CONFIDENTIAL MEMORANDUM
TO: HRC, John Podesta, Ann O’Leary and Jake Sullivan
Nov. 23, 2015
FR: Chris J.
RE: Implications of United’s Announcement and Status of ACA
United Healthcare’s announcement that they are considering pulling out of some
2017 exchange offerings raises “canary in the coal mine” questions around the
Affordable Care Act (ACA). Indeed, the health insurer and enrollee participation
issues in the exchanges are, at best, disconcerting. There are also adverse risk
selection and health plan payment issues that are equally troubling and merit
scrutiny. Having said, it is also true that policy embedded in the law (e.g., the
“mandate”) and reforms being attempted now on the Hill may well assist the current
challenge. Moreover, other major plans have publicly committed to remaining in the
marketplace.
This memo attempts to give an accurate but brief context of the current market
dynamics. It also includes suggestions on how Secretary Clinton’s positioning on the
ACA – both in terms of rhetoric and policy -- should be modestly amended to
inoculate her on any possible future problems and as a thoughtful and strong
contrast to Senator Sanders and the Republican Presidential candidates.
Background. The truth about the ACA and its health and potential for sustainability
is it is mixed. Challenges include:

Enrollment disappointing. The ACA enrollment by the end of 2016 is
projected by HHS to be less than half (10 million) of the 20 million Americans
that CBO has projected to be in the exchange by that time. This is likely due
to the lack of affordability for many Americans over 250 percent of poverty
(who are getting little to no tax credit subsidy) and/or because they perceive
the high deductible benefit to be not worth it (and are either unaware of
mandate penalty or prefer it to entire premium payment).

Risk selection notable. Both the not-for-profit coops that are pulling out
and the health plans that are monitoring their population enrollment are
reporting significantly higher adverse selection than expected. It is becoming
painfully clear that many of these plans underpriced their original premium
as they assumed a broader, healthier risk pool. However, they fear that
needed increases in premiums to recoup these losses next year will chase
away healthy populations and further undermine enrollment.
1

Risk corridor payments designed to address selection falling short. The
ACA risk corridor program was designed to limit how much an insurer can
lose (or gain) IF a plan’s actual medical claims exceed expectations by
different amounts. (The policy provides that the Administration will help buy
out significant percentages of unanticipated losses). The Administration has
indicated that they have neither the funds nor the authority to pay plans
anywhere near the costs associated with medical claims that exceeded
projections. While the health plans did not believe they would get the whole
risk corridor payment amount due them, they feel the Administration failed
to signal the problem or aggressively provide at least some relief. (They had
booked some relief and assumed them within the premium bids they made).
Potentially offsetting encouraging signs include:

The major health issuers have issued public statements re-asserting
their commitment to the ACA. Anthem, Aetna and Kaiser have all publicly
stated that they intend to remain in the market place. Most analysts believe
this group is betting on the sustaining benefit of increasing market share as
their business strategy; in contrast, United has always relied on securing
higher profit margins from “cherry-picked” markets.

The individual purchasing requirement’s (“mandate”) penalty is
increasing and should incent more enrollment. The CBO and the health
plan community is betting on (and requires) the increasing penalty for not
having health care (it is doubling this year to $695 an adult or 2.5 percent of
income, which ever is greater) to incent greater and healthier enrollment.
There is hope and expectation that the Administration will be far more
aggressive at advertising (in their last year in office) about the need to avoid
the penalty as an effective stick to encourage enrollment.

Enrollees who are receiving tax credit subsidies are protected from
premium increases. Since most of those enrolled (and likely to enroll) in
the exchanges come from those Americans at or below 250 percent of
poverty ($60,600 for a family of four) have a capped amount of premium (as
a percentage of income) they must pay, they will be protected from premium
increases as long (as the shop for plans that are linked to second lowest
silver plan bid). This should help stabilize enrollment for this population.

The Democratic Leadership and the White House is quietly trying to
address the risk corridor problem. Off-line negotiations are underway to
amend the Omnibus Appropriations bill or the tax extender package to
include a tax credit policy to allow health plans to offset their risk corridor
losses against the ACA health plan tax. While normally the Republicans could
not be counted on to be helpful, there is some optimism that, as part of a
broader package of compromises, an agreement may be able to be secured.
2
Possible Positioning Options. Notwithstanding the encouraging news, no
responsible policy analyst would deny that there is a viable scenario where the ACA
could see reduced insurer participation IF the enrollment and financing
environment is not improved over time. Moreover, it appears clear that the lack of
take-up is related to perceptions by many working Americans that the exchange
offerings are either too expensive or have too little value, or both.
Need for a change in the tone and emphasis of language: As such, prudence would
dictate that the Secretary start altering her language a bit to give greater emphasis
to the fact that every law needs to be improved over time and that the ACA is no
exception. And her stated commitment to this cause should address securing greater
affordability, value and cost containment.
Recent history gives great credibility/consistency: But before outlining possible
additional ACA/health reforms, it is imperative to underscore that the Secretary
already has a proven track record of embracing policies that strengthen the law and
she should reference them more. For example, she embraced (and tweeted about)
bipartisan changes to avoid disruptive insurance rating reforms being applied to the
51-100 small group market – a policy that was recently passed and enacted.
Moreover, she has proposed policies that would provide (1) tax credits for
Americans who incur excessive out-of-pocket costs (in or outside of ACA
exchanges); (2) a prescription drug cost cap and other cost containment policies;
and (3) reforms that stop providers from over-billing patients at in-network
facilities.
Improving the ACA is a far better position than the alternative. Underscoring the
need for the ACA to be strengthened – and not replaced – is a strong position for the
Secretary. The policy prescription from both Senator Sanders and, separately, the
Republican Presidential candidates would create much greater disruption of the
currently covered population. Taking away known (if not full appreciated) benefits
is a loser for both sides of the political extremes.
In terms of additional policy, and I would need to talk to Ann, Jake and the team to
lock down, some immediate ideas with some potential could include (but are not
limited to):

Expanding the Secretary’s new refundable tax credit for cost-sharing
excesses to apply to premiums in the individual (non-group) market as
well. To help make insurance more affordable and attractive, allow the costs
of the insurance in the individual insurance market (in or outside of the
exchange) to count toward the trigger of this tax credit.

Extending the risk corridor policy and making it work beyond 2016.
Under current law, the flawed risk corridor policy phases out in 2016. Since
it was designed to sunset when there was a more stable marketplace with a
3
much greater enrollment, it makes sense to explicitly craft the policy to be
implementable and to phase out when the enrollment reaches the 20 million
2016 target originally projected by CBO. We could claim that, since the
baseline has declined so much (since the enrollment is about half of what
was intended), the financing support necessary to do this is easily justified.

Unveiling a series of broad delivery reforms designed to get better
value and care. As part of the Secretary’s agenda, in addition to providing
financial relief from excess premiums and cost-sharing, she could unveil a
cost containment/value-purchasing delivery reform initiative. She could
argue that a 21st century health care system should move away from the
pervasive fee-for-service model to one that holds our system accountable for
improving care, safety, better outcomes and greater affordability. (This
could be an acceleration of bundling, competitive bidding, IT, benefit design
initiatives – amongst others).

Providing for more state flexibility in designing and implementing cost
containment innovation. We could build on the CMS state innovation
model (SIM) and permit even more aggressive interventions in constraining
cost growth, up to and including – at state’s option – the development and/or
access to a public plan option. We could extend this to a whole array of
policies, which we can discuss at a later time.
The above policies are a sampling of some options. They are far from exhaustive or
comprehensive. Regardless of the initiatives we pursue, I believe we should always
embrace the notion of the Secretary’s commitment to address the affordability issue
by helping offset the costs of premiums and co-payments as well as dealing directly
with the need to constrain cost growth. Hope this information is useful.
4