Why Are So Many Insurance Companies Leaving the Exchanges?

Despite headlines, most insurers will still participate in 2017

Health insurers that are exiting the exchanges are doing so because they haven't been able to profit in that sector.
Health insurance carriers are profitable overall, but many are losing money in the individual insurance market. Creative-idea/Creative RF/Getty Images

The Affordable Care Act (ACA) created a health insurance exchange in every state. Most are run by the federal government, using Healthcare.gov, but 13 states run their own enrollment platforms in 2016.

Although the exchanges themselves are run by the state or federal government, the health insurance plans for sale in the exchanges are offered by private insurance companies. All of those companies are voluntarily participating in the exchanges, as there's no requirement that they do so.

And at least 18 health insurance carriers around the country have said that they will not continue to offer plans in the exchange in 2017.

This has generated a slew of headlines, and caused understandable distress for people who currently have coverage through the exchanges. In many cases, the carrier exits apply both on and off the exchange, which means that some people who purchase individual health insurance outside the exchanges will also have to shop around for new coverage at the end of 2016.

In Pinal County, Arizona—home to 400,000 people—there were no carriers slated to sell health insurance in the Arizona exchange for 2017 as of early September 2016. But the federal government and the Arizona Department of Insurance worked with carriers to remedy that situation, and Blue Cross Blue Shield of Arizona ultimately agreed to continue to offer plans in the exchange in Pinal County. As a result, every area of the country is expected to have health insurance options in the exchange when open enrollment starts on November 1.

Why Are Carriers Leaving the Exchanges?

In general, carriers are exiting the exchanges—or the individual market in general—because they're losing money on that segment of business. That doesn't mean they're not making a profit overall, since the individual market makes up a small percentage of the overall insurance market: About 6 percent of Americans had coverage in the individual market in 2014, while 49 percent had employer-sponsored insurance, 19 percent had Medicaid, and 13 percent had Medicare (private health insurers participate heavily in the Medicaid and Medicare markets, via Medicaid Managed Care Organizations, Medicare Advantage, and Medigap).

But despite the fact that a carrier might still be well in the black in terms of overall revenue and expenses, if a particular market segment—in this case, the individual market or the exchange market in particular—is losing money, it may not be sustainable for the carrier to continue to offer plans in that market.

Before the ACA took effect, health insurers in the individual markets in all but five states were able to use medical underwriting to determine which applicants would be offered coverage, and at what price. The result was that people with pre-existing health conditions were often unable to obtain coverage, but health insurers were able to easily manage their bottom lines. 

Now that coverage is guaranteed issue regardless of medical history, it's a different story. There's an individual mandate (ie, the shared responsibility provision) that calls for a tax penalty to be assessed when people go uninsured, but there are numerous exemptions from the penalty, and even when it's assessed, the IRS has no enforcement tools beyond deducting it from a tax filer's refund.

And while the ACA limits enrollment to an annual open enrollment period or a special enrollment period triggered by a qualifying event, the exchanges have been somewhat lax in obtaining proof of qualifying events. The result is that people enrolling outside of open enrollment are tending to have higher claims costs than people enrolling during open enrollment; the Blue Cross Blue Shield Association reported in early 2016 that medical service utilization was 55 percent higher among people who enroll outside of open enrollment.

The ACA provided some risk mitigation measures to help carriers transition to a guaranteed issue market and to make up for the fact that carriers had very little in the way of actuarial evidence on which to base their premiums in the early years of ACA implementation. But the risk corridor program ended up paying carriers less than 13 percent of what they were owed, which contributed to the demise of several CO-OPs at the end of 2015, and adversely impacted the finances of numerous other carriers across the country (here's more on how the risk corridor situation played out).

Hundreds of thousands of people had to shop for new coverage at the end of 2015, mostly because of CO-OP closures, but also because a handful of carriers exited the exchanges or the individual market. At the end of 2016, there will be a similar situation, but it's going to impact a lot more people since there are several national carriers involved. It's estimated that roughly two million people currently enrolled in exchange plans will need to pick new plans due to carrier exits. But there are 11 million people who have coverage in private plans through the exchange; for most, the carrier exits will not impact their coverage.

When Aetna announced in August that they would exit the exchanges in 11 of the 15 states where they currently offer exchange plans, they noted that their losses are expected to be about $300 million this year on their exchange business. Many questions have been raised about the fact that Aetna had also told the Department of Justice earlier this year that if the government blocked Aetna's impending merger with Humana, Aetna would pull out of the exchanges. Are they exiting because they're losing money, or because the DOJ did ultimately file a lawsuit to block the merger? In reality, it's probably a little from column A and a little from column B. But the end result is that several hundred thousand people will need new coverage in January, as their current plans will no longer be available.

UnitedHealthcare hinted in late 2015 that they might withdraw from the exchanges at the end of 2016, and they made it official in the spring of 2016. The carrier noted that they lost hundreds of millions of dollars on their exchange business in 2015 and 2016, and they've chosen to exit the exchanges (along with most of the off-exchange markets) in nearly all of the 34 states where they currently offer exchange plans. They will continue to offer plans in the exchanges in just three states: Virginia, New York, and Nevada (Nevada requires all of its Medicaid Managed Care Organizations to offer individual plans in the exchange as well, which is likely part of the reason UnitedHealthcare will remain in Nevada, as they have a Medicaid managed care contract with the state).

Humana is dropping most of its off-exchange individual market plans, but will continue to have on-exchange plans in several states. And several other carriers that offer localized coverage will be dropping out of the exchanges—or the entire individual market—in their respective states.

Will These Carriers Ever Return to the Exchanges?

Some of the exiting carriers might end up returning to the exchanges in the future. If they see the individual market becoming more stable, and if they feel that they can make money in that market, they may return. 

But federal regulations ban a carrier from reentering a market for five years following a full market exit. So if a carrier drops all of their individual market plans (including on and off-exchange plans) in a given state, that would be considered a full market exit, even if the carrier continues to offer group health plans in the state.

This is one of the reasons Blue Cross Blue Shield of New Mexico opted to keep one bronze off-exchange plan available in New Mexico in 2016, despite dropping their other individual market plans; they are now planning to return to the exchange in 2017, and by keeping a single plan available in the individual market in 2016, they avoided a full market exit and were therefore not banned from reentering the market. And although Cigna dropped out of the Florida exchange for 2016, they continued to offer off-exchange coverage, and are planning to return to the Florida exchange for 2017.

Some of the carriers that are exiting the exchanges at the end of 2016 are exiting the entire individual market in select states, while others will continue to offer off-exchange plans and avoid a full market exit. In states where a carrier exits the individual market altogether, a future re-entry will be delayed for five years unless the federal government relaxes the reentry requirements in the future.

What Do I Need to Do if My Carrier Is Leaving the Exchange?

If you have a plan through the exchange and it won't be available in 2017 because your carrier is leaving the exchange, you'll need to pick a new plan during open enrollment, which begins November 1, 2016.

If you don't return to the exchange to pick a new plan, the exchange will attempt to pick one for you, but there are no guarantees that you'll have coverage as of January 1. For 2017, there are new guidelines that allow the exchange—whenever possible—to pick a new plan for an enrollee when the insurer drops out of the exchange and the enrollee doesn't log back into his or her exchange account to pick a replacement plan. 

But your best bet is to log back into your exchange account and pick a new plan yourself. Doing so by December 15 will make your enrollment process as smooth as possible and ensure that you have coverage in effect as of January 1.

If your carrier is exiting the exchange, it's understandable if you're stressed and upset by their decision. It remains to be seen whether regulators and lawmakers will be able to incentivize carriers to join the exchanges in future years.

But there's still at least one carrier offering coverage in the exchange in every area of the U.S. for 2017. And although premiums are going up again, subsidies in the exchanges will offset premiums for people with income up to 400 percent of the poverty level ($97,200 a year for a family of four). For most exchange enrollees, the availability of subsidies and the fact that there will still be participating carriers in 2017 means that affordable health insurance will still be available.

Sources:

Centers for Medicare and Medicaid Services, March 31, 2016: Effectuated Enrollment Snapshot

Centers for Medicare and Medicaid Services, Uniform Modification and Plan/Product Withdrawl FAQ, June 15, 2015

Federal Register, Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2017

Kaiser Family Foundation, Health Insurance Market Reforms: Guaranteed Issue

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