5 Themes To Watch As The ACA Heads Into Its Second Decade
Over the past 10 years, the Affordable Care Act has become an essential part of the nation’s healthcare infrastructure. Coverage has doubled since the first plans launched, growing at nearly a 7% compound annual growth rate. Enrollment boomed from 8 million On-Exchange enrollees in 2013 to a record 16 million in 2023, that number hits 20 million when Off-Exchange enrollees are included. The Biden administration predicts that 2024 Marketplace enrollment will climb to 19 million people; another 3 million to 5 million could sign up directly with carriers off the Exchanges. As of late-December, 15 million people had enrolled via a federal or state-based Exchange.
But it hasn’t been a smooth road. There’s been considerable volatility with insurers coming and going from markets. Constant regulatory changes have forced insurers, brokers, and providers to be nimble. And the specter of repeal constantly hangs overhead in a polarized political environment.
While we don’t expect the volatility to end, the next decade will be characterized by more stability. Companies, consumers, and government agencies have a familiarity with how the ACA functions and it’s likely that regulatory changes will be more incremental. We’ve identified five ways the ACA will likely evolve over the next 10 years.
Scale will be a dominant driver of Marketplace success
A steady stream of venture capital money flowed to new players in the ACA Exchanges during the first 10 years. Over the next decade, we expect large national payers to adopt ideas learned from startups and to leverage scale to deploy them in a more cost-effective manner. We anticipate that the greatest market share will go to large carriers with enough scale to handle changing regulations and the ability to take risks in entering new markets. Our analysis from January 2023 found that incumbents were already filling the void left by insurtechs that dropped out of the market. Carriers with national scale will be better positioned to expand offerings at a local level and create more sustainable partnerships with local health systems.
Centene currently has the greatest market share, with its membership growing 75% year over year. Centene attributes its success to pricing discipline, execution on clinical initiatives, and thoughtful risk adjustment calculations. We believe that Centene’s large national footprint also helped it thrive. Scale allows carriers to diversify their risk pool and minimize risk, have greater negotiating power with health systems, take risks with new product offerings, and leverage their brand to increase membership.
As the ACA Marketplace continues to grow and mature, we expect it to become increasingly similar to Medicare Advantage, with one or two major players dominating the space. UnitedHealthcare and Humana have almost half of the Medicare Advantage market share nationally. To be successful in the ACA, carriers need to have enough scale to allow them to price competitively, enter new markets, innovate on new products, and effectively capture Medicaid crossover.
ICHRA growth could disrupt the insurance industry
Individual Coverage Health Reimbursement Arrangement membership will continue to climb, propelling even more consumers to ACA coverage. Increased ICHRA membership will be fueled by state-specific tax breaks like a $400 tax credit in Indiana, expansion of the benefit by small employers through enhanced awareness, and crossover from traditional group plans.
ICHRAs came into effect in January of 2020 and allow employers to reimburse employees for health insurance premiums and other medical expenses without needing to provide a traditional group health insurance plan. ICHRAs have grown nearly 350% since 2020, with an estimated 200,000 to 500,000 individuals using ICHRAs today. ICHRAs are expected to grow 10 times by 2032 to 2 million individuals. Adoption is difficult to predict but momentum could be fueled by technology advancements making it easier for employers to build ICHRAs into their benefits platforms, regulatory changes to further promote their use, and adoption by large employers that would lead to a domino effect.
Carriers will design networks specifically for the Exchange
Narrow networks accounted for 72% of ACA Exchange plans in 2019. As price sensitive shoppers, ACA Exchange members have shown a willingness to accept narrow networks for lower costs. At the same time, consumers stay loyal to brands they trust and that offer convenience. Payers have achieved this in a wide variety of ways, including payer-provider partnered products like Banner|Aetna and co-branding like Cigna + Oscar for small group and Aetna CVS Health. When these plans work well, patients feel more incentivized to stay in network and having a tight relationship with a healthcare system leads to improved care management, better outcomes, and reduced costs. Having a differentiated network or a co-branded plan with a health system can set plans apart and increase enrollment numbers.
ACA Exchange members also have a wide range of health history and experiences with their insurer. Tiered network options like providing both broad and narrow options may cater to different segments of people in the Marketplace. To succeed, payers may have to negotiate new contracts with health systems to align to the specific needs of the Exchange market.
More states will shift to State-based Exchanges
The Centers for Medicare and Medicaid Services proposed that states be required to operate as a State-based Marketplace on the federal platform for one year before being transitioning to their own Exchange. At time of this publication, the rule had not been finalized. Even if proposal becomes final, we expect more states transition to SBEs over the next decade, fueled by cost savings, unique market needs, Medicaid integration, and increased data access. For plan year 2024, there are 19 SBEs and three SBEs on the federal platform. States have expected to save between $8 million and $50 million by transitioning to an SBE, mainly from user fees.
With additional transitions to SBEs, carriers should expect expanded open enrollment periods, greater Medicaid coordination, expanded subsidies, plan standardization, and active purchasing. One-third of SBE states today have expanded open enrollment periods and additional special enrollment periods for at-risk populations. Additionally, 50% of SBE states offer subsidies on top of federal subsidies.
Carriers should expect change during SBE transitions but can use this period to improve enrollment numbers and build goodwill with regulators. As payers expand to new states, it is imperative that they become well-versed in the nuances of each state exchange to be successful in each market.
Seamless member experience will become critical
At 3.4%, the individual Exchange market has the highest monthly turnover rate, compared to 2.1% in the group market.
Younger generations buying plans on the ACA Exchanges are increasingly used to seamless experiences with mobile apps. Gen Zers, the oldest of whom turned 26 in 2023 and can no longer stay on their parent’s insurance plan, demand seamless digital experiences, personalization, and transparency. In addition, most consumers buying on the Exchange are price-sensitive and receive subsidies to purchase insurance. The percentage of people eyeing Exchange plans could explode in the next few years due to the gig economy. More than half of the US workforce could be freelance by 2027.
Consumers want to work with an insurer that offers easy-to-use coverage; the ability to shop for the appropriate doctor, including by cost; access to low-cost prescriptions; and that has a hassle-free claims process. Transparent pricing and flexible plan features will keep members happy with their plan, and having a seamless, well-integrated consumer experience will encourage them to stay with their current carrier.
To increase retention, payers should continue to enhance customer service with technology solutions, create personalized communication using artificial intelligence and machine learning models, and better design their plans to target customers within specific market segments. Payers must continue to innovate and improve the customer experience if they want to retain and gain members.
For more information about Oliver Wyman's Exchange platform, contact Travis Kistler, Partner, Health and Life Sciences, and Shyam Vichare, Partner, Health and Life Sciences.