It’s Not Just the Prices

Paragon has released a new paper this week, It’s Not Just the Prices: ACA Plans Have Declined in Quality Over the Past Decade. Two health actuaries, Daniel Cruz and Greg Fann, who have studied the Affordable Care Act (ACA) since it was enacted, authored this research. The timing of this paper is particularly apt given the attention focused on narrow network ACA plans, from a KFF analysis of ACA plan networks and a subsequent Wall Street Journal editorial on that analysis. Cruz and Fann’s paper provides further data showing the trend toward lower-quality plans, explains the trend, and provides recommendations for improving both the value of ACA plans and the function of the individual market without additional government subsidies.

Declining ACA Plan Value

Cruz and Fann found that the value of ACA plans has declined over time, with narrowing provider networks and significantly higher premiums and cost-sharing amounts.

• Provider networks: The percentage of individual market consumers enrolled in plans with broad provider networks declined from 36 percent to 11 percent from 2014 to 2023. An increasing share of individual market enrollees are now in Medicaid-managed-care-like plans.
• Cost-sharing: Enrollees with incomes above 200 percent of the federal poverty level were much more likely to choose a bronze plan in 2023 (54 percent) than they were a decade ago (33 percent). Bronze plans have actuarial values of 60 percent, meaning that plan enrollees pick up 40 percent of health costs on average.
• Premiums: Individual market premiums have increased more rapidly —50 percent more—than employer plan premiums over the past decade.

Health insurance offers less financial protection as the number of doctors and hospitals that accept the coverage declines. Narrow network plans result in people having greater difficulty obtaining appointments and many using out-of-network providers. Typically, people will have higher bills for out-of-network providers, and their expenses do not count toward plan deductibles or annual out-of-pocket maximums.

Risk Adjustment Program Problems

The ACA’s risk adjustment program is partly responsible for these problems. I have described the risk adjustment program in depth in a prior piece — one of my personal favorites — about the intricacies of the ACA, “The Obamacare Risk Adjustment Trap.”

The key observation from Cruz and Fann’s work: health insurers are making their ACA profits on lower-income enrollees because “the ACA risk adjustment program is overcompensating insurers for lower-income enrollees who enroll in silver plans.” Lower-income enrollees have significant financial incentives to participate in silver plans because they qualify for generous cost-sharing assistance, i.e., lower deductibles and copayments, only if they enroll in silver plans.

In effect, these lower-income enrollees are using much less medical care than the risk adjustment model expects. This makes them profitable for insurers. According to Cruz and Fann, this causes “significant price competition for these plans and a race to the bottom in plan quality.” Hence, the proliferation of narrow network plans as these enrollees are extremely price sensitive. Another problem: insurers are receiving giant taxpayer subsidies that cover the full premium for many ACA exchange enrollees that rarely or never use health care.

Recommended Reforms

Cruz and Fann make several recommendations that would improve the individual market without adding to the cost of the program. The first would be to improve the accuracy of the ACA risk adjustment program by adding income-based risk factors. They also recommend that Congress appropriate cost-sharing reduction (CSR) subsidies and build off the Trump administration’s individual coverage health reimbursement arrangement (ICHRA) rule that enabled employers to offer defined contribution amounts that employees can use to buy individual market coverage for themselves and their family members.

Cruz and Fann write that increased ICHRA adoption should improve the ACA risk pool and create “a virtuous cycle of downward pressure on premiums attracting even more low-risk employer groups. This should begin to influence the type of products offered on the exchanges, as insurers cater to the preferences of a larger population whose expectations are for options that resemble [employer plans] and have preferences that are not distorted by the structure of the [premium tax credit].”

Importantly, Cruz and Fann recommend that Congress not extend the enhanced premium tax credit, which they found to be very inefficient in a previous Paragon research paper and which has enabled massive fraudulent spending in the exchanges.

The Trend Toward Narrow Network ACA Plans

A primary health plan quality determinant is the number of doctors who accept the coverage. Here are some of the key findings from the KFF analysis that demonstrate how the ACA market is dominated by narrow network plans:

• On average, 40 percent of doctors participate in exchange plan networks.
• About 25 percent of exchange enrollees were in a plan with a network that included less than one-quarter of doctors in their area.
• Only 4 percent of enrollees were in a plan with a network that included more than three-quarters of area doctors.
• 70 percent of enrollees were in a plan that included no more than half of the doctors near their homes, with primary care physicians’ participation particularly low.

Unfortunately, many of the people most negatively affected by narrow networks and the ACA more generally are those who have the greatest medical needs. More than one-in-three exchange enrollees in fair or poor health reported that a particular doctor or hospital they needed was not covered by their plan, more than twice as high as the rate for those with an employer plan.

Upcoming Event

Finally, Johns Hopkins University’s Ge Bai is hosting a health policy conference on September 11 with opening panels that will feature Theo Merkel and me, Senator Bill Cassidy, Representative Kevin Hearn, and many of the other leading health policy experts in the U.S. You can register for the conference here.

All the best,

Brian Blase
President
Paragon Health Institute