The Obamacare marketplaces can be thought of as a government-run store. The government gives many customers subsidies, like gift cards, that they can use to buy insurance. But what happens if no companies want to sell their products in the store?
That is the problem that could face Obamacare customers if no insurance carriers show up in a given area, a risk that policymakers call the bare-market problem. That risk is growing as the administration sends negative signals about the future of the market. If all the insurers start leaving some stores, consumers there will find their options dwindling, and then their subsidies will become worthless. Most would end up uninsured. The problem could affect as few as dozens of customers — or spread more broadly to affect a substantial fraction of the approximately 11 million people currently enrolled in Obamacare coverage.
The markets created by the Affordable Care Act have always relied on the voluntary participation of private companies. If the government set up the right conditions for the market, the thinking went, insurers would want to jump in. But, as Sarah Kliff at Vox.com has reported, the law contained no real backup plan if that vision didn’t work out.
So far, there are parts of Tennessee where none of this year’s insurers want to sell insurance next year. Other counties have only one carrier, and in some of them, that carrier is looking shaky.
The Trump administration has taken actions that have worried insurers, and it has done little to reassure them. It pulled back on outreach and advertisement for this year. It issued an executive order suggesting it would weaken enforcement of a requirement that most Americans obtain health insurance.
The president and his Department of Health and Human Services have issued statements assailing the health law and warning of imminent collapse. (Absent the policy uncertainty, there have been growing signs that the markets have stabilized.)
The administration did take one action meant to calm the waters: It finalized a regulation last week that included several insurance industry requests to make the market more predictable.
But perhaps most critically, President Donald Trump has made it clear that he may choose against funding a form of insurance subsidy that the companies rely on to balance their books and set premium prices. In an interview with The Wall Street Journal last week, he said that he might decline to fund these “cost-sharing reduction” payments in order to increase leverage on Democrats in Congress, who he wants to vote for a Republican health care overhaul plan.
Seema Verma, the administrator for the Centers for Medicare and Medicaid Services, which oversees the marketplaces, was to meet with some health insurers Tuesday, though it is unclear what new messages she may have had to deliver. Amid this uncertainty, crucial deadlines are approaching for insurers, who must calculate and submit next year’s prices to state regulators in the coming weeks.
“The regulatory uncertainty is something that is very hard for these people to price in,” said Craig Garthwaite, an associate professor of strategy at the Kellogg School at Northwestern. “How do you develop a model for the thoughts of the Trump administration on what they’re going to do policywise in health care?”
In theory, the bare-market problem shouldn’t be a big worry. The federal government pays a large fraction of Obamacare premiums for most customers, and a single insurer can essentially name its price. Economists like Garthwaite see the situation as a happy circumstance for an insurance company. Who wouldn’t want a monopoly market where the government pays the bills?
“Why be at zero — why not come in and charge a freaking outrageous price and be the one?” said Jonathan Gruber, a health economist at MIT who advised the Obama administration when it was developing the Affordable Care Act. Then he answered his own question: “Many mysteries of life can be answered with the statement: Insurers are bizarrely risk-averse.”
Kevin Counihan, who was the chief executive of HealthCare.gov in the Obama administration, said much of his job involved outreach and support for insurance executives. He called an insurance CEO every day, he said, just to check in and hear industry concerns. He arranged meetings between companies and local officials. As he describes it, the job was part counselor, part cheerleader and part tough-love parent.
“If you show you are trying to be supportive, and you’re collaborative with them, it changes the tone,” he said.
That kind of outreach is not happening in the Trump administration so far.
The initial filing deadlines, which begin this week and run through mid-June, are not the most important ones. A next round of decisions will be made in August and September, and insurers must sign final contracts in the fall. That leaves some time, if the Trump administration is motivated, to complete regulatory decisions and engage in the wooing and arm-twisting that may be necessary to draw in worried insurers. But it’s a small window.
If insurers do all decide to exit a market, no one is exactly sure what will happen next. Some experts have brainstormed about possible workarounds, but all would entail uncharted legal territory.
Officials at Covered California, the California state marketplace, produced a report outlining a series of options to fix the problem of so-called bare counties. But the top bullet point for nearly every option was: “Very difficult, if not impossible, to implement for 2018.”
Katherine Hempstead, who studies health insurance markets at the Robert Wood Johnson Foundation, was more confident than former Obama administration officials that a motivated executive branch could devise new policies to help people in bare counties, such as letting them buy a Medicaid plan, or including them in the state employee benefit pool.
“I do think there will be solutions,” she said.
Sen. Lamar Alexander of Tennessee, the state currently at greatest risk of bare counties, has introduced a bill that would create options for customers shut out of their Obamacare market. But even if Congress passed such a law, regulators would have to work very fast to make anything happen before next year’s enrollment period, which begins in November.
And the limited time for a big change of heart may be an underappreciated risk.
“The more time that passes, the more heroically they need to behave,” said Andy Slavitt, a former administrator of the Centers for Medicare and Medicaid Services. “If they try to solve this whole thing later, they’re not going to be able to do it.”