January 8, 2014 Kim Krisberg 1Comment

With so much pressure on the Affordable Care Act to immediately live up to high expectations, and with opponents who seem gleeful at the news that Americans are having a hard time signing up for affordable health care, it’s reassuring to read that the health reform law can readily take a few blows and keep moving forward.

In a December analysis released by the Urban Institute, authors Linda Blumberg and John Holahan write that the “Affordable Care Act is unlikely to suffer long-term damage even if the marketplaces experience low enrollment and some adverse selection in the first year.” (Adverse selection is the disproportionate enrollment of higher-cost individuals versus healthier individuals who use less health care.)  For one, the analysis notes that policymakers anticipated some adverse selection, so it’s not a surprise. Plus, the authors note that the law has mechanisms in place to adjust for such a possibility, such as enticing lower-income residents, who are often young and healthy adults, with lower premiums and subsidies to enter the insurance marketplace. In other words, low enrollment today does not equal adverse selection tomorrow and it certainly doesn’t spell doom for the ACA. The authors write:

Affordable premiums have been filed by insurers in most areas throughout the country. While some areas have seen high premiums, competitive pressures heightened by the ACA, including greater transparency of plan offerings and prices, increased comparability of plans, and incentives to be one of the two lowest priced plans in an area (the second lowest cost plan is the one to which federal financial assistance is targeted) have led to many plans setting premiums at lower-than-anticipated levels. These premiums and plan options will continue to be available in 2014, even in the event of lower-than-expected enrollment and insurer concerns that those enrolling may be older and more costly than predicted.

The ACA also has built into it a feature known as “risk corridors.” From 2014 to 2016, the risk corridor will redistribute funds from Health Insurance Marketplace plans with lower-than-anticipated costs to plans with unexpectedly higher costs. The purpose of the corridor is to help ensure stability in a time when the health insurance market is in the middle of a massive transformation and the initial learning curve among consumers is steep. It gets insurers through the early rough patch and safely intact out on the other side.

Another concern the Urban Institute analysis addresses: Some think if insurers within the new marketplaces do incur adverse selection and associated costs, they’ll disproportionately increase their premiums in 2015 to adjust for their losses, which would in turn lead to higher federal subsidy costs, falling enrollment and even more adverse selection. (Sounds like a vicious circle.) But Blumberg and Holahan argue that that prediction “ignores the competitive pressures on insurers in many markets and the importance of federal financial assistance. …(increasing premiums) could put (insurers) at a competitive disadvantage in gaining market share and a strong foothold in the type of market in which they had intended to compete.” In conclusion, the authors allude to the fact that negative predictions based on the marketplace’s less-than-stellar start hardly seal its future.

On the other hand, another Urban Institute study — this one published in this month’s issue of Health Affairs — found that more than 60 percent of residents targeted by new health insurance exchanges may not understand key insurance concepts. Based on findings from the Health Reform Monitoring System, which debuted last year to capture timely information on the Affordable Care Act (as opposed, to say, waiting for Census data to come out), the study found that just 23.6 percent of uninsured, nonelderly adults were confident in their understanding of a list of nine insurance terms, such as premium, deductible, co-pay and covered services. That percentage went up to nearly 50 percent among insured adults.

Younger people — those ages 18 to 30 and the ones that policy-makers really want to enroll in the marketplace to balance out the needs of costlier enrollees — had a notably harder time understanding insurance terms, especially in regard to premiums. Lower levels of understanding were also found among Spanish speakers and people with lower levels of educational attainment. In turn, the authors said the study underscores the need to target assistance and support toward those with low health insurance literacy.

“Confusion around these concepts would make it difficult for consumers to understand trade-offs between different health insurance plans and to choose the insurance plan that best meets their need,” the study cautioned.

To download a copy of either Urban Institute analysis, click here and here.

Kim Krisberg is a freelance public health writer living in Austin, Texas, and has been writing about public health for more than a decade.

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