Health Systems Can Win On The ACA Exchanges

Health systems are in a state of unrest. They face increased competition from big box retail chains, specialized care providers, digital platforms, and payviders. Meanwhile, cost pressures show no sign of abating and margins remain thin, especially as demographic trends push populations into lower reimbursement segments like Medicare. Those forces, combined with the ongoing transition from volume to value, are compelling health system leaders to realign operations and redefine their role in the patient care journey.

Avenues they are taking include launching or expanding provider-sponsored health plans, building population health capabilities, and partnering with payers in new ways. By investing in these capabilities, health systems are gaining expertise in areas that were typically the domain of insurers — member engagement, care management, claims processing, population health analytics, and more.

The focus of these investments tends to be Medicare, given the homogeneity of the population, high utilization of care, and enrollment growth. But we believe the Affordable Care Act Exchanges present another unique opportunity for health systems to further leverage these capabilities. Entering the ACA would allow health systems to increase the numbers of patients served, drive greater value from these patients, and establish a new type of profit center like many have already done in Medicare Advantage. With a strong local presence, health systems and integrated delivery networks are well-positioned to serve the ACA population and drive differentiation in a crowded marketplace. Below we delve into some of the key factors driving growth in the ACA and how health systems can enhance their market position.

ACA Marketplace is seeing record growth

ACA enrollment continues to reach new heights. Total enrollment exceeded 16 million people in 2023, up from 14 million in 2022 and 8 million in 2014. Competition has also stiffened for insurers as more than 300 now participate in the Exchanges, a 66% increase since 2018.

Continued growth on both federal and state-based exchanges is likely during the 2024 open enrollment season, which ends January 15. One key factor playing out is the loss of Medicaid coverage for millions of Americans. During the COVID-19 pandemic, Medicaid beneficiaries were automatically reenrolled in the program. That changed when the public health emergency expired and the job of determining eligibility reverted to the states. The ACA can be a cost-effective option. And, as we outlined in this Oliver Wyman Health article, plans are well positioned to help people maintain access to coverage, including via their ACA offerings.

Additionally, a growing number of employers are turning to individual coverage health reimbursement arrangements to control runaway healthcare costs and to meet the ACA’s employer mandate. Through this benefit, employees are reimbursed for some or all the premiums of an individual plan they purchase on their own. Since launching in 2020, ICHRAs are estimated to have grown by 350%, according to the HRA Council. There was 171% growth between 2022 and 2023.

The exchange population can be profitable

In contrast to the early days of the ACA, the population signing up for coverage in recent years is very stable: For the 2023 plan year, nearly 80% of participants actively chose to stay in the ACA or were automatically re-enrolled.

While there is significant variation in reimbursement, it is meaningfully higher than Medicare, although it remains lower than traditional group commercial payment rates. Finally, the generally healthier population relies more on transactional care as opposed to long-term longitudinal, resulting in lower overall care management and risk adjustment activities.

Health systems can leverage their brand

As trusted organizations in their communities, health systems are poised to play a broader role in the ACA Exchanges. They already have strong brand recognition, and deep patient relationships, and know what care gaps exist in their markets. This positions them strongly in their geographies and should prove attractive in a retail market that’s driven by consumer choice. Health systems already operating ACA plans have historically had very stable and dominant market share in their geographies. Some examples include UPMC in Pittsburgh and Baylor, Scott, and White in Dallas. Some of systems are taking more aggressive postures to further their footprint such as Jefferson Health in southeast Pennsylvania.

For others, there are two ways to follow suit and make the most of the natural advantages of the ACA Exchanges:

1. Leverage existing health plan capabilities: Providers with existing health plans, including Medicare Advantage, have many of the capabilities needed to launch an ACA Exchange offering. While Exchange-specific workflows for back-office capabilities and lighter touch models for risk adjustment and care management may be needed, establishing these processes represents a fraction of the investment needed to stand them up in the first place. Gaps in capabilities can also often be managed through vendor outsourcing, including for qualified health plan filings, actuarial, and pricing. This can be especially cost-effective for plans focused on limited geographies.

2. Partner with a payer on Exchange: The Exchange is a highly competitive space. The brand and consumer stickiness that comes from a strategic provider partnership can be invaluable for payers, many of whom are looking for relief as they deal with the price sensitivity of the marketplace. Around the country, health plans have been able to win specifically targeted geographies, typically at the rating area level, through exclusive provider partnerships and co-branding strategies with provider systems. In return, providers can secure their patient base, achieve higher reimbursement, and grow their share of care.

Figuring out which approach to adopt depends greatly on market dynamics. The critical first steps are assessing ACA opportunities in the market and gaining a deep understanding of existing internal capabilities. But for health systems with the right capabilities and geographic positioning, the ACA Exchanges could be an attractive and profitable arena.

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.