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The future of the ACA: will Aetna’s significant reduction on the individual exchange have an impact on the law?

Pending cutbacks in health insurance companies participating in the Obamacare exchange will have a substantial effect on many Americans.

Aetna, one of the largest health insurers in the United States, recently stated that they will no longer provide healthcare coverage on the ObamaCare Health Insurance Exchange Marketplace in 11 out of the 15 states where they currently operate.  Starting in 2017, Aetna will only sell coverage on the exchange in Delaware, Iowa, Nebraska, and Virginia.  The healthcare exchange is an online marketplace where consumers can compare plans from private healthcare providers or use a price calculator to determine if they qualify for Medicaid, Obamacare cost assistance subsidies, or the Children’s Health Insurance Program (CHIP).  There are three types of cost assistance on the healthcare exchange: (1)Premium tax Credits; (2) Cost Sharing Reduction subsidies; and (3) Medicaid/CHIP.

Aetna based their decision to leave the exchange on $430 million in individual policy losses over the past two years.  The company will continue to offer off-exchange policies in the states where it is pulling its exchange-presence.  The off-exchange policies are not eligible for federal subsidies, which makes those policies significantly more expensive for consumers.  Additionally, insurance providers do not have to provide the same “essential health benefits” to buyers purchasing policies outside of the state’s official healthcare exchange.

Every plan sold on a state’s healthcare exchange must include “essential health benefits,” which are statutorily defined as: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative services and devices, laboratory services, preventative and wellness services, and pediatric services.  However, states have the legal ability to require that additional benefits are included in the plans sold on that state’s healthcare exchange.

36 percent of all counties have only one or two insurers on the healthcare exchange.

United Healthcare—the single largest healthcare provider in the United States—is also scaling back its presence on the state health exchanges in Georgia, Arkansas, and Michigan.  According to the Kaiser Family Foundation, United’s exit from these markets could result in increased premiums for Alabama, Arizona, Iowa, Nebraska, and North Carolina.  United’s exit is projected to have the largest impact on rural areas.  Hypothetically, if United was to leave the healthcare exchange completely, approximately 1.8 million consumers would have only two insurers between which to compare.  Around 1.1 million would have only one insurer in such a scenario.  In a 2016 analysis of all 50 states and the District of Columbia, 36 percent of all counties have only one or two insurers on the healthcare exchange.

Currently, there are five major players in the United States health insurance industry: United HealthcareAetnaHumanaCigna, and Anthem.  As recently as late July 2016, Attorney General Loretta Lynch filed two antitrust lawsuits against Aetna’s proposed merger with Humana and Anthem’s proposed acquisition of Cigna.  Eleven states and the District of Columbia joined the suit by the Department of Justice challenging Anthem’s acquisition of Cigna, valued at $54 billion dollars.  Additionally, eight states and the District of Columbia joined the $37 billion suit against Aetna’s merger with Humana.  The proposed mergers would have left only three major health insurance companies standing from the original five.  Lynch stated that the mergers would cause a definite financial burden on Americans due to the loss of increased competition among insurers that helps to keep premiums down.

The Department of Justice stated that the mergers would harm all participants in the industry by “limiting price competition, reducing benefits, and lowering quality of care.”  Aetna’s recent reduction in ACA participation has raised questions about a possible connection between its healthcare exchange policy and its antitrust dispute with the DOJ.  The health insurance company did not publicly state that it was significantly reducing its presence on the marketplace until one month after the Attorney General, along with eight other states filed the antitrust complaint against Aetna.

With approximately 11.1 million people enrolled in Obamacare, the mergers that the Department of Justice is attempting to halt would have a significant impact on the market.  Like many other insurers, Humana will also be scaling backits presence in almost 1,200 counties across 11 states in 2017.

Rising costs are directly tied to the decision by many states not to expand Medicaid coverage. 

Originally, the ACA required states to expand their Medicaid coverage to adults with a household income up to 138 percent of the federal poverty level, a requirement that was stricken by the Supreme Court in National Federation of Independent Businesses v. Sebelius.   Sebelius allows states to opt-out of participation in Obamacare because the court found that it was an overreach by the federal government to withhold all Medicaid funds if a state failed to expand Medicaid to individuals making up to 138 percent of the federal poverty level.  The federal government argued that withholding all Medicaid funds for a state failing to follow the ACA’s new Medicaid rules was a valid exercise of Congress’ spending power.  However, in the wake of Sebelius, with insurance premiums rising across the board, the government has countered with the argument that rising costs are directly tied to the decision by many states not to expand Medicaid coverage.

Section 18071(c) of the Affordable Care Act states that reduction in cost-sharing can be achieved by “reducing the out of pocket limit” in cases where eligible individuals have a household income is between 100 percent and 400 percent of the federal poverty line.  In other words, individuals who make between $11,770 and $47,080 are eligible for the ACA’s subsidies.  According to Aetna, this group is sicker than expected, which upsets the financial risk at many health insurance companies.

Statistically, about half of the U.S. population accumulates 97 percent of health care costs, with the elderly and individuals with serious, long-term conditions producing the lion’s share of the expenses.  According to the Kaiser Family Foundation, people in the top one percent of healthcare spending total $95,000 a year in costs, with the bottom 50 percent of the expenditure population producing only three percent of the costs.  On average, the bottom 50 percent accrued only $253 a year in health care expenses.

Aetna CEO Mark Bertolini stated that it is impossible to provide affordable healthcare options “without a balanced risk pool.”  Some critics of Aetna’s choice to exit the ACA exchange have pointed out that the company’s operating earnings have increased 8.5 percent in the past year, with its revenue from Medicare and Medicaid programs continuing to grow.  Even outside of the government’s health care exchange, payments in cost-sharing arrangements withprivate insurers have risen, on average, from a $303 deductible in 2006 to a $1,077 deductible in 2016.  From 2004 to 2014, patient cost-sharing in employer-sponsored plans rose by an average of 77 percent, with average monthly payments by those same insurers increasing by 58 percent, illustrating a net decrease in beneficiary spending by health insurance companies.

Until a greater number of states opt in to the program, individual premium rates from private insurers are unlikely to stabilize.

Apart from subsidized premiums, consumers can save money through the ACA’s healthcare exchange with Premium Tax Credits that are paid to an individual’s insurer in advance to lower the consumer’s monthly premium on his or her insurance plan.  Essentially, the tax credits are based on income, with the purchaser’s monthly premiums caped at a range between two percent and nine-and-a-half percent of the household’s Modified Adjusted Gross Income.  For example, a household making at least 300 percent above the federal poverty line but not more than 400 percent above the federal poverty line would have their monthly premium caped at a 9.6 percentage of the individuals’ Modified Adjusted Gross Income.  Additionally, consumers can report life changes, such as the loss of a job, so their tax credit can be adjusted.

If a state does opt-in to Obamacare, they are statutorily required to establish a health benefit exchange that can be accessed via an internet portal.  Of the participants on the exchange, nearly eight out of ten marketplace enrollees receive premium subsidies as opposed to premium tax credits, which means that those enrollees are somewhat shielded from net increases in health insurance premiums if those participants continue to enroll in a low-cost plan.

Much of the ACA’s controversy stems from its requirement to maintain essential health coverage, which is a shared responsibility for qualified individuals and for employers.  Under 26 U.S.C. § 5000A, individuals must maintain “minimum essential coverage.”  Statutorily, minimum essential coverage includes a government sponsored program, an employer-sponsored plan, plans in the individual market, a grandfathered health plan, or other health benefits coverage.  The term “qualified individuals” is limited in 42 U.S.C. § 18032(f) to citizens and lawful residents, with incarcerated individuals excluded from the requirements of the ACA.  If a taxpayer fails to maintain such coverage, they must pay a taxpayer penalty, which the Supreme Court interpreted to be a tax in National Federation of Independent Businesses v. Sebelius.

One of the most significant causes of increased health insurance rates originates in a primary goal of the ACA: to prohibit health insurance companies from denying coverage to individuals with expensive, potentially serious pre-existing health conditions.  By including those individuals in participant pools, health insurers have attempted to stabilize rates while taking on greater expense and greater risk.  The ACA’s expansion of Medicaid to young, able-bodied, impoverished individuals was meant to alleviate some of the financial risk taken on by private insurers.  However, as of the beginning of 2016, only 32 states have opted to expand Medicaid coverage.  Until a greater number of states opt in to the program, individual premium rates from private insurers are unlikely to stabilize.  This will unfortunately cause consumers in some areas able to choose from multiple providers while enrollees in different areas left with policies from only one provider.

Meredith Ballard, Senior Staff Writer Emeritus
About Meredith Ballard, Senior Staff Writer Emeritus (15 Articles)
Meredith Ballard is a 2017 graduate of Campbell Law School and served as a Senior Staff Writer for the Campbell Law Observer. She is originally from New Bern, North Carolina and graduated from Appalachian State University in 2014 with a Bachelor of Science in Psychology. She is also a graduate of the Mira Foundation’s guide dog program in Quebec, Canada. After her first year of law school, Meredith interned at Disability Rights North Carolina, a protection and advocacy organization tasked with providing legal representation to individuals with disabilities. During her second year of law school, Meredith’s moot court team became regional finalists in the American Bar Association’s National Appellate Advocacy Competition. During the summer of 2016 Meredith will be interning at the North Carolina Medical Board. Meredith is a member of the Campbell Public Interest Law Student Association and her interests are in health law, disability law, and employment discrimination law.