Updated: Dec 29, 2020
“I think it’s probably the thing that I’m most disappointed…that I haven’t been able to say what a good job we’ve done. I haven’t been able to sell what a great job we’ve done.” – President Donald Trump on the Affordable Care Act, Fox News Town Hall, March 2020
President Trump assumed his office in 2017 with consensus expectations that the Affordable Care Act (ACA) would be repealed and that its troubled marketplaces would be dissolved. After four years at the helm, it is clear that legislative repeal was not a singular solution as ACA markets have been vividly reshaped, more insurers return to the improving environment each year, and consumer popularity is at a record level. Most of us know that the president has been very active on the regulatory front, but perhaps we are unaware of the mechanical details of his policy actions and the responses of states, insurers and consumers.
How did a president who repeatedly called the ACA “a disaster” inherit the law at its lowest point and revitalize markets to their highest point in a tetradic presidential term? Are the rapid improvements accidental or intentional? I get asked the second question more often than the first; as the convoluted market dynamics are often elusive, it is probably a little of both but ascribing personal motivations is outside my specific expertise. I can, however, confidently answer the first question in excruciating detail that would bore you, but a transparent summary of consumer cost is sufficient to explain the ‘worst to first’ transformation and that is the subject of this article. A basic layout of health insurance markets and the ACA framework will help get us started. Ultimately, a retrospective comprehension of Trump policies and the dynamic improvements in ACA markets may help guide future policy considerations.
The ACA Experience
The implementation of the ACA impacted everyone differently, and individual perceptions of the law are related to private experiences as well as personal viewpoints of the appropriate government role in health care and underlying sentiments regarding the contentious legislative development in 2010. Business owners and physicians have told me of nonsensical new challenges borne from the law, while others have expressed ways that the law has aided their operations. While there are many facets of labor, macroeconomics and health care delivery that cannot be discounted in a holistic assessment of the ACA’s impact, our limited focus is on consumer experience in private insurance markets under both “Obamacare” (the ACA through 2017) and “Trumpcare” (the ACA environment modified with Trump administration regulations), and insurer’s eagerness to support such experiences. The individual marketplace is at the core of the ACA’s reforms and the ACA’s future relies on the long-term effectiveness and sustainability of this ‘market of last resort’. Analyzing ACA market attractiveness requires a simple but fundamental comprehension of the value proposition of health insurance.
Health insurance, by nature and design, is a bit more complicated than other forms of insurance which are essentially risk/reward financial transactions to protect purchasers from unexpected losses. Health insurance claims are less “unexpected” and not as cleanly regarded as “losses”, there are more frequent transactions, and insurance coverage requires acceptance and understanding of medical provider networks. Even still, it is helpful to assess the value of health insurance from the same financial value viewpoint that applies to other forms of insurance: “Is the premium a consumer is asked to pay justifiable in relation to the benefits provided and the risk aversion of being medically insured?”
Some of us are uneasy with the premise of this question and believe that procurement of health coverage is an essential requirement for all Americans that should not be relegated to an individual cost/benefit financial consideration. Without entering that philosophical debate, we can all acknowledge that many Americans (about 10%) are uninsured, many others are currently insured but dissatisfied with their personal costs, and that a reduction in personal costs without a corresponding reduction in benefits is logically beneficial to consumers and leads to more attractive markets.
It is from this basic financial value vantage point that we contrast Obamacare and Trumpcare. As mentioned, personal experiences are varied so aggregate results will not necessarily align with individual consumers’ value propositions. Millions of Americans have been helped and millions have been harmed by the ACA; if you are resistant to acknowledging both impacts, you will have a difficult time understanding and appreciating the financial value comparisons demonstrated in this article.
The ACA, to its credit and unlike many recent proposals, was strategically designed to benefit specific population groups who were disproportionately uninsured. Naturally, inherent tradeoffs in the deficit-conscious legislation disadvantaged other groups of people. Specifically, the ACA was more beneficial to people with four general characteristics: older, sicker, lower income, and living in areas (often rural) of high health care costs. Other Americans were often penalized with more expensive premiums and lower quality coverage. I have discussed each of these characteristics in other articles, but an income-based comparison provides the clearest explanation of the relative market attractiveness for various individual market cohorts and an understanding of distinctions between Obamacare and Trumpcare.
While government programs such as Medicare and Medicaid provide health coverage for about 35% of United States residents, most insured Americans are covered through private markets, either through group (usually employer-based) or individual coverage. A large majority receive coverage through large employers. Smaller proportions of Americans are insured through small group coverage or individual market coverage. The next section compares the relative consumer value of large group, small group, and individual market coverage under the pre-ACA market environment, Obamacare and Trumpcare.
The Medicare Model and the Five Cohorts
While ACA markets were novel in many respects, federal management of competitive health insurance markets was not without precedent. Eight years before ACA marketplaces were implemented in 2014, another new marketplace went live. It became known as Medicare Advantage.[i] It was an innovative private alternative to traditional Medicare. Participating insurers agreed to cover the cost of enrollees and the federal government agreed to pay roughly similar premiums to the insurers that would be paid as traditional Medicare claims. The value that insurers had to provide was clear; not only did they need to be attractive relative to their competitors, but they needed to provide premiums and benefit levels that were attractive relative to traditional Medicare. There was in effect an established measurable benchmark of cost and satisfaction. A Medicare Advantage marketplace that was unable to provide the same value as Medicare would cost more and not be well-received by Medicare-eligible individuals.
The popular Medicare Advantage framework served as a model for the ACA individual marketplace, both in terms of insurer interaction with the federal government and risk mitigation mechanisms. The federal financial support in ACA marketplaces necessarily differs from Medicare Advantage as there is no built-in mirrored option that provides a comparable benchmark or a baseline of reasonable financial support. There was a pre-ACA private individual market, but the benefit designs and rating practices are not comparable and have been mostly overwritten by the ACA; there is a limited remaining market of grandfathered and transitional plans not accessible to new market enrollees.
The individual marketplace has historically been small, consisting of about 10 million people, about 6% the size of the group market. Many individual market enrollees transition from group market coverage or have basically familiarity with employer-sponsored products; consequently, private group insurance may be the default frame of reference that sets value expectations. Since World War II, the group insurance market represents the status quo of private health insurance and it is useful to consider the value of individual market coverage relative to group markets in assessing reasonableness of value.
Almost all large employers offer health insurance to their employees, and they usually offer richer benefits and contribute a larger percentage of premium than small employers. Expectedly, satisfaction with health insurance is greater among employees and dependents of large employers. There are obviously no “employer” contributions in the individual market, but the ACA provides federal premium subsidies through an income-based model. These subsidies shrink as income rises and there are two notable income breakpoints in the ACA legislation. Consumers with incomes above 400% of the Federal Poverty Level (FPL) are ineligible for premium subsidies; consumers with incomes between 100% and 200% of the FPL are eligible for generous cost-sharing assistance in addition to premium subsidies. Accordingly, the Obamacare / Trumpcare value assessment compares the cost of five cohorts of people:
1. Large Group Market
2. Small Group Market
3. Individual Market (100 - 200% of FPL)
4. Individual Market (200% - 400% of FPL)
5. Individual Market (Over 400% of FPL)
The chosen value measure “Net Consumer Cost” normalizes benefit differences between markets and cohorts to enable fair market comparisons. Net Consumer Cost represents the gross health costs (premium and anticipated cost-sharing) minus any third-party assistance. The third-party assistance includes employer contributions in the group markets, and premium and cost-sharing subsidies in the individual market. For purposes of this illustration, cost in the Small Group market is the “1.00 benchmark”. Hypothetically, it may be reasonable to aim for individual market attractiveness (cost below 1.00) to surpass the Small Group market but remain less attractive than the generous employer-subsidized Large Group market.
The Cohort Costs
The table above illustrates the Net Consumer Cost differences between group markets, and the three income cohorts in the individual markets under Obamacare, Trumpcare and the pre-ACA environment. Neither Obamacare nor Trumpcare had significant impact on group markets, so their cost relativities are predictably static. As expected, Net Consumer Cost increases with income under both Obamacare and Trumpcare. Overall, the individual market (“All Incomes”) is more costly than the Small Group market under Obamacare and less costly under Trumpcare. It should be noted that these comparisons represent national averages and significant individual market differences exist across states.[ii]
Each of the individual market income cohort relationships can be logically explained. Individuals in the ‘100-200% FPL’ cohort receive very generous ACA subsidies and this is the only individual market cohort with ACA costs below Large Group. The Trumpcare impact is largely neutral[iii] for this population that was well-served by Obamacare.
The ‘200%-400% FPL’ cohort is the population that benefitted the most from Trumpcare. Net premium costs were significantly reduced for this population and will continue to decline with ongoing Trumpcare implementation. States have responded at different speeds and some have actually regressed since 2018 and raised compliance questions. Notably, some state markets are not much better under Trumpcare while others have significantly lower costs than the national average displayed in the chart.
Ultimately, all states will reach a Trumpcare market equilibrium, and Net Consumer Cost will continue to shrink relative to Obamacare during the transitional phase. Recognizing Trumpcare benefits, various degrees of insurer resistance, and an odd assortment of Metalball games, some states have sought to accelerate the timeline toward market equilibrium. Wyoming reached equilibrium out of the gate in 2018, Virginia implemented a rule in 2019, Maryland has continuously optimized its market and placed second in national rankings in 2020 and 2021, and Pennsylvania strengthened a rule in 2021. Colorado passed legislation in 2020 which enables stricter compliance and market improvement in 2022. Likewise, President-elect Biden is receiving calls to “encourage states to enforce basic requirements for setting premiums” and to accelerate Trumpcare development toward broader coverage rather than relying on new Congressional legislation to have a similar effect.
Individuals in the ‘>400% FPL’ cohort were the most harmed by Obamacare due to dramatically higher premiums and ineligibility for subsidies. The Trumpcare response for this population has been twofold. The first is the repeal of the individual mandate and broader access to reasonably priced non-ACA coverage. The second is the residual effect of lower costs in the ‘200-400% FPL’ cohort. Obamacare markets attracted an unhealthy mix of young adults and a broad mix of older adults. Lower costs in the ‘200-400% FPL’ cohort attracts more healthy young adults and Trumpcare gross premiums have remained mostly flat since 2018. While off-exchange enrollment is not yet available, on-exchange enrollment in the ‘>400% of FPL’ cohort surprisingly increased prior to COVID-19 in 2020, signaling that, while still significantly higher than pre-ACA costs, the Trumpcare marketplace is become more attractive for the ACA market population without premium subsidies.
The Cohort Approval Ratings
Consumer “approval” of health insurance is available through survey data and unsurprisingly aligns with Net Consumer Cost. KFF is a reputable tracking resource for premiums, market data, and consumer experience. The “record level popularity” referenced in the opening paragraph and the approval ratings tabulated in this section were sourced from KFF. Similar to cost measures being relatively consistent, group market popularity has not been significantly influenced by Obamcare or Trumpcare and the referenced approval ratings are from a recent survey.
The individual market results are from KFF’s income-based consumer experience displayed in the chart above. The income cohorts do not exactly match the Net Consumer Cost cohorts, but the base Obamacare popularity and the changes associated with Trumpcare are intuitively income-aligned. Individual market approval ratings are calculated by a simple formula: Approval Rating = ‘ACA Helped’ / (‘ACA Helped’ + ‘ACA Hurt’). The overall Obamacare approval rating is 38% (18% / [18%+29%]). The overall Trumpcare approval rating is 50% (23% / [23%+23%]).
Approval ratings by cohort are displayed in the chart above. As excepted, the Large Group approval rating is significantly higher than Small Group. While aggregate Individual Market Trumpcare costs are lower than Small Group, the aggregate Individual Market approval rating is lower than Small Group under both Obamacare and Trumpcare.
A 2015 chart from the Urban Institute illustrates the greater market attractiveness under Obamacare in the ‘100-200 FPL’ cohort. With Trumpcare significantly lowering Net Consumer Cost in the ‘200-400% FPL’ cohort, the current Plan Selection Rate line is more horizontal.
On an income cohort basis, approval ratings naturally decline with income as costs increase. Under Obamcare, the two highest income groups have roughly the same approval rating. As expected, the most significant Trumpcare approval rating impact occurred in the ‘middle income’ group. The highest income group benefitted from Trumpcare, but high-income earners in the individual market remain the consumers with the highest cost and the least satisfaction.
The Trumpcare cost equation will continue to improve for consumers. In addition to Focused Rate Review becoming more prevalent, states can now utilize Section 1332 waivers to extend premium subsidy allocation to a broader population. As the value proposition in individual markets improve relative to Small Group, more small employers may drop coverage (as some stakeholders considered a possibility under Obamacare) and/or utilize new Individual Coverage Health Reimbursement Accounts (ICHRAs). Lastly, media refocus on reality after a three-year detour distracted by unlikely hypothetical replacement legislation may inform the public and facilitate faster Trumpcare equilibrium by spurring smarter consumer benefit choices.
The Insurer Perspective
ACA market coverage is only available to consumers if there is an insurer willing to offer insurance. Insurer willingness to participate in ACA markets varied in the ACA’s first decade. Initially, individual market participation was often a public relations necessity rather than a strategic assessment of risk and opportunity. As I said in 2016, “health plan participation in this high profile market is more involved than an isolated business decision based on a financial forecast. There have been external pressures for health plans to participate in the ACA marketplace since program inception, but the potential of major players to exit may trigger more forceful coercion.”
There are effectively three chronological phases of insurer attitudes toward ACA market participation:
1. Have to Play (2014-2017)
2. Don’t Have to Play (2018-2019)[iv]
3. Want to Play (2020-2021)
In the initial years, there was an expectation for longstanding health plans that served the individual market to participate in ACA exchanges. As participation declined in 2016, insurers were called before Congress to testify. Senator Tim Kaine told an Anthem executive in 2017 that the outcome of a bare county scenario would mean “insurance companies have to worry about holding a knife up to their own throat”. David Anderson, a research associate at Duke University, opined in 2014 “there will be a shake-out in 2017-2020 as companies that were willing to go on Exchange and take losses for a couple of years to build membership will start dropping plans that are money losers and opt-out entirely in regions where they have almost no healthy membership”.
Insurer mandates were considered. Senator Richard Blumenthal floated ideas of mandating exchange participation from insurers who participated in other government markets. Similarly, Senator Elizabeth Warren introduced legislation that would “require private insurers that participate in Medicare and Medicaid to offer plans in the marketplace”. From an economic perspective, discussion of mandated participation of buyers and sellers in a marketplace certainly does not express sentiments of an underlying healthy market; that is where we were under Obamacare. It was a small market where corporate citizens in the health insurance industry ‘had to play’ to demonstrate goodwill and corporate support of the Obama administration’s domestic signature achievement rather than an objective business decision.
Despite remaining “have to play” pressure, financial losses and corporate insolvencies drove market exits beginning in 2016. While I noted in a 2017 white paper that potential regulatory action would be a needed win for insurers, antagonists of President Trump were derisively proclaiming such decisions as harmful and creating a vague notion of “uncertainty”, providing new cover for insurers to exit ACA markets. As I explained in 2017, “many insurers have remained in the market despite a poor financial outlook. Recently, the CSR uncertainty has been used as an external rationale to exit markets as it is easily explained and understood, while the pattern of market exits (which existed before the CSR discussion) are likely the result of other challenging dynamics”.
The criticism of the Trump administration’s market-benefitting action did not stop with mere political talking points. Nineteen states sued the president for effectively following a Department of Justice legal recommendation; an Obama-appointed judge dismissed the case, chastising the states for unnecessarily adding confusion to ACA markets days before the annual open enrollment period and sardonically noting ”the states complain that the federal government will be spending more money on health coverage for poor people”. Amidst the noise, insurers slipped out of ACA markets in 2018 and escaped the external wrath that would have certainly struck them in prior years, as there was a new boogeyman who could be conveniently blamed. It was suddenly a “don’t have to play” environment.
Two weeks after my white paper, the Congressional Budget Office (CBO) affirmed my bullish market conclusions with a timing twist, chronologically predicting that insurers “would withdraw from or not enter the nongroup market because of substantial uncertainty about the effects of the policy”, but “more insurers would participate” by 2020 after having “observed the operation of markets in many areas under the policy”. As predicted, insurer participation in 2018 and 2019 was lower than 2017, but higher in 2020. The CBO deservedly earned the title of “The Prophet” in the ’30 ACA Voices’ of the law’s first decade.
While the CBO was correct that insurers would not fully understand the policy implications until they saw its impact, the phenomenal financial results of 2018 revealed the revitalized markets. The number of insurers in ACA markets grew in 2019, 2020, and 2021. The only previous year of growth was 2015, as some insurers were not prepared in the ACA marketplace’s initial year of 2014. The entry of new insurers and market expansion of existing insurers under Trumpcare was clearly based on “observation of markets” and not external pressures to participate; in fact, the limited external pressure has been the opposite, as savvy state exchanges discourage the market participation of Lionfish insurers who effectively reduce subsidies and create consumer cost challenges. Markets have been stronger since 2018, markets are financially viable, and markets are a place that insurers want to be. Insurers now ‘want to play’.
The Bottom Line
President Trump’s regulatory action has lowered consumer costs in the individual market within the ACA framework and provided new flexibility to individuals, employers and states. An increase in premium subsidies has resulted in a favorable risk pool and benchmark premiums have declined modestly for three consecutive years. Expectedly, reduction in relative individual market consumer costs has resulted in growing approval of ACA markets, unprecedented but anticipated enrollment gains and broader general support for the law.
Even with President Trump’s departure from the White House, “Trumpcare” continues to be implemented. Without more federal action, states will continue to respond affirmatively to the Trump administration’s actions throughout this decade (according to the CBO). With each year, net premiums for low- and middle-income consumers will continue to decline.
With this objective market understanding solidified, we should now acknowledge the problematic elephant in the room. While my lens is focused on mathematical market dynamics and uninfluenced by external noise, I am culturally aware enough to realize that the prior two paragraphs (and many of the findings discussed in this article) are at odds with the current media groupthink[v] and much of the messaging in the public sphere regarding the evolution of ACA markets. This dichotomy presents a genuine concern. Without strong public encouragement of proper market understanding, we should realize that ACA markets may encounter legislative disruption and may not be allowed to continue to improve undisturbed. We should recognize the inherent temptation of new leaders to haphazardly act without understanding ACA market dynamics, the lack of patience present with policymakers and their “experts” who do not recognize the market developments and the current trajectory, and the unadulterated vanity of adding “Bidencare”[vi] to the Obamacare / Trumpcare framework.
I should be clear that these sentiments are not newly-formed resistance efforts in response to a Biden health care agenda. Since early 2019, I have expressed concern that slow state responses to Trumpcare could “prompt lawmakers unfamiliar with the market mechanics to prematurely” shift away from the ACA, and I have encouraged proper market understanding of ACA dynamics before legislative activity to avoid unintended consequences.
This past spring, the flagship publication of the Society of Actuaries contacted me to let me know of a “Health Care Crisis” themed issue in development and asked if I would write a contributing article on the ACA market crisis; I immediately knew what I would write about. I agreed, with the acknowledgment that was that there was no present crisis but there was an ever present risk that we would be tempted to create one. This risk is partially fueled by a deliberate “lack of transparency” from ACA advocates that accelerated with media support during President Trump’s administration. It remains unclear how much opposition to ACA transparency was related to the 2020 presidential election and how much remains, but we should be acknowledge that an honest actuarial accounting of ACA dynamics is in the best interest of the ACA and ACA consumers, regardless of whether an Obamcare or Trumpcare label is figuratively attached.
While my understanding of insurance markets stems from inherent financial dynamics, others don’t understand the insurance math which they disregard as irrelevant, but instead attribute the ACA’s early challenges and growing approval to a natural pattern of people reflexively not liking government entitlements but gradually growing more accepting of them after they are implemented regardless of efficacy. That type of thinking often leads to haphazard ideas that do not identify or attempt to solve real problems; this has to be avoided in constructive planning. We owe Americans our best health policy efforts that provide optimized consumer value, not a clumsy “they will get used to it” attitude.
Presuming no inhibition from disruptive legislation, the bottom line is that consumer costs in Trumpcare markets will continue to decline relative to group markets. Accordingly, relative popularity will continue to improve. The complete implementation of Trumpcare probably lands with costs and satisfaction in line with or maybe a little better than the lukewarm Small Group market. That is not on par with the vibrant expectations on which the ACA legislation was sold, but it’s at least sustainable and precludes the obligation of emergency response legislation which was necessarily contemplated in 2017. Back in 2010, Senator Max Baucus was asked about the ACA’s prospects after its passage and he remarked that we would one day “look back and say ‘Eh, maybe it wasn’t so bad’”. If we can keep from meddling with the law for a few more years and cover our eyes to the inefficient federal spending required to render ACA markets workable, we may discover that Senator Baucus was right after all.[vii]
If we are most fortunate, a genuine interest in policy efficacy[viii] may sprout and guide new leaders in 2021 to first understand the dynamics of the pre-ACA world, the market shock of Obamacare, and finally the restorative impact of Trumpcare. A deliberative process rather than a reactionary response could inform the “build on the ACA” mantra to comprehend the current market trajectory and consider constructive alterations to the regulatory structure. It is also conceivable that the new architects may discover that the dreamhouse they want to build is surprisingly the one they just inherited, and recognize that its character and charm will grow best with time if it is simply left alone. Of course, they may end up loving everything about the house, but deciding to tear the whole thing down simply because they do not like the builder, who they wish had never ventured away from construction of structures where plastering his name was not so universally unwelcomed by the governing establishment: luxury hotels.
[i] A precursor program “Medicare plus Choice” was replaced with “Medicare Advantage” in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The act added pharmacy benefits and created the benchmark/framework/competitive-bidding process. It resulted in a significant growth of Medicare-eligible Americans receiving health coverage through private insurers rather than directly from the federal government. [ii] Please contact the author at email@example.com to discuss state-level analyses. [iii] Trumpcare lowered non-silver premiums but generous subsidies available only with silver plans are provided the “100%-200% FPL” cohort. The best option for these enrollees is usually a silver plan with premiums not significantly changed by Trumpcare. [iv] Arguably, 2019 could be considered in the “Want to Play” timeframe but it had the lowest insurer participation of every year sans 2018. [v] Since 2017, the media has demonstrated a lack of interest in understanding President Trump’s health care policy and an unwilling to acknowledge policy implications that are misaligned with political presuppositions. [vi] While President Trump and President Obama each dramatically transformed the individual health insurance environment, neither asked to have their health care regulations named after them. During a presidential debate before he was even elected, Joe Biden said he would implement “Bidencare”. [vii] If you know Senator Baucus, please share this article with him. The author would appreciate his reaction. [viii] Early signaling of cabinet appointees does not suggest an interest in optimizing market dynamics.