S&P: ACA markets ‘fragile'—but not in death spiral

Despite claims by President Donald Trump, Republican members of Congress, and some insurance CEOs, the Affordable Care Act (ACA)’s health insurance exchanges aren’t in a death spiral, according to a Standard and Poor’s (S&P) analysis, which predicts the individual market is actually on a path to profitability in 2018.

The analysis is based on the performance of Blue Cross Blue Shield plans in nearly three dozen states between 2014 and 2016, the first three years the exchanges were open. S&P said its older prediction of a “five-year path to stability” still holds up, with medical-loss ratios improving in 2016 and Blue Cross insurers beginning to report a gross profit, turning to a loss after accounting for administrative costs.

Profits will come soon, according to S&P, with insurers getting close to breaking even in 2017 and then more reporting positive, “low single-digit” margins in 2018—but that’s assuming the ACA isn’t repealed or substantially changed and cost-sharing reduction (CSR) subsidies are maintained by the Trump administration.

“If there are significant changes to the individual market, or if CSRs are made null and void, the market essentially has to restart with a new set of rules,” S&P said.

It’s not an entirely sunny picture for the ACA markets even if the status quo is upheld. The analysis said it’s not “on a stable footing either” compared to the employer-sponsored market, with the risk pool smaller and needing more time to mature.

The other issue is insurer exits and the threat of some areas being left with no participating insurers on the exchanges. S&P expects some counties may face that reality, which the ACA doesn’t address. Republican lawmakers from Tennessee have proposed allowing customers in those areas to use their cost-sharing subsidies on off-exchange plans if no insurer participates, along with exempting them from the individual mandate penalty.

The key, according to the analysis, will be signals from HHS to insurers that the agency won’t seek to undermine the law in the absence of legislative action on repealing, replacing or repairing it.

“Clarification on the CSR subsidy, enrollment outreach, and enforcement of special enrollment periods and the individual mandate will top the agenda for the future stability of the individual marketplace,” the analysis said. “If insurers are uneasy regarding the future of the market, they may have to decide between adding an ‘uncertainty buffer’ to their pricing or—worst case—exiting the exchanges altogether.”

HHS has already been accused of undermining the law in those same areas since Trump took office. One of his first acts as president was to order federal agencies to offer as many exemptions to the individual mandate as possible. Soon after, HHS canceled ads encouraging people to buy coverage on the exchanges in the final week of open enrollment, which was partially blamed for a drop in signups for 2017.