U.S. Health Law Faces Critical Year

Significant spikes in premiums, insurer dropouts and persistently low enrollment numbers are combining to make this fall’s sign-up period a crossroads for the Obama administration’s signature health law.

Federal officials characterize the turbulence as temporary. At the same time, the administration is making a push in its final months to shore up the law by trying to sign up healthy people who are critical to the law’s sustainability but have so far rejected insurance. That push will take place against a backdrop of elections that will shape the law’s future.

Since the main parts of the law went into effect in late 2013, the uninsured rate has dropped to historic lows, a fact confirmed by fresh figures from the Centers for Disease Control and Prevention on Wednesday. Millions of Americans have coverage through a government program such as Medicaid, or subsidized private coverage through a site such as HealthCare.gov sold, for the first time, without exclusions based on pre-existing conditions.

But that doesn’t translate directly into success for the individual health insurance market. Indeed, without better enrollment in private coverage for 2017, premiums will likely rise further and the insurers in the program will find participation even less appealing. Their proposals for increased rates across the country already reflect the assumption that the law’s offerings are most attractive to people who are sick and likely to incur large medical claims. Premium increases and limited choice of health plans can themselves impede sign-ups from all but the most desperate, creating a vicious circle sometimes referred to by health-insurance experts more ominously as a “death spiral.”

“It’s a critical year ahead both in a business perspective and from a political perspective,” said Drew Altman, president of the Kaiser Family Foundation, a health-care think tank. “The bottom line is that enrollment numbers need to go up.”
Many experts characterize the condition of the market for people who buy coverage on their own under the law as serious. Each, though, said its decline into a critical state would likely be slowed and could be reversed by policy changes in a new administration.

“I do not think we’re in one [a death spiral] at the moment,” said Caroline Pearson, senior vice president at Avalere Health, a consulting firm. “We’re vulnerable.”

Health and Human Services Secretary Sylvia Mathews Burwell acknowledges that the coming year is an important one, but characterizes it as a “transition” period.

One indicator will be the health of the population in the individual market. Insurers had assumed that sicker people would sign up first, followed by healthy enrollees soon after. That hasn’t been borne out in the current data, which indicate that the health of the population of people who have coverage through HealthCare.gov or directly from an insurer has remained largely steady since the law’s rocky launch in the fall of 2013.

The individual market, overhauled under the health law to require insurers to sell to everyone regardless of their health history, is made up of approximately 10 million people who get coverage from HealthCare.gov or a state equivalent, and another group who buy coverage on their own outside the system. People in the first group typically have federally funded subsidies pegged to the cost of coverage that can blunt the impact of premium increases, and stave off a rapid deterioration in enrollment. People who buy coverage on their own outside the site don’t, and some estimates put their numbers as roughly similar to those who use HealthCare.gov.

This latter group’s participation in the market is as critical as people who get subsidies—if not more, because actuaries typically assume that wealthier people enjoy better health.

To turn things around, the Obama administration is putting much of its faith in its ability to persuade more healthy people to sign up in the coming open enrollment period that starts Nov. 1.

“Rate increases are something we’re obviously concerned about as well, and doing everything we can to put downward pressure on them,” Ms. Burwell said.

But even supporters caution that the lessons of the past three years have been that enrollment is time-consuming work being done on a shoestring budget—and there are few winning messages to offer cash-strapped consumers who see insurance as a luxury product when they can find ways to cobble together care when needed.

“As long as people believe that free and reduced-cost care is available when they need it, it’s a problem getting them to spend $50 a month,” said Tim Jost, a professor of health law at Washington and Lee University.

Ms. Burwell said the administration was making it a priority to find ways to enroll and retain young and healthy people where it could, including improving its ability to resolve instances in which the federal government cannot confirm data involving an individual’s income or immigration status, two factors that have booted hundreds of thousands of people from their coverage. She suggested people who are ill are motivated to resolve those issues more quickly.

“If you have a data issue and you’re not well, you’re going to work hard to get it resolved right because you need your coverage. If you have a data issue and you’re kind of well, it’s like, ‘Oh gosh, I’ve got to find that form, I’ve got to do that…’ And so these are important things from a risk pool perspective,” said Ms. Burwell.

She said her agency would time its messages to people under 35 around key sign-up dates. “Those people work on deadlines like you’ve never seen,” she said.

She also said HHS had enlisted the Internal Revenue Service to contact people who paid a penalty for going without coverage in 2015, and may be on course to pay a higher one for 2016 too. She said the aim was to persuade them to sign up for 2017 coverage, rather than waiting for them to learn about the increasing penalty when they file their taxes in March or April, at which point the deadline for 2017 enrollment will have passed.

Federal officials have also tightened rules designed to help insurers. They will tweak the so-called risk-adjustment formula by which insurers with the costliest customers are compensated by others.

In addition, they have limited the ability of enrollees to sign up outside of the enrollment window out of concerns that the system was being abused by people who suddenly fell ill and are also attempting to cut off short-term medical plans that kept healthy consumers out of the individual market.

Insurers say those have been small aids. But bigger changes will likely require hefty political wrangling among lawmakers from both parties in the new Congress and administration—the biggest unknown variable for next year.

Liberal supporters of the health law have called for bigger subsidies, available to more people, which could help them buy into the insurance pools and stabilize them. They also want an extension of the law’s three-year reinsurance program to cushion health plans against the need for a fresh round of premium increases. Some conservative thinkers, meanwhile, have set out ideas to make insurance cheaper and therefore more attractive for younger buyers, as well as paring back some of the benefits that drive up its cost.

That and almost every other course of action will likely come down to the election outcome in November, and the weeks that follow. The first batch of enrollment numbers will likely be public by the time the next president is inaugurated. The final sign up deadline, however, will come later, on Jan. 31, 2017.

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