Plan quality is deteriorating as few doctors accept coverage.
Plan quality is deteriorating as few doctors accept coverage.
A ttempting to pivot from her previous support for “Medicare for All” and her call to eliminate private health coverage, Vice President Kamala Harris is embracing the Affordable Care Act (ACA). A couple of growing problems with the ACA — massive fraud and a preponderance of low-quality coverage — could undermine this pivot. At the debate on Tuesday, former president Donald Trump said that Obamacare is not good health care but that he does not yet have a fully developed health-care-reform plan. What follows is an outline of the main problems with ACA coverage and potential reforms that his administration could pursue if he wins the election.
Previous research by the Paragon Health Institute has revealed that millions of people have enrolled in the ACA exchanges under false pretenses to claim more subsidy than they are eligible for — leading to large windfalls for insurers, unscrupulous brokers, and call centers. This work led Congress to open an investigation and contributed to the Centers for Medicare and Medicaid Services’ suspending 450 brokers. A second major problem is now getting attention — the deteriorating quality of ACA plans. A comprehensive analysis by the Kaiser Family Foundation shows that narrow ACA-plan networks are now the norm, and a new Paragon research paper offers reasons for the decline in coverage quality and recommendations to improve the ACA.
ACA price controls are the central reason for the decline in plan quality. These rules require insurers to offer coverage at the same price for people of the same age regardless of their health status. As the Cato Institute’s Michael Cannon has written, this creates strong incentives for insurers to design products that are bad for sick people, and it has led to a deterioration of the quality of individual-market coverage.
One major determinant of health-plan quality is the number of doctors who accept the coverage. The new KFF analysis shows that ACA plans typically involve narrow networks — meaning that relatively few doctors and hospitals accept them. On average, ACA-exchange enrollees’ plans covered only 40 percent of the doctors near them. About 25 percent of exchange enrollees were in a plan that included fewer than one-quarter of doctors in their area, and 70 percent of enrollees were in a plan that included no more than half of the doctors near them. Primary-care physicians participate at particularly low rates. In some areas of the country, like Chicago, more than 80 percent of doctors do not participate in ACA-plan networks.
The KFF analysis found that people of color were more likely to have plans with an extremely limited choice of providers. The people most negatively affected are those who have the greatest medical needs. More than one in three exchange enrollees in fair or poor health reported that a particular doctor or hospital they needed was not covered by their plan, a rate that is more than twice as high as it is for those with an employer plan.
If plan members cannot find doctors willing to accept their coverage, how useful is that coverage? Since lower-quality doctors are more likely to participate in Medicaid, and there is a high correlation between Medicaid and ACA networks, it is likely that the doctors that participate in ACA plans are of lower than average quality. While people with ACA plans have financial protection if they go to in-network providers, that financial protection is less valuable when so few providers are in-network. If people go to out-of-network providers, they will typically be responsible for much higher bills, and their expenses will not count toward plan deductibles or out-of-pocket maximums. Therefore, the quality of the health care they have access to is low, and the financial protection they receive is diminished.
New Paragon research by actuaries Daniel Cruz and Greg Fann explains the proliferation of narrow-network ACA plans. They assessed the value of ACA plans from 2014 to 2023 and compared them with employer group plans on three dimensions: provider networks, cost-sharing, and premiums. Across all three dimensions, Cruz and Fann found diminishing ACA-plan quality over time:
(1) Provider networks: The percentage of individual-market consumers enrolled in plans with broad provider networks declined from 36 percent to 11 percent between 2014 and 2023. An increasing share of individual-market enrollees are now in Medicaid-managed-care-like plans.
(2) Cost-sharing: Enrollees with incomes above 200 percent of the federal poverty level were much more likely to choose a bronze plan in 2023 (54 percent) than they were a decade ago (33 percent). Bronze plans have actuarial values of 60 percent, meaning that plan enrollees pick up 40 percent of health costs on average.
(3) Premiums: Individual-market premiums have increased 50 percent more than employer-plan premiums over the past decade.
Cruz and Fann show how the ACA rules made higher-quality coverage relatively more expensive than lower-quality coverage, which is the primary reason for the migration from preferred-provider-organization plans to more restrictive health-maintenance-organization plans, as the figure below demonstrates.
One of Cruz’s and Fann’s key findings is that the ACA’s risk-adjustment program causes significant distortions that lead to lower-quality plans. Lower-income enrollees use much less medical care than the risk-adjustment model expects, so health insurers make large profits on lower-income enrollees. Lower-income enrollees overwhelmingly buy silver plans because they qualify for generous cost-sharing assistance, i.e., lower deductibles and co-payments, if they enroll in such coverage. According to Cruz and Fann, this causes “significant price competition for these plans and a race to the bottom in plan quality.” Narrow-network plans have proliferated as they are extremely price-sensitive, and low-quality plans have been made “free” by large subsidy expansions signed into law by President Biden. As a testament to this profound inefficiency: Insurers are receiving giant taxpayer subsidies that cover the full premium for many ACA-exchange enrollees who rarely, if ever, use health care and value the coverage at pennies on the dollar.
Cruz and Fann make several recommendations to improve the individual market without adding to the cost of the program: Improve the accuracy of the risk-adjustment program by adding income-based risk factors, appropriate the cost-sharing reduction program, end the silver-loading practice that has substantially raised premiums, and build on the Trump administration’s individual-coverage health-reimbursement-arrangement (ICHRA) rule. I’d also recommend giving low-income enrollees an option to receive a portion of their government subsidy as a health-savings-account deposit rather than as a direct payment from the U.S. Treasury to insurers. Paragon has outlined the latter potential reform in a policy proposal, “The HSA Option.”
ICHRAs enable employers to provide health insurance through a tax-free contribution directly to employees to purchase individual-market coverage. Cruz and Fann write that increased ICHRA adoption should improve the risk pool and create “a virtuous cycle of downward pressure on premiums attracting even more low-risk employer groups.” Moreover, “this should begin to influence the type of products offered on the exchanges, as insurers cater to the preferences of a larger population whose expectations are for options that resemble [employer plans] and have preferences that are not distorted by the structure of the PTC [premium tax credit].”
Leveraging employer and employee funds, rather than giant taxpayer subsidies, would improve coverage and guarantee that enrollees receive value from their health plans.