Health Insurance Coverage

January 10, 2020 Aaron Helmbrecht

Health Insurance Coverage


Most people younger than age 65 with private health insurance coverage obtain that coverage through their job or as a dependent on a family member’s employer group plan. The individual health insurance market is a source of coverage for those without access to employer coverage or public coverage such as Medicaid. Prior to the enactment of the Affordable Care Act (ACA), uninsured rates among the nonelderly were historically high, fluctuating between 16 and 18 percent in the 1990s and 2000s,[1] due in part to high health insurance premiums and the difficulty of people with pre-existing conditions to obtain coverage in the individual market.

Questions to consider:

  • What goals do candidates prioritize when developing their health reform proposals?
  • What approaches do candidates take to meet those goals?
  • How would candidate proposals affect access to health insurance coverage, access to quality health care, and premiums and out-of-pocket costs?
  • How would candidate proposals affect health care spending and how that spending is financed?

The ACA, often referred to as “Obamacare,” was enacted to expand health insurance coverage to more Americans. The ACA provides premium and cost-sharing subsidies to low- and moderate-income families to make coverage in the individual market more affordable. It also prohibits insurers from denying coverage or charging higher premiums to people with pre-existing medical conditions, such as cancer or heart problems. In addition, at each state’s option, expanded Medicaid eligibility was authorized; as of November 2019, 36 states plus the District of Columbia have adopted the Medicaid expansion. Additional states are considering adopting the expansion.

ACA-related enrollment increases in Medicaid and the individual market coverage helped lower the uninsured rate among the nonelderly to 10 percent in 2018.[2] Yet premiums remain out of reach for many households and 28 million Americans remain uninsured. High out-of-pocket costs leave millions more underinsured.[3] Recent policy changes that exacerbate premium affordability problems and Medicaid work requirements threaten to increase uninsured and underinsured rates.

One set of options to increase access to affordable coverage and reduce the number of uninsured aims to build upon the provisions in the ACA.

This election guide provides information on a range of approaches that have been proposed to increase access to affordable insurance coverage. These approaches include building on and strengthening provisions in the ACA, expanding access to public insurance plans such as Medicare, and eliminating many ACA requirements and replacing them with more flexibility for states and insurers. It begins, however, with a brief overview of recent legislative and regulatory policy changes and how they’ve affected the health insurance markets, and in particular the individual market.

Recent Policy Changes

Many recent policy decisions are affecting coverage access and affordability as well as the stability of the individual health insurance markets. The ACA’s individual mandate penalty, which was intended to achieve the balanced risk pool required to keep premiums affordable and stable, was eliminated beginning in 2019. At the same time, new regulations expanded the availability of plans not meeting ACA essential health benefit and pre-existing condition protection requirements, such as short-term limited duration (STLD) plans. Taken together, these policy changes could lead to increased adverse selection in the ACA individual market, resulting in higher ACA premiums. Although the lower premiums of STLD plans can be attractive to healthy individuals, enrollees in these plans could face high cost-sharing and benefit limitations if unexpected health needs arise.

Higher premiums particularly affect individual market enrollees who are not eligible for premium subsidies—that is, enrollees with incomes above 400% of the federal poverty level. Between 2015 and 2018, unsubsidized enrollment in individual market ACA coverage dropped from 6.4 million to 3.9 million, whereas subsidized enrollment increased from 8.0 million to 8.6 million.[4] Because their subsidies increase to reflect the higher premiums, subsidy-eligible enrollees are largely shielded from the effects of higher premiums. And one policy change further increased premium affordability for low-income households. Many premium subsidy eligible enrollees are also eligible for cost-sharing reductions (i.e., lower deductibles and copayments). The federal government had been making payments directly to insurers to offset the cost of lowering cost-sharing requirements, but those payments were terminated in late 2017. As a result, subsequent premiums were increased, with most states increasing premiums only for silver plans—leading to higher premium subsidies, lower premiums net of subsidies, and increased availability of zero-premium plans.

Many states have implemented policies aiming to lower premiums and stabilize the ACA individual market. For instance, 12 states have used ACA innovation waivers to develop reinsurance programs to offset the costs of high-cost claims.[5] These programs have reduced premiums by an average of nearly 17 percent.[6] In addition, six states have enacted individual mandate requirements,[7] and some states prohibit or limit the availability of short-term limited duration plans.[8] Increasing enrollment and reducing market segmentation between healthy and unhealthy enrollees can help lower premiums and stabilize the insurance markets.

Policy Options Based on the Affordable Care Act

One set of options to increase access to affordable coverage and reduce the number of uninsured aims to build upon the provisions in the ACA. These options include:

More generous and expanded eligibility for premium subsidies. Increasing premium subsidies for those currently eligible and/or extending eligibility to more individuals, such as those with income over the eligibility threshold of 400% of the federal poverty line, would increase premium affordability, increase enrollment, and improve the risk pool.

More widespread use of reinsurance programs. Increasing the use of reinsurance programs, either at the national level or among states that haven’t yet incorporated them, would offset costs for high-cost enrollees and would be another way to lower premiums, increase enrollment, and improve the risk pool.

Restoration of the individual mandate or incorporation of other mechanisms to encourage enrollment. Restoring the mandate could encourage additional ACA plan enrollment, especially among younger and healthier individuals. In the absence of a mandate, continuous coverage requirements could mitigate the impact of adverse selection, depending on how they are structured. Auto-enrollment, successful in increasing participation in retirement savings plans, has the potential to achieve higher participation rates if logistical hurdles, such as how to identify eligible enrollees, could be overcome.

Limiting or prohibiting plans not meeting ACA requirements. The availability of plans that exclude pre-existing condition protections leads to adverse selection and higher premiums among plans meeting the ACA requirements. Limiting or prohibiting the availability of noncompliant plans would strengthen pre-existing condition protections and improve the ACA risk pool.

Increase state adoption of the Medicaid expansion. More than 4 million individuals would be eligible for Medicaid if the 14 non-expansion states adopted the Medicaid expansion.[9]

In addition to these provisions, there are some calls to include a public plan option in the ACA marketplaces. Under this approach, a government-facilitated or -administered health plan would compete with other plans in the ACA marketplaces. The public plan would generally follow the requirements of the ACA marketplaces, including the issue, rating, and benefit coverage rules, and would be part of the single risk pool. The difference would be that the public plan would likely use provider payment rates based on Medicare or Medicaid, or some rate between those levels and commercial payment levels. For instance, Washington state recently enacted a public option that will take effect in 2021; provider payment rates will be capped at 160 percent of Medicare rates. Note that these plans can sometimes be referred to as Medicare buy-in or Medicaid buy-in plans. But contrary to the implication, enrollment would be in a plan separate and distinct from Medicare or Medicaid.

A public plan that has provider payment rates lower than those in private plans could result in lower premiums for the public plan, potentially offset to some extent by a lower degree of utilization control if managed care organizations don’t administer the plan. But in the absence of other mechanisms to encourage provider participation (e.g., mandatory participation for providers participating in Medicare or Medicaid), provider payment rates would need to be high enough to ensure adequate access to care, which could be especially problematic in rural areas with few providers. One question is whether lower provider payment rates in the public plan option could provide more leverage to private plans to negotiate lower payment rates—or whether instead private plans would find it more difficult to compete, potentially leading to their exit from the market.

Policy Options to Extend Medicare Eligibility

Create a Medicare buy-in option. Under a Medicare buy-in, all or certain individuals (e.g., those age 55-64) not currently eligible for Medicare would be able to enroll directly into Medicare and pay any applicable premiums. A buy-in could be structured to also allow employers to purchase buy-in plans for their workers. In general, the buy-in plans would operate separately from the ACA markets and would not necessarily be subject to the same rules as ACA plans.

Aside from eligibility requirements, key design features of a Medicare buy-in include: whether buy-in enrollees have the same options as current Medicare enrollees in terms of traditional Medicare, Medicare Advantage, Part D prescription drug plans, and Medicare supplemental coverage; how premiums would be set, whether they would be designed to be self-supporting, and what low-income premium and cost-sharing assistance would be available; and whether provider payment rates would be set the same as those for current enrollees.

How the Medicare buy-in rules are structured and how they compare to the rules governing ACA plans would affect the enrollment, risk profiles, and premiums in both markets. For instance, recent analysis found that while adults age 50-64 could find more affordable coverage under a Medicare buy-in, shifting older adults from the individual market to the buy-in could actually increase premiums in the ACA individual market.[10]

Extend Medicare eligibility to more or to all. Rather than creating a Medicare buy-in option, other approaches would more directly expand Medicare. These approaches range from extending Medicare eligibility by lowering the eligibility age (e.g., to age 55), extending Medicare eligibility to all U.S. residents, or extending Medicare eligibility to all and also restructuring the program to provide more comprehensive coverage. The latter two approaches are often referred to as “Medicare for All;” however, the design details of particular proposals could be different and have different implications. For instance, some proposals would completely change (and enhance) the program’s benefit structure as well as changing the financing mechanisms, leaving it with few similarities to the current program.

Unlike the more optional nature of a public option operating in the ACA markets or a buy-in program, directly expanding Medicare eligibility would make it the primary source of coverage for those eligible, replacing other sources of coverage.[11] Other coverage could potentially be available to supplement Medicare coverage.

A proposal’s details will make all the difference in determining whether its goals can be achieved.

Similar to creating a Medicare buy-in program, a Medicare expansion would need to specify several design features. These include: how eligibility would be extended; what benefits would be covered, how cost-sharing would be structured, and whether there would be cost-sharing assistance for low-income beneficiaries; what the role of private plans would be, if any; how provider payment rates would be set; how premiums would be set and whether there would be premium subsidies; and how program funding needs would be met. Another important question, especially for broader Medicare eligibility expansions, is whether the expansion would be phased in and if so, how the transition would be structured. The way a Medicare expansion’s design features are specified will affect consumers, taxpayers, employers, providers, insurance coverage rates, and health care spending in different ways.

Alternatives to the Affordable Care Act

Rather than starting from the ACA or expanding current public programs, another set of options would pick up from prior efforts to “repeal and replace” the Affordable Care Act. These include:

Deregulate the individual insurance market and use high-risk pools to offer pre-existing condition protections. Eliminating the ACA issue, rating, and benefit coverage requirements could result in less comprehensive coverage but lower premiums for individuals who could pass underwriting. Coverage could be unaffordable, however, or not available at all to those with pre-existing conditions. Creating high-risk pools could extend coverage to those who would be unable to purchase coverage in the unregulated market, depending on how the premiums are set and whether funding would be available to make up any difference between the premiums and the higher expected health spending in the high-risk pool.

Convert federal ACA funding to block grants to states. Converting federal funding for ACA premium subsidies, cost-sharing subsidies, and Medicaid expansion funding to block grants to states could provide states more flexibility to design their own health insurance market rules and coverage assistance programs. However, the effects on a particular state’s individual market, premiums, and enrollment would depend on how the state changes the market rules, the federal funding allotment (including whether there is a redistribution of funding among states), and how it uses its block grant.

Expand health savings accounts (HSAs). Expanding the types of plans that are eligible for HSAs, allowing HSAs to be used for a broader range of services, and/or increasing HSA contribution limits could increase the use of tax-advantaged savings to pay for health spending.

Modifying federal Medicaid funding to incorporate block grants or per capita caps. Moving to block grants or per capita caps for Medicaid would shift more funding risk to states. The sustainability of Medicaid under these types of funding arrangements would depend upon appropriate initial allocation of funds to each state and adequate growth rates of those funds.

Proposals can have various health policy goals, including increasing access to affordable coverage, exerting downward pressure on provider prices, increasing plan availability, and/or reducing number of the uninsured. A proposal’s details will make all the difference in determining whether its goals can be achieved. For instance, proposal details can affect health insurance premiums, out-of-pocket costs, health insurance-related taxes, and access to coverage among those with pre-existing conditions or limited financial means. The way a proposal is specified can also affect health care providers, and in particular their incentives to provide cost-effective care and their willingness to participate in the health care system. Any changes to insurance market rules can affect the viability of those markets as well as employer decisions to offer coverage. Ultimately, meeting the goal of more affordable coverage requires controlling health care spending.

Additional Resources from the American Academy of Actuaries

Background and Recent Policy Changes

Policy Options Building on the Affordable Care Act

Policy Options to Extend Medicare Eligibility

Alternatives to the Affordable Care Act

[1] National Center for Health Statistics, “Trends in Health Care Coverage and Insurance for 1968-2011,” last updated November 6, 2015.

[2] U.S. Census Bureau, Health Insurance Coverage in the United States: 2018¸November 2019.

[3] Sara R. Collins, Herman K. Bhupal, and Michelle M. Doty, “Health Insurance Coverage Eight Years After the ACA: Fewer Uninsured Americans and Shorter Coverage Gaps, But More Underinsured,” The Commonwealth Fund, February 7, 2019.

[4] Rachel Fehr, Cynthia Cox, and Larry Levitt, “Data Note: Changes in Enrollment in the Individual Health Insurance Market through Early 2019,” Kaiser Family Foundation, August 21, 2019.

[5] Kaiser Family Foundation, “Tracking Section 1332 State Innovation Waivers,” November 6, 2019.

[6] Chris Sloan and Neil Rosacker, “State-Run Reinsurance Programs Reduce ACA Premiums by 16.9% on Average,” Avalere, October 29, 2019.

[7] Jennifer Tolbert, Maria Diaz, Cornelia Hall, and Salem Mengistu, “State Actions to Improve the Affordability of Health Insurance in the Individual Market,” Kaiser Family Foundation, July 17, 2019.

[8] Dania Palanker, Maanasa Kona, and Emily Curran, “States Step Up to Protect Insurance Markets and Consumers from Short-Term Health Plans,” The Commonwealth Fund, May 2019.

[9] Kaiser Family Foundation, “Uninsured Adults in States that Did Not Expand Who Would Become Eligible for Medicaid under Expansion,” April 15, 2019.

[10] Christine Eibner, Raffaele Vardavas, Sarah A. Nowak, Jodi L. Liu, and Preethi Rao, “Medicare for 50-to-64-Year-Olds: Assessing the Effects of Allowing Older Adults to Buy Into the Medicare Program,” RAND Corporation, 2019. The study finds that older adults in the ACA individual market are less expensive relative to their high premiums, whereas younger adults in the ACA are more expensive relative to their premiums. Therefore removing the older adults from the ACA plans would put upward pressure on premiums.

[11] Under current Medicare primary/secondary payer rules, employer-sponsored coverage could remain the primary coverage source for active workers if it continues to be offered.