Enrollees in Affordable Care Act (ACA) insurance plans are being buffeted not just by higher premiums but also by a marked decline in the quality of coverage available to them compared to what is offered in employer-sponsored insurance, a new study states.
While acknowledging many factors go into the selection of an individual health insurance plan, the study released in August by the Paragon Health Institute identified three characteristics that define value and motivate participation in insurance products: “the availability of provider networks with generous benefits, the cost-sharing structure that divides financial responsibility between insurance companies and enrollees, and the cost of premiums.”
Over time, structural weaknesses in the ACA have manifested themselves across these three characteristics and led to lower-quality plans being offered in the Obamacare exchanges, the study states.
The study, titled “It’s Not Just the Prices,” examines the value of individual-market health insurance products in the Obamacare exchange from 2014 to 2023 and compares the quality of these products to those in the larger employer-sponsored insurance group market.
Networks, Cost-Sharing, Premiums
The study found the percentage of consumers “enrolled in plans with broad provider networks declined from 36 percent to 11 percent from 2014 to 2023.” An increasing proportion of enrollees are in plans that resemble Medicaid managed care, the study found.
Cost-sharing can be a deal breaker for enrollees. As overall premiums have risen, “middle-income exchange enrollees with incomes above 200 percent of the federal poverty level were much more likely to choose a bronze plan than they were a decade ago (33 percent).”
Finally, “premiums in Obamacare plans have increased more rapidly—50 percent more—than employer plan premiums over the past decade,” states the study. Premiums can be an indicator of participation.
Quality Race to the Bottom
The study attributes the declining quality of Obamacare plans to structural elements of the ACA individual market framework.
“In particular, the ACA insurance rules caused premiums to increase and led insurers to offer narrower and more restrictive networks over time,” the study states. “The design of the ACA premium tax credits has also incentivized enrollees to select lower-quality plans. In addition, the ACA risk-adjustment program is overcompensating insurers for lower-income enrollees who enroll in silver plans, causing significant price competition for these plans and a race to the bottom in plan quality. Lastly, a variance in state enforcement of ACA rating rules further distorts and complicates plan offerings and consumer selections.”
Unacknowledged Mistakes
Recognizing the poor and declining quality of Obamacare plans is a necessary step in improving them, says the study.
Paragon recommends updating the ACA risk adjustment program to include “income-based” risk factors. Cost-share reduction subsidies should be based on actuarial values for all tier plans. The third recommendation is to expand employers’ ability to offer individual coverage health reimbursement arrangements, accounts funded by employers that employees own to purchase health care.
Market Damage
Although the ACA has resulted in lower-quality product offerings to date, this should not be considered an inherent feature of a federally regulated health insurance framework, Paragon says. Instead, it is the natural consequence of the ACA regulatory environment.
“In all health insurance markets, there is some incentive to buy less expensive coverage and save on premiums while absorbing higher cost-sharing exposure, but this incentive is uniquely strong in the individual ACA market with premiums proportionally inflated for all plans with flat-dollar subsidies,” the study states. “The proposed opportunities for reform will create a better-functioning individual market with stronger offerings to consumers and more efficient government subsidies.”
Systemic Distortions
Cushioning the blow of the declining value of ACA plans has been the large government subsidies that have been distributed to attract enrollees. Nearly half of ACA enrollees qualify for zero out-of-pocket premiums and little cost-sharing.
Instead of reducing the number of people without private health insurance, the ACA distorted financial incentives and changed “the characteristics of the U.S. population that was insured,” the study states. Far from living up to its original promise, the ACA wound up roiling health insurance markets in many unforeseen ways, the study suggests.
Jeff Stier, a senior fellow at the Consumer Choice Center, says he admires the Paragon report but believes the ACA cannot be fixed.
“Legislative or regulatory tweaks to fix the scheme’s distortions is a fool’s errand,” said Stier. “Like a game of whack-a-mole, in the absence of a truly market-based system, distortions will continue to appear far faster than they can be addressed … and will continue to wreak havoc on quality health care.”
Compounded Problems
Merrill Matthews, a resident scholar at the Institute for Policy Innovation, says the ACA is at the root of much of what troubles health care in the United States.
“Just consider that prior to passage of the ACA, Democrats complained that too many people had high-deductible policies, generally in the range of $2,500 per family, and millions of Americans didn’t have access to quality health care,” said Matthews “Today, the ACA’s bronze plans have a deductible in the range of $7,250, and double that for a couple. And many doctors and high-level health care providers, such as M. D. Anderson, won’t take Obamacare insurance.
“In other words, after a decade and hundreds of billions of taxpayer dollars, millions of Americans with Obamacare struggle with unbelievably high deductibles and still can’t see many doctors,” said Matthews.
Bonner Russell Cohen, Ph.D., (bcohen@nationalcenter.org) is a senior fellow at the National Center for Public Policy Research.