Q&A: UCLA professor says ACA exits more politics than death spiral

With large insurers like UnitedHealthcare and Humana announcing their departure from the health insurance marketplaces, and some remaining insurers proposing bigger-than-expected increases in premiums, there are health experts who predict the Affordable Care Act is sending the industry into a so-called death spiral.

UCLA Center for Health Policy Research Director Gerald Kominski, PhD, would argue otherwise.

Kominski spoke with HealthExec on why he believes the current marketplace issues don’t fit the definition of a death spiral and what he thinks is really behind insurers exiting exchanges.

HealthExec: Did policymakers see departures of insurers like Humana and UnitedHealth coming?

Kominski: I think there’s a predictable element to it because there’s a strong political component to this. The insurers are basically lobbying for continuation of reinsurance payments that have been made in the first few years of the ACA, and the fact that these are scheduled to stop means that the exchanges are going to be less profitable and slightly riskier than the first two or three years. In that sense, it’s very predictable.

HE: Do these departures amount to a “death spiral"?

Kominski: This is not a death spiral. This isn’t being caused because the exchanges were flooded with really sick people, really high-risk people, [whom] insurers couldn’t handle. In fact, the evidence across most of the country is just the opposite, that the enrollment in the exchanges represent kind of a balanced mix of risk, much like you would expect in any insurance market.

So this is more about trying to put pressure on Congress to continue additional subsidies that go directly to the insurers.

HealthExec: What would a death spiral look like, and how is that different from what’s happening now?

Kominski: In economics and in insurance markets, it refers to what’s known, technically, as adverse selection, and it basically occurs when the only people who are interested in signing up for insurance are the people who are most likely to use it.

Not just health insurance, but all insurance works on balancing risk. If the only people who bought car insurance were people who were reckless drivers, then the cost of auto insurance would be extremely high and the higher it got, the more people would drop out of the marker and the price would continue to go up because the only people left would be the people who were really expecting extremely high claims.

So we’ve seen this happen in insurance markets. There are examples in California and even in the [University of California] system where certain health options were offered to employees. The only people who wanted to buy that option were people who were very, very sick.

We had a policy about 15 years ago, a high option policy, that cost almost $30,000 out-of-pocket and there were still people who were buying that policy. You can do the math. If I’m willing to spend $30,000 a year in premiums for an insurance policy, what do you think my expected claims are going to be? Well above $30,000, and so that policy underwent a death spiral and ultimately was no longer offered.

That’s not what’s happening in the insurance markets. The symptom of a death spiral is rapid disenrollment from plans because of rapid increases in premiums and segmentation of risk. The only people willing to stay in the market are the ones who are extremely sick.

There’s no evidence that that’s what’s going on. This is a political game of brinkmanship that’s going on, by large insurers who are trying to basically use their market power to bully Congress to continue to provide subsidies to maintain their profits.

HealthExec: Then where does the market need to get to so insurers wouldn’t be pushing for subsidies like reinsurance?

Kominski: That’s a good question. No one likes to give up subsidies. So where does the market need to get? It’s a little difficult to say what it would take for large insurers to say ‘Look, we’re in the health insurance business, that’s our primary goal, and we need to figure out how to make money in this market.’

Now, in most industries, in most sectors of the economy, you either raise prices or you find ways of achieving lower cost. Both of those options are available to large insurers.

And by the way, we’re not talking about the marginal insurance companies. We’re talking about some of the biggest companies in the U.S that have revenues of, in some cases, hundreds of billions of dollars. So why is it that some of the largest health insurers—not just in the U.S., in the world—why is it they suddenly have been puzzled about how to make this market work for them?

HealthExec: Is there a break between large and small insurers on performance in the ACA marketplace? Is it as simple as saying large insurers don’t know what to do in this market and small insurers do?

Kominski: I would say that what we’re getting is publicity about the largest insurers because they have the most clout politically. Their threatening to leave the market gets Congress’s attention.

Here in California, we have a few insurers which participate in the exchange that are relatively small but nevertheless play an important function in local markets. So for example, we have a nonprofit insurer in Los Angeles County known as L.A. Care. L.A. Care is an extremely important safety net provider [and] has served the Medicaid population in Los Angeles County for a couple decades probably, and now they’re an important player in the exchange in Los Angeles County.

They don’t serve the entire state. It’s local. They serve one market, but it’s one of the largest markets in the country [with] 10 million people in Los Angeles County. Their threat to leave the market is not going to have the same impact on Congress as United or Humana.

HealthExec: There are companies that say they’re going to expand their exchange business in 2017. Are there common elements to the insurers which are succeeding on the exchanges?

Kominski: I can’t find that. I just don’t think there’s a commonality there.