges Facing the Marketplace

While marketplaces are on solid footing in most parts of the country, immediate threats to undercut implementation of the law present a serious threat to their future stability. Some rural parts of the country also face unique challenges to fostering a competitive market. Beyond such short-term challenges, there are policy barriers that constrain efforts to maximize enrollment, and that must be addressed in order to improve affordability and build upon the coverage gains made to date.

Uncertainty about federal action to implement (or undermine) the law

The uncertain policy climate and continued threat of federal action to undercut the ACA pose the two most significant threats to the future stability of the marketplaces. Throughout the year, the administration has stoked uncertainty, questioned the law’s future prospects, and refused to make a long-term commitment to reimburse insurers for providing CSRs to lower-income marketplace enrollees, as obligated under the law. Additionally, statements made by the administration have indicated interest in policies that would undercut enforcement of the individual mandate, and recent legislative efforts to repeal and replace the ACA in both the House and Senate would have repealed the individual mandate, effective immediately. The Congressional Budget Office (CBO) estimates that premiums for “silver” level plans under the ACA would increase by 20 percent in 2018 if CSRs were to go unfunded, and that eliminating the individual mandate would increase premiums by close to 20 percent.²  

On top of these uncertainties, questions persist about the administration’s commitment to investing in outreach and enrollment efforts this year. Two troubling developments in this regard are the administration’s decision to discontinue advertising near the end of last year’s open enrollment period, and recent news reports that funding for outreach work may have been deliberately misused for projects aimed at undercutting support of the law.³ This creates added concern about whether administrative efforts could suppress overall enrollment this year, and thus skew the insurance pool.

Collectively, these developments have had an immensely destabilizing impact on the marketplace. Predictions about the administration’s actions (or inaction) have had a direct impact on premiums. Some insurers have already set their preliminary premium rates for next year assuming that CSRs will not be funded—and many of them include double-digit rate increases directly due to that assumption.⁴

Meanwhile, other insurers have said they will either submit new rate increases or leave the marketplace entirely if there is not a guarantee of ongoing CSR funding by the deadline for finalizing rates.⁵ Some insurers have also increased premiums to account for the risk of the individual mandate not being enforced, and have raised premiums between 1.2 and 20 percent to account for this risk.⁶  

There is still opportunity to quell this uncertainty and prevent widespread premiums increases and issuer pull-out before the deadline to finalize rates. But without swift Congressional action to safeguard the stability of the market, the destabilizing impact of this uncertainty will be felt nationwide.

State and regional specific challenges

Beyond the political threats described above, marketplaces in some rural areas have faced greater challenges that must be addressed. Rural areas’ marketplaces, for example, have faced more pronounced premium increases,⁷ and limited insurer participation in the marketplace has also been concentrated in rural areas.⁸ Importantly, regional challenges are not unique to the ACA’s marketplaces: Medicare Advantage has faced similar challenges in levels of plan participation. This year, for example, 147 counties have no Medicare Advantage insurer, and many of the counties that have had difficulties securing robust marketplace insurer participation for the coming year also don’t have Medicare Advantage plans.⁹  

A number of factors make it more difficult for rural insurance markets to attract insurers and hold down premiums. Limited provider options in these areas can make building a provider network with competitive rates challenging, and also provide too little infrastructure for multiple carriers to compete. On top of this, rural markets offer smaller enrollment pools with inherently higher risks, resulting from the impact of even a few costly “outliers.” All of these factors can make rural areas high-risk, less profitable markets.

However, there are established policy options, such as reinsurance, to incentivize insurer participation and control premiums in regions that face plan participation and affordability challenges. Alaska’s recently-created reinsurance program led its remaining marketplace insurer to propose cutting premiums by more than 20 percent for 2018, evidence that there are workable solutions.¹⁰ Ultimately, helping these regions may require finding financial incentives for insurers to enter regions of the country that they have long avoided.

Addressing these region-specific problems will also require some states to revisit policy decisions to let residents remain in ACA non-compliant plans, often referred to as “grandmothered” plans. These plans do not adhere to the ACA’s core protections for people with pre-existing conditions, including the requirement to cover essential health benefits and the ban on health-status rating. As a result, the people remaining in these plans are more likely to be healthier individuals.

In some states these plans still make up a substantial portion of the overall individual market, and have greatly fragmented the risk pool of the marketplaces. In Iowa, for example, more than one third of the state’s individual market enrollees are still in ACA non-compliant plans.¹¹ This fact has very likely contributed to the higher-than-average premium increases seen in the state, and reduced insurers’ incentives to offer ACA-compliant coverage. State efforts to bring these individuals into the marketplace could also go a long way toward strengthening their marketplaces.

How to Overcome Persistent Barriers to Reaching the Uninsured

Looking beyond short-term threats to stability, the most important step to strengthening marketplaces is maximizing enrollment and reaching the remaining uninsured. This will require overcoming a number of policy limitations that currently constrain enrollment efforts.

First, there is continued work to be done to improve affordability of coverage and care. While the ACA has made landmark achievements in this area, even with financial assistance under the ACA, the cost of coverage and care remains high for some families. Nineteen percent of the remaining uninsured in 2016 were eligible for marketplace coverage with federal financial assistance.¹² Among the uninsured who shopped for coverage on the marketplace but did not enroll in coverage, the vast majority say their decision was based on affordability concerns.¹³ While enhanced outreach and enrollment are key tactics for reaching the uninsured who are eligible for assistance, further improvements to financial assistance will also be critical to covering this population in full.

Gaps in eligibility for financial assistance, and in eligibility for marketplace coverage even without assistance, also prevent millions from enrolling in coverage.¹⁴ Workers and their families with offers of job-based coverage are currently barred from obtaining financial assistance in the marketplace, so long as the cost of self-only coverage doesn’t exceed 9.5 percent of the family’s income, regardless of the expense of dependent job-based coverage. This so-called “family glitch” prevents families with unaffordable offers of family coverage through an employer from accessing financial assistance, and leaves them with no source for affordable coverage. Undocumented residents are also barred from purchasing coverage on the marketplace, even if they wish to do so using only their own money.

Enrollment policies and limited resources for enrollment assistance also create barriers to reaching the remaining uninsured. Many enrollment assistance programs face large caseloads, and some programs even report having to turn people away due to strapped capacity.¹⁵ An added challenge is that the upcoming open enrollment period is also only half as long as in previous years, and is scheduled at the end of the year, when family budgets are often tight.¹⁶ This timing will make affordability a more powerful concern than in the past, and will stretch the capacity of community outreach and in-person enrollment assistance programs even further. Based on considerable evidence showing the relationship between assistance and enrollment levels, shortfalls in assistance resources could greatly limit sign-ups during the forthcoming open enrollment period.¹⁷  

Given these challenges, it is essential that Congress act in the short-term to ensure that the ACA’s marketplaces remain stable and have sufficient resources for enrollment assistance. As a critical longer term goal, they should take action to improve affordability of coverage within marketplace plans and reach the remaining uninsured.

Below, we outline Families USA’s priorities for Congress, looking at both short- and long-term goals, in order to protect and strengthen the marketplace moving forward.

Where should Congress Focus Legislative Efforts to Strengthen the Marketplace?

Address immediate needs to stabilize marketplaces

It is critical that Congress focus its immediate efforts on taking the actions necessary to reduce federal uncertainty and mitigate the destabilizing impact of any administrative efforts to undercut enforcement of the ACA or enrollment efforts. Congress should immediately focus on the following three areas:

1. Appropriate permanent funding for cost-sharing reductions (CSRs). As soon as possible, Congress must pass legislation clarifying that CSRs are permanently funded through a mandatory appropriation, eliminating any uncertainty raised by pending litigation. Securing permanent funding for CSRs is the most important step Congress can take to ensure that marketplaces remain on stable footing.

Without a permanent commitment that CSRs will be funded, more insurers could pull out of the marketplaces, and remaining insurers could be forced to increase premiums drastically in order to make up for these lost payments. Furthermore, leaving CSRs unfunded will actually cost the federal government more overall.

If CSRs aren’t funded, every dollar in resulting savings will generate three dollars in increased federal spending on premium tax credits.¹⁸ CBO thus estimates that leaving CSRs unfunded would increase the federal deficit by
$194 billion over ten years.¹⁹  

2. Extend the ACA’s premium stabilization programs. Congress should permanently extend the ACA’s transitional reinsurance program, which originally ran through plan year 2016. Reinsurance helps insurers pay a portion of the cost of extremely expensive claims, and has proven effective at holding down premiums. The ACA’s reinsurance program reduced premiums by between 10 and 14 percent in 2014.²⁰ Actuaries predict that extending the ACA’s reinsurance program or establishing a similar funded program would mitigate premium increases and draw more young and healthy people into the marketplace.²¹  

In addition to lowering premiums, reinsurance could help incentivize insurers to enter counties where a relatively small and high-cost insurance pool can be a deterrent to participation. Making this program permanent would provide long-term security by ensuring that there are financial incentives for insurers to participate in inherently high-risk markets that have relatively few consumers, and would help hold down premiums market-wide. Permanent reinsurance is not a new concept: Medicare Part D has a permanent reinsurance program that covers enrollees’ drug expenses above a certain threshold, complementing permanent programs for risk adjustment and risk corridors.

In the short term, Congress should simply appropriate funding for the ACA’s reinsurance program for at least 2018 and 2019. In the longer term, federal reinsurance should be funded through assessments of health insurers across the individual, small group, large group, and self-insured markets, as it was funded under the ACA’s transitional reinsurance program.

Congress should also consider temporarily reinstating and funding the ACA’s risk corridors program for 2018 and 2019. The ACA’s risk corridors program was designed to protect insurers from large losses in a dramatically changing market that was difficult to price. While insurers now have more substantial experience in pricing for the marketplace than they did previously, the chaotic legislative and administrative environment of 2017 could greatly change the size and characteristics of the individual markets’ risk pools. Given this situation, extending this program could be warranted. In order to give carriers the confidence they need to offer coverage without raising premiums and provide a large cushion against uncertainty, this program must have secure funding and guaranteed payments, without budget-neutrality constraints, based on insurers’ actual experience, as was originally intended under the ACA.

Given the immediate needs of the market, Congress should leverage existing federal premium stabilization programs that are prepared to serve every state and could be swiftly reinstated. In the longer term, it may also be worth considering new funding streams to support state-based innovation around premium stabilization programs, including policies that increase subsidies to attract lower-risk enrollees. It will be critical that Congress limit funding to programs that stabilize markets without segregating people with high-cost conditions into separate types of coverage, akin to high-risk pools that existed prior to the ACA.

3. Increase funding for outreach and enrollment. Congress should take two specific steps to ensure that there is adequate funding for outreach and enrollment activities going into the 2018 open enrollment period. While outreach, marketing, and in-person enrollment assistance have always been critical to maximizing enrollment, the upcoming open enrollment period faces unusual challenges that will demand even greater resources.²²

First, Congress should guarantee that there is a clearly-defined appropriation to the Department of Health and Human Services (HHS) to ensure that outreach and enrollment activities, including in-person enrollment assistance, receive no less funding from HHS than in previous years.

In addition, Congress should appropriate other funding specifically for public education and mass marketing for this upcoming open enrollment period. Increased outreach and marketing will be necessary to reduce public confusion about the status of the law and available coverage options. It will be especially important to target young, healthy people, who have fewer incentives than those with health problems to rapidly obtain relevant information about their insurance options, and to take all the necessary steps to enroll before December 15.

Build Long-term Improvements to the Marketplace

In the long term, the most important way to strengthen the marketplaces is to increase enrollment and diversify the risk pool by enhancing affordability to consumers and increasing plan value. Congress should build upon the ACA’s demonstrated progress, and pursue policies to improve affordability of coverage and care within marketplace plans and also increase enrollment in the marketplaces. Focusing on these areas will only serve to strengthen market stability by moving our health care system closer toward achieving universal coverage—and ensuring that both the cost of coverage, and of care itself, are affordable for families of all income levels.

Congress should enact a series of longer-term solutions to address these issues, including the following six priorities.

1. Expand and strengthen financial assistance with private coverage. The ACA’s income-based financial assistance with marketplace coverage—through premium tax credits and cost-sharing reductions—has been critical in helping lower- and middle-income families afford coverage and care. The vast majority of marketplace enrollees currently receive some level of financial assistance in purchasing coverage, and enrollment in marketplace coverage has led to significant improvements in access to care.^23,24

Despite these gains, however, further improvements to financial assistance are needed. Although financial assistance is greatest for those with low incomes, such households have little room to spare in monthly budgets, and numerous lower-income consumers who are eligible for coverage remain uninsured.²⁵ Eligibility for financial assistance is currently limited to those with incomes up to 400 percent of the poverty level, and people at the higher end of this income cut-off can still be expected to pay close to 10 percent of their income on premiums. Significant help with out-of-pocket costs through cost-sharing reductions is limited to people under 200 percent of poverty, and those without this financial help may struggle to afford increasing out-of-pocket costs. Further lowering both premiums and out-of-pocket costs for marketplace enrollees is critical to addressing remaining affordability barriers to enrollment. It is equally critical to ensure that coverage provides adequate financial protection to all marketplace enrollees.

Congress should work toward strengthening financial assistance with marketplace coverage so that it provides greater assistance with out-of-pocket costs such as deductibles, and also further reduces families’ premium contribution. This effect could be accomplished through a combination of multiple policy changes, including benchmarking premium tax credits to more generous coverage, reducing the percent of income that families are expected to contribute toward coverage, enhancing cost-sharing reductions, and expanding eligibility for assistance with out-of-pocket costs. Improvements to financial assistance with coverage are needed across the income spectrum of individuals currently eligible for such help. Congress should also look to expand eligibility for premium tax credits to people with higher incomes to ensure that across all income levels, premiums do not consume an unaffordable portion of families’ incomes.

2. Foster improvements to marketplace plan design and plan comparison tools. Congress can also play a critical role in expanding access to marketplace plans that improve affordability of care by exempting a significant portion of outpatient care and prescription drugs from being subject to deductibles.

These types of plan designs can reduce barriers to accessing at least certain types of care for people with significant deductibles. They could be particularly beneficial among plans at the silver level, given that premium tax credits are currently tied to this level of coverage.

Importantly, plans with no deductibles for more routine care could help attract a larger share of young people to the marketplace. Surveys show that younger and healthier people are looking for coverage that provides them with immediate value in return for their monthly premium.²⁶ Plans with significant deductibles and no or very minimal upfront coverage may actually be less attractive to this population, which generally does not anticipate facing medical costs exceeding their deductible amount. While this type of plan design may not be preferred by all consumers, consumers in every marketplace should have plan choices that offer such benefits.

Congress should consider legislative avenues to making these types of plan designs available across all marketplaces, particularly at the silver level of coverage. One option to consider is mandating that marketplace insurers offer at least one silver plan that includes lower upfront cost-sharing for a certain scope of care.

In addition, Congress should consider policies and funding to further improve marketplace plan comparison tools that help consumers compare plans based on their total estimated out-of-pocket costs, coverage of care pre-deductible, and other important measures of affordability that extend beyond the cost of premiums. Building on progress already made by marketplaces, existing tools on the healthcare.gov website should be strengthened to provide individualized estimates based on the particular health care needs of an individual. Marketplace websites should also create and feature tools to clearly distinguish plans that provide coverage pre-deductible, and identify in a standardized way those services that plans cover pre-deductible. Building these functionalities will help simplify the plan comparison experience, and also ensure that consumers are best equipped to judge the relative affordability and value of different plans.

3. Close the “Family Glitch” and other eligibility gaps. In order to move closer toward achieving universal coverage, we must close persisting gaps in coverage eligibility. To do so, Congress should work to close marketplace eligibility gaps that bar potential enrollees from the marketplace and financial assistance. This includes closing the “family glitch” so that workers and workers’ families with unaffordable job-based dependent coverage can access financial assistance for marketplace coverage. It also includes eliminating the ban on undocumented residents purchasing marketplace coverage, ensuring that all residents—that is, all health care utilizers—in this country are allowed to purchase coverage, regardless of their immigration status. Both marketplaces and the country’s overall health care system would be strengthened if all who could benefit were allowed to participate.

4. Establish permanent funding for consumer assistance and public education. As noted earlier, individual in-person assistance makes enormous improvements in enrollment levels, risk pools, and market stability. That is why the ACA requires each marketplace to offer “navigator” programs focused on outreach, education, application assistance, and post-enrollment assistance. The need for in-person assistance is unlikely to go away, as consumers will continue to need help with completing forms, learning what financial assistance is available, understanding how to use their coverage, choosing a plan, and transitioning between plans.

To ensure sufficient funding for enrollment assistance, Congress should make advance appropriations for consumer assistance and public education on a permanent, ongoing basis. Congress should also consider funding to test promising approaches that engage public- and private-sector agencies, such as those that help laid-off workers enroll in health coverage. Hands-on enrollment assistance greatly increases the impact of health coverage programs targeting laid-off workers;²⁷ such workers and their families may be the largest single group of eligible uninsured who have not yet signed up for coverage,²⁸ and they include numerous young adults.²⁹

5. Establish open enrollment periods that make it easier, not harder, for people to buy insurance. In addition to immediate concerns about the shortened open enrollment period for 2018, the current timeframe of open enrollment, spanning November and early December, is a more serious, long-term problem. During this time of year, agents and brokers are particularly stretched beyond capacity helping people enroll in coverage through open enrollment periods for Medicare Advantage and most employer coverage. This is also when household budgets are most depleted and financial stresses elevated, making it more difficult for many families to even consider buying insurance.³⁰

To address these challenges, Congress should change future open enrollment periods to overlap with income-tax filing season, starting in late January or February. During this time of year, many consumers receive income-tax refunds that put them on stronger financial footing. In addition, brokers and agents have fewer competing demands for help with health insurance sales. Scheduling the open enrollment period during tax filing season would also create new opportunities for tax preparers to help consumers complete the financial paperwork needed to apply for premiums tax credits for marketplace coverage.

6. Streamline and simplify enrollment by using electronic verification procedures. Policymakers should create easier and more streamlined enrollment processes to increase the number of consumers who obtain coverage, particularly among the young and healthy who are most likely to be deterred from completing enrollment due to burdensome processes. Building technical capabilities to verify eligibility electronically, rather than manually, is one important step toward streamlining enrollment.

Whenever possible, consumers’ eligibility for premium tax credits should be based on data from reliable third-parties, rather than documents produced by applicants. There are existing data sources, including the National Directory of New Hires and employer-reported coverage information, that could be leveraged to this end. Congressional action is needed to add these other data sources to the “federal data services hub” and authorize health insurance marketplaces and Medicaid programs to access this information to verify eligibility.

Last but not least, Congress needs to provide up-front resources that support building the technical support for a more streamlined and automated eligibility processes. The absence of appropriations forces HHS to delay IT investments that would increase accuracy, cut red tape for consumers, and allow more efficient operations.

Conclusion

Congress must swiftly move forward on bipartisan health reforms that protect the coverage gains made to date and provide the stability that is clearly needed in the marketplace. There is a clear path forward to address immediate threats to the marketplace and keep it on a stable footing: Securing funding for financial assistance, making upfront investments in programs to stabilize premiums, and authorizing funding for enrollment and outreach activities.

In the longer term, Congress should build on the coverage gains already made under the law and further strengthen the marketplace. Focusing these longer-term efforts on policies that improve affordability of coverage and care for those eligible for marketplace coverage, break down barriers to coverage for the remaining uninsured, and improve the enrollment process will benefit marketplaces and consumers alike.