Sunday, February 16, 2014

What would defunding the private option do to the Arkansas Health Insurance Marketplace?

Posted By on Sun, Feb 16, 2014 at 10:13 AM

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If nine senators are successful in defunding the private option, the most immediate result would be to end coverage for more than 100,000 Arkansans. But it would also have an outsized impact on the Arkansas Health Insurance Marketplace as a whole, with the potential down the road for higher premiums and less insurance companies participating. 

Remember, the private option uses Medicaid funds to purchase private health plans for low-income Arkansans, and those plans are bought on the Marketplace. That’s the same Marketplace where Arkansans who don’t qualify for the private option shop for individual private insurance, if they don’t get coverage through their work or a public program like Medicare. 

So far, according to federal data released this week, a little more than 21,000 Arkansans have selected a plan through healthcare.gov (through February 1). That’s the non-private option group. Meanwhile, around 85,000 people have completed the enrollment process into private plans on the Marketplace via the private option (more than 100,000 people have been deemed eligible and gained coverage; around 150,000 have applied, with many still being processed). 

So far, then, private-option enrollees make up around 80 percent* of the Marketplace. The number of healthcare.gov enrollees will grow as we get toward the March 31 deadline — the end of open enrollment. But private option enrollment will grow too — there are tens of thousands still being processed, and unlike healthcare.gov there is no deadline for private-option enrollees, who can sign up throughout the year.

In short, with the private option, the Marketplace in Arkansas looks pretty strong.  Without it, the enrollment situation (at least right now) would be dire, with the long-term sustainability of a robust market in some doubt. 

In addition to the size of the Marketplace, the mix of people matters. The private-option pool is significantly younger, lowering the median age by 10 years, according to Department of Human Services officials. Since age correlates with health risk, that’s good news for the makeup of the market. It is far too early to say anything conclusive about how healthy the private-option enrollees are compared to the rest of the market. In general, people at lower incomes may have more health risks. However, there are a number of reasons to predict that the private-option pool might be healthier, in addition to the fact that it’s younger. As part of the design of the private option, people deemed eligible are screened for health risk, and the ten percent determined to be the most medically needy are routed to the traditional Medicaid program. Part of the idea is that people with greater health needs are better served in Medicaid, but crucially, it also means that folks likely to have the highest health costs are kept out of the Marketplace. The private option pool leans healthier by design. Meanwhile, any time the total number of people signing up is very low, as is currently the case with the non-private-option healthcare.gov enrollment in Arkansas, there is a heightened risk of adverse selection, since the sickest folks are generally the most likely to sign up for health insurance — if enrollment is too low, it's unlikely that there will be enough healthy folks to spread the risk. Also, while some non-private-option healthy people may decide they don't want to pay for insurance (taking the risk that they'll stay healthy), healthy private option people have free premiums, so there's no reason not to sign up. 

The private option, in sum, gives the Marketplace most of its customers, who lean younger and probably healthier too. If all of those people are taken out of the Marketplace, insurance companies would lose out on a huge chunk of customers and be left with a risk pool that would likely be less attractive, which could lead to higher premiums in coming years. In fact, some insurance companies might begin to question whether it was worth staying in the Arkansas Marketplace; certainly insurance companies that the state is currently recruiting would be less likely to come in future years. 

“If the state does not fund the private option next year and the demographics shifted significantly, it could impact premium pricing,” QualChoice President and CEO Mike Stock said. Asked about whether this might impact QualChoice’s decision to stay in the market at all, he said, “Of course fewer people buying insurance makes the exchange a less attractive proposition for carriers, but we will take all of these factors into consideration as we look at our plans for next year.”

“Clearly it would have a substantial impact [on premiums]," Blue Cross Blue Shield spokesperson Max Greenwood said. “I think it would be very challenging to try to come up with affordable products. ... What impact each of these moving parts may have, I don’t know, and I think it’s probably too early to try even categorize it.”

Currently, four carriers — Arkansas Blue Cross Blue Shield, the national BCBS, Centene (selling under the name Ambetter) and QualChoice — offer plans on the Marketplace in at least part of the state. Blue Cross, of course, dominates the insurance market Arkansas, and a major question for the Marketplace is whether there will be enough of a dent in Blue Cross market-share domination to create real competition. Again, the private option is key. Centene and QualChoice are getting the overwhelming majority of their Marketplace customers via the private option, and the auto-assignment policy is ensuring that they have a base of customers with which to establish themselves and compete going forward. Interestingly, many private-option opponents, such as Sen. Missy Irvin, express serious concerns about Blue Cross's overwhelming market share. But by far the best tool to mitigate against that issue is...the private option! Take it away, and we'd likely see complete Blue Cross domination, and hard questions about whether Centene and QualChoice would stay in the Marketplace.

Looking ahead to next year: United has previously expressed interest in coming into Arkansas in 2015; two other carriers have expressed interest in coming in 2015 according Arkansas Insurance Commissioner Jay Bradford. The fate of the private option will of course factor in to those decisions. 

“The private option is very, very important to increasing the number [of customers in the Marketplace],” Bradford said, particularly in a relatively small state like Arkansas. “And it’s a younger group of people.” Bradford said the carriers both in the state now and those considering coming in are monitoring the political situation closely. “If you take 100,000 or more people out of the mix – younger people and guaranteed payments — that’s an attractive segment of the business, and if that went away, we would be less attractive to the commercial carriers.”

Bradford supports the private option, so take that with whatever grain of salt you'd like, but this isn't complicated: Carriers are more likely to participate if there are more customers.  

The other thing to keep in mind: Carriers must submit plans to the Insurance Department by June 1. The cloudy future of the private option could make setting rates for the next plan year very difficult and could spook carriers making a decision about whether to come in to Arkansas. This is one problem with a scenario in which the legislature leaves the fiscal session without a budget and the fight drags on into late spring or summer. From a policy standpoint, uncertainty about who the customers are as the deadline for submitting plans approaches would be a nightmare. 

Of course, there are people who might think that damaging the Marketplace by removing the private option sounds like a feature rather than a bug. Some anti-Obamacare diehards approach politics with an essentially revolutionary ethos. Anything that chips at Obamacare is a good thing, no matter the harm, and you can find no shortage on social media of conservative cheerleading for any bad news on the Marketplace. (See also the ban on outreach, an explicit attempt to curtail enrollment.)    

Here's the thing: The national healthcare law will not collapse because of premium hikes, less carrier competition, and less choices for consumers here in Arkansas. That's just bad news for the state, plain and simple. The practical result of harming the Arkansas Marketplace is to harm any Arkansan shopping for individual health insurance. 

* One wonky detail: A small portion of the private option (people who make between 100 and 138 percent of FPL) would be eligible for hefty subsidies to buy their own insurance on the Marketplace, but that's just 10 percent of the private option pool thus far, and of course there's no guarantee that all of them would choose to purchase insurance if they lost private-option coverage.  

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