Are the ACA exchanges really in a death spiral? We asked the experts.

By Josh Zeitlin, Editor

On Wednesday, Humana said it's exiting all Affordable Care Act (ACA) marketplaces in 2018, Molina Healthcare announced it might do the same—and Aetna CEO Mark Bertolini declared that the exchanges are in a "death spiral."

Some Republican lawmakers, including House Speaker Paul Ryan (Wis.) have recently said the ACA exchanges are in a death spiral as well.

Are they right? And what might the future hold for the ACA exchanges as long as the law remains in effect? Here are four big questions that help explain what could happen next.

What's a 'death spiral,' anyway?

A death spiral is an actuarial term that refers to a cycle that occurs when enrollment—especially by young and healthy people–declines in an insurance market, perhaps because premiums are seen as unaffordable, the hassles of signing up for insurance are too great, or would-be enrollees simply doubt that they'll need health care.

Because younger, healthier people are cheaper to insure, their absence in the market causes premiums to rise. That leads even more young, healthy people to avoid purchasing insurance, which causes enrollment to further decline and the cycle to continue.

The ACA attempted to prevent such a death spiral by requiring nearly everyone in the United States to carry health insurance or pay a fee. But this provision, the so-called "individual mandate," has been controversial; many Republican lawmakers have advocated for its repeal, while some experts have argued that the fee for lacking insurance is too small to prevent a death spiral.

Does recent ACA news indicate a death spiral?

According to an October HHS report, premiums for silver-level health plans in states that used HealthCare.gov for enrollment increased by an average of 25 percent for the 2017 coverage year. And CMS earlier this month said federal exchange enrollment during the recent open enrollment period dipped slightly compared with last year.

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A rise in premiums and fall in enrollment certainly could be the first cycle in a death spiral—but experts told the Daily Briefing that it's far too soon to conclude that the exchanges are in major trouble.

"The difference between a death spiral and natural cycles in a market is that a death spiral doesn't stop, whereas natural cycles in a market can exist for a period of time and then straighten out," Jonathan Gruber, an MIT economics professor who consulted with the Obama administration on the ACA, told the Daily Briefing.

"The reason I think this is a natural cycle and not a death spiral is that once enough insurers exit profits will exist and new ones will enter," Gruber said. "In a death spiral, that wouldn't happen."

American Academy of Actuaries Senior Health Fellow Cori Uccello said, "What we know about enrollment at this time doesn't signal the degree of shrinking enrollment expected in a premium spiral."

Brookings Institution Fellow Matthew Fiedler in a recent piece argued that the ACA's subsidies insulate many Americans from the effects of premium increases, which should limit the degree to which young, healthy enrollees flee the system. He told the Daily Briefing that according to his analysis of the link between 2017 premium increases and exchange enrollment, "any effects of premium increases on enrollment must have been quite limited."

So experts say there's not currently a death spiral. But are the exchanges stable?

Some experts pointed to Humana's decision to exit the exchanges for the 2018 coverage year—and announcements by Aetna, Anthem, Cigna, and Molina Healthcare that they're considering doing the same—as evidence insurers may be giving up on the marketplaces.

Chris Holt, director of health care policy for the American Action Forum, said that the challenge for the ACA exchanges "is less that enrollment is spiraling downward than that enrollment never reached expected, or sustainable, levels in the first place from which to spiral down." He said, "The percentage of young adults in the market may be relatively stable, but it's well below the 40 percent share that HHS initially determined was necessary for market stability."

"It is not a sustainable mix," Holt said, adding that insurers are considering 2018 exchange exits because they are losing money and don't necessarily "expect to see that turning around in the near future."

Meanwhile, Fiedler said that "the most important factor" driving insurers' reticence about exchange participation is "the extreme uncertainty about what policy changes Congress and the administration will implement," particularly in regards to cost-sharing subsidies and the individual mandate. Absent that uncertainty, he argued, "the market would have been on a path to stabilizing."

"The rate increases insurers implemented for 2017—and the evidence that they did not have major negative effects on enrollment—imply that, in the aggregate, insurers should have been back in a roughly sustainable position in 2017 and beyond, absent policy changes," Fiedler said.

What are the other big questions going forward (as long as the ACA remains in effect)?

Experts suggested watching several key indicators to determine the exchanges' future viability.

Gruber pointed to enrollment. "The main thing to watch for is whether enrollment remains stable or starts to significantly decline," Gruber said. "In the latter case, we do have to start worrying about exchange viability."

Russell Davis, executive director of Advisory Board's Health Plan Advisory Council, said that the major "determinant of viability long term will be the subsidies." If Congress and the White House keep them in place, "the exchanges stand a good chance of surviving," he said—but without the subsidies, "it's game over."

For now, Davis said that while the exchanges "are in jeopardy," the Trump administration's recent proposal rule for the marketplaces "is a clear signal that the government and industry would like the exchanges to remain, at least for now."

Fiedler cited the degree to which uncertainty persists as an indicator of the exchanges' future. "If Congress and the administration could show that they intended to provide a predictable and workable policy environment going forward, then I think we could see the market stabilize. If not, then the upheaval could be significant and prolonged."

And Holt said incentives will be key. "The big question going forward is whether or not the administration and Congress can give insurers enough short-term incentives to keep them in the exchanges next year and in 2019 without dramatic premium spikes. Right now it's an open question."

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