Why commercial insurers see new opportunity in ACA exchanges

After a rocky start marked by losses, legal challenges and a general feeling of uncertainty, health insurers are increasingly expanding their footprint on Affordable Care Act exchanges.

During its investors day on March 8, Cigna announced that it plans to double its geographic coverage on the individual market to 20 states by 2025. UnitedHealthcare and Aetna are also reentering the space. While a few regional insurers entered the ACA for the first time in 2021, the majority of payers getting back into the exchange are larger and for-profit insurers, according to Ceci Connolly, president of the Alliance for Community Health Plans, adding competition to the long-time regional holdouts.

“I can tell you only half-jokingly that one of our CEOs did remark, ‘Well, gosh, where have you been lately guys?'” Connolly said. “But, on the other hand, our view is that competition is especially good for consumers. Because you’re going to have everyone bringing their best pricing and their best products for the market to compete.”

ACA exchange plans went live in January 2014, offering insurers an entirely new market to meet new customers under new regulations. At first it was a “pretty hair-raising line of business to be in,” Connolly said, with some insurers unprepared to handle high medical costs as they experienced significant losses. New regulations around risk-corridors, reinsurance and cost-sharing, along with cuts to navigators, added uncertainty to the market. When larger players refused to deal with the market’s growing pains and exited the business, regulators banned them for re-entering the exchanges for five years, according to Priority Health.

Now, that deadline is up. In 2021, the Kaiser Family Foundation reported that just 10% of counties had a single insurer offering, down from 25% the year before. The number of insurers entering the exchanges or expanding their service area grew for the third year in a row.

The exchanges could be poised for even more growth under the Biden administration. On Thursday, President Joe Biden signed the latest COVID-19 relief bill that will give consumers $34 billion in premium subsidies, intending to drive enrollment by making plans more affordable.

Larger insurers’ interest in the exchanges can be attributed to their profit potential, said Brad Ellis, senior director of insurance at Fitch Ratings, which have “reached the point where they’re acceptable.”

Moreover, insurers see the market as stable since regulators have learned how to govern the exchanges. For example, Aetna in 2018 decided to leave the exchanges, as did other prominent insurers who claimed they couldn’t manage the rising costs associated with sicker patients signing up for coverage. A federal judge alleged Aetna exited the exchanges in the hopes it could finalize its ultimately failed merger with Humana.

Now, Aetna will reenter the exchanges in January 2022, with CEO Karen Lynch saying during a recent earnings call that the market had “stabilized.” The company estimates the market could be worth up to 15 million lives.

“They were one of the last very large companies that still remained completely out of the exchange market,” Ellis said. “So it just speaks to some of the attractiveness of the market.”

While insurers decided to reenter the exchanges before Biden won the 2020 presidential election, the Biden administration certainly sends a positive message to plans thinking of reentering in the coming years, said Glenn Melnick, a professor at the University of Southern California. Many of the lawsuits against the exchanges have been dropped. Even the entrance of a single-payer to the ACA could provide a meaningful bump to insurers’ business, if the government contracted with private payers to administer the plan, he said.

“There could be elements of they’re playing in this market to protect themselves against future policy changes, where it can become a major source of demand,” Melnick said.

New entrants to the markets could look at how regional plans have made the market work for them.

Connolly credits regional plans’ success to name recognition and an understanding of their customers’ health needs.

“The exchange population so far has more closely resembled a Medicaid population than the commercial market,” Connolly said. “A fair number of individuals have multiple chronic conditions, they may be harder to reach and they may have transportation challenges. So they’re obviously very price sensitive.”

In response to customer need, Priority Health in Michigan lowered its prices year-over-year on the exchange, said Carrie Kincaid, vice president of individual markets. The company has also focused on developing a virtual-first primary care plan in response to customers’ affordable and accessible option.

“The Michigan exchange has the most choices in the nation, so competition and choice is already strongly in play here,” Kincaid wrote in an email. “Even with the currently competitive marketplace, the majority of the membership remains in local plans that have been in Michigan and in the market the entire time.”



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