American Experiment issues comments on federal proposal that would weaken health insurance markets and raise premiums
In late June the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would pare back several key policies put in place during the Trump Administration related to strengthening the individual health insurance market and improving the Exchanges. American Experiment recently submitted comments in opposition to most of these policies after finding nearly every policy put forward would only serve to weaken the individual health insurance market, limit state flexibility to improve their markets, and lead to higher, less affordable premiums.
With a new presidential administration comes new priorities and so it’s not a surprise that some change is afoot. CMS’s proposed rule is aimed at promoting the policy goals outlined in two key Executive Orders, EO 14009 on strengthening Medicaid and the ACA and EO 13985 on advancing racial equity. While the policies in the proposed rule certainly align with the new agenda coming from the White House, if finalized, they will not achieve the goals they aim to meet. The trouble with these proposals is they largely revert back to the failed policies put in place under the Obama administration that severely weakened the ACA-regulated individual health insurance market.
In January 2017, when President Trump began his term, individual health markets across the country were in crisis. Average health insurance premiums had nearly doubled since the ACA’s main regulations took effect, increasing from $242 in 2013 to $467 in 2017—a 93 percent increase in just four years. Issuers were fleeing the Exchanges. The number of issues offering coverage on HealthCare.gov dropped from 233 in 2016 to 160 in 2017—a 31 percent drop.
People all too often conveniently forget these facts, but this was the reality facing CMS in 2017 and it formed the basis for a new set of presidential priorities under Trump, focused on stabilizing the individual health insurance market. A key first step to stabilizing the market focused on tightening standards on individual market open enrollment periods to prevent people from waiting until they got sick before they enrolled in coverage.
The Trump administration then set to work to both improve the efficiency and operations of HealthCare.gov, the federal health insurance Exchange. This involved making strategic IT investments in the Exchange, including investments to establish new pathways for consumers to enroll through private web-brokers, as well as focusing Exchange resources on only proven outreach strategies versus ineffective Navigators and costly TV ads. These investments not only improved the consumer experience on the Exchange, but also reduced the cost of operating the Exchange allowing CMS to lower the user fee.
On top of these federal efforts, CMS and the Department of the Treasury issued new guidance in 2018 to give states more flexibility to innovate new state solutions to strengthen their markets through the ACA’s section 1332 waivers. These are waivers built into the ACA that allow states to waive certain provisions of law, but the Obama administration had issued guidance that basically limited states to developing waivers that mirror the ACA.
That’s not all that happened over the past four years to strengthen insurance markets and improve the administration of the ACA, but these are the key policies relevant to the new rule proposed by CMS.
Ironically, many critics of the prior administration cynically labeled these policies as Trump actions to “sabotage” the ACA. Quite to the contrary, these actions proved to deliver strength and stability to the ACA-regulated health insurance markets. The average premium for a benchmark plan on HealthCare.gov dropped for the third consecutive year in 2021. Issuer participation was also up for the third year in a row. The portion of counties in America with just a single issuer dropped from 50 percent in 2018 to 24 percent in 2020 and down to just 9 percent in 2021.
Clearly, the ACA-regulated market grew stronger from when Trump entered office until he left. This was no accident. The fact is, the Trump administration was focused on making the ACA work as well as possible. At one point Trump explained how we could do a bad job or a good job with Obamacare and he told Secretary of Health and Human Services Alex Azar to do a great job. Tightening the rules governing enrollment periods, investing in the Exchanges, and giving states more flexibility was all part of an overall strategy to make the ACA work better.
CMS’s proposed rule changes course. It redirects federal policy from making the ACA work better to making it worse by taking up the old policy agenda that left the individual market in crisis when President Obama left office in January 2017.
Loosening Enrollment Periods
The rules propose to loosen enrollment standards in two major ways. First, the rule would extend the annual open enrollment period (OEP) by four weeks, allowing people to enroll from November 1 to January 15 versus the current December 15 end date. Second, the rule would add a monthly special enrollment period (SEP) to allow anyone earning less than 150 percent of the federal poverty level (FPL) to enroll at any time during the year.
As noted previously, enrollment periods are an important tool to prevent people from waiting until they become sick to enroll. That’s why the Federal Employee Health Plan limits the OEP from November 9 to December 14, an even shorter period than HealthCare.gov currently offers. Most employers offer a similarly narrow OEP window to opt in or change coverage. In addition to an OEP, the ACA requires SEPs modeled after employer and Medicare plans to allow people to enroll in coverage if they experience certain life events, such as a marriage, birth, move, or loss of coverage. An open-ended SEP for anyone with an income less than 150 percent of FPL, coupled with the already lengthy and sometimes burdensome enrollment process, would without question cause many healthy enrollees to wait until they get sick to enroll.
Rules to tighten enrollment periods proved successful. After CMS finalized the Market Stabilization Rule in April 2017 and additional SEP policies in later regulations, premiums stabilized and insurers gained confidence to reenter ACA markets. Enrollment reports show people are maintaining coverage more continuously, meaning less gaming is happening.
Any move to loosen these restrictions risks turning back the gains made to strengthen the ACA’s market over the past few years. This would clearly be inconsistent with EO 14009’s directive to strengthen the ACA.
Raising the Exchange User Fee
CMS reduced the Exchange user fee charged to health insurers from 3.5 percnt to 3.0 percent for the 2020 benefit year and then reduced the fee to 2.25 percent for the 2022 benefit year. The Biden administration now proposes to increase the user fee to 2.75 percent to help fund higher spending on the Navigator program and consumer outreach and education. Because insurers pass this fee on to their enrollees, this increase would directly result in higher premiums.
Prior reductions in the user fee were made possible by making Exchange operations more efficient and by reducing wasteful spending on the Navigator program and outreach and marketing. The ACA requires Exchanges to establish a Navigator program to help people enroll in qualified health plans. Navigator performance did not justify prior spending levels. As CMS data show, Navigators were responsible for just 83,495 enrollments on the federal Exchange for plan year 2017—less than one percent of all enrollments—at a cost of $63 million. Outreach spending was similarly ineffective. Enrollment actually dropped for the 2017 benefit year when CMS boosted outreach spending on things like expensive TV ads from $51 million to $100 million.
The Biden administration has already committed to again boost spending on Navigators and outreach and marketing, which is clearly wasteful based on this prior experience. Moreover, even if this spending could be justified, excess user fee collections from prior years would fully fund this additional cost. While CMS previously noted these excess collections when explaining the reduction in the user fee, the agency ignored the existence of this funding source in their new proposal to increase the fee. Thus, the Biden administration appears ready to increase health insurance premiums regardless of the effectiveness of this spending and the availability of excess funds.
Repealing Exchange Direct Enrollment Option
HealthCare.gov initially launched in 2013 with a direct enrollment (DE) feature that allows a consumer to enroll directly in Exchange coverage through a private website maintained by an insurer or web-broker. But it was clunky and required the private website to direct people to HealthCare.gov for eligibility determinations and then redirected back to the DE website to finish. CMS introduced Enhanced Direct Enrollment in 2018 to allow consumers to enroll directly through issuers and web-brokers without the clunky redirect to HealthCare.gov.
EDE is proving to be an attractive enrollment option that delivers a better consumer experience. In only its second full year of operation, the EDE pathway doubled enrollments during the 2021 OEP, increasing from 521,000 to 1,130,000. Moreover, the EDE pathway attracted a higher proportion of new consumers. This demonstrates the importance and effectiveness of private sector incentives to bringing in new enrollments, which are critical to maintaining a healthy risk pool. EDE also increased the portion of consumers who made active plan selections, another key indicator of how the private sector more effectively engages consumers.
This evolution finally ushered in an Exchange vision that so many people talked about at the time the ACA passed—a vision of enrollment websites like Expedia or Travelocity and, importantly, a vision of competing Exchange enrollment websites driven to deliver a better consumer experience. Building off the success of EDE, CMS finalized regulations in January to facilitate the Exchange Direct Enrollment option (Exchange DE option) which provides a process for states to adopt a new Exchange model that relies on enrollment through multiple and competing private sector websites versus relying on a single HealthCare.gov platform.
Seven years of operating HealthCare.gov and state-based Exchanges revealed several disadvantages to relying on a single, centralized Exchange model. They can be costly and burdensome to create and operate. A single Exchange enrollment pathway tends to create enrollment chokepoints that can impose challenges and even failures when a large number of consumers come to enroll at the same time, such as the final day of the OEP. Finally, it’s more difficult for a single Exchange-operated website to keep up with the rapid pace of technological innovation.
Instead of a single Exchange-operated website, the Exchange DE option introduces multiple and competing enrollment platforms to take better advantage of innovations in the private sector to control costs and deliver a better consumer enrollment experience. This option strengthens the benefits EDE already delivers by creating stronger incentives for the private sector to participate in EDE. Since Exchanges were launched in 2014, the single Exchange-operated website model has crowded out the private sector. By removing the dominant public sector competitor, the Exchange DE option makes EDE the primary enrollment platform and draws in more EDE competitors to drive a better consumer experience.
Section 1332 State Innovation Waivers
When Congress passed the ACA, they included a provision to give states the flexibility to waive certain provisions of the law to develop and implement innovative state health programs. These Section 1332 State Innovation Waivers represent Congress’s recognition that states have always played a primary role in regulating insurance and administering public health programs.
Despite this clear congressional intent to give states a meaningful measure of flexibility, the Obama administration issued guidance in 2015 that severely limited this flexibility. Basically, the 2015 guidance only allowed waivers that mirrored the requirements of the ACA. The Trump administration issued new guidance in 2018, which replaced the 2015 guidance to give states the flexibility Congress intended. Much of this guidance was then codified in federal regulation in January.
The Biden administration now proposes to remove the recent codification of the 2018 guidance, claiming their proposal better aligns with their goal to strengthen the ACA and more closely fulfills congressional intent.
Quite to the contrary, the proposed rule would undermine congressional intent by reverting to a standard that explicitly requires any waiver to mirror the ACA’s requirements. Section 1332 of the ACA clearly allows a state to waive the law’s requirements on essential health benefits, cost-sharing, and actuarial value levels. Nonetheless, the proposal would require any state innovation waiver to meet these requirements. In effect, the proposed rule is saying Congress intended to allow states to waive certain requirements of the ACA so long as the state waiver fully meets the waived ACA requirements, which is nonsensical.
The provision of Section 1332 State Innovation Waivers is an incredibly important feature built into the ACA. Waivers give states the opportunity to explore and test out innovative approaches to achieve better outcomes than may be possible under the strictures of the ACA. By creating this opportunity for states to achieve better outcomes, this opportunity to waive the ACA’s requirements in a real sense strengthens the ACA. Consequently, limiting this flexibility weakens the ACA.
Overall, each of the changes in the CMS proposed rule would weaken the ACA. Despite the ACA’s many flaws, the Trump administration introduced several policies that brought insurers back to compete in the market, made premiums more affordable, and improved the enrollment experience for HealthCare.gov consumers. That said, much more needs to be done to make health insurance markets more stable and affordable. Some things can be accomplished through rulemaking, but Congress needs to step in to address other problems. Without a willing Congress, the Biden administration should be building on the successful policies CMS recently put in place, not scaling them back.