ACA Marketplaces

Uncertainty is expensive in the insurance markets

The earliest open enrollment for the individual market is in Idaho, which starts in 12 days. Most of the other marketplaces kick off their enrollment periods on November 1st. That isn’t a long time! Regardless of what happens in Washington, D.C. regarding the enhanced premium tax credits, the higher gross premiums people have been warning about if the subsidies aren’t extended are likely locked in, given the operational efforts required by the plans and their state regulators.

This doesn’t mean a deal couldn't save people money on their plans. InsideHealthPolicy is reporting that “Marketplaces in Virginia, Idaho and Georgia launched shopping tools where people can compare plans with or without the tax credits. Premiums for a 60-year-old couple making $85,000 in Virginia Beach, for example, will cost $1,295 more per month in 2026, more than triple their premium for a very similar plan this year, the group points out.”

Since the subsidies are structured as an advanced tax credit, if the deal goes through before the end of the year, people who should have paid less will get the difference refunded when they file their 2026 taxes, and it’s possible plans may be able to work something out for their members sooner. But the top line premiums, or gross price, aren’t going to change, which means in either case, taxpayers will be paying more for the subsidies than they otherwise would have next year.

Analysis

I had the chance to chat with some actuaries who work with ACA Marketplace plans, including Joe Caldwell from Evensun Health, to help me think through what this means for payers, providers, and members in 2026. My top questions were:

1. If the enhanced subsidies (ie, the APTCs) expire, what happens to the risk pools?

2. If the enhanced subsidies are renewed before the end of the year, how would that impact members and plans?

3. Is there any concern that the waivers for catastrophic coverage for adults over 30 will have any effect on the risk pools?

For (1), the view from Joe’s seat is that the ACA plan risk pools will be sicker than they would have been in the counterfactual where they were extended. This made intuitive sense to me, with higher prices causing some adverse selection. Not death spiral levels of adverse selection, just on the margin.

But his comment on (2) was surprising to me. Given how close we are to open enrollment, I guess it makes sense that premium rates are set. So even if Congress gets a deal together before the expiration at the end of the year, the higher premiums are locked in. Furthermore, even if the subsidies get extended, it probably won’t do much to reverse the sicker risk pool, so premiums are probably priced right in either event. If plans and states do a good job getting the word out, there may be a surprise to the upside, and 2026 could be a better-than-expected year for plans from an MLR perspective. 

Finally, on (3), Joe seemed pretty skeptical about material impacts on the marketplace risk pool. The difference between a Bronze plan and a catastrophic just isn’t that large in most cases, and the administrative burdens of getting a waiver aren’t trivial. But maybe something to keep an eye on is weird stuff popping up in the catastrophic plan risk pools, since they tend to be much smaller. 

This time next year, we’ll see how much all the uncertainty ended up costing us, but there’s a world where Congress’s failure to deal with the enhanced premium subsidy question in a timely manner means a more profitable year for payers on the taxpayer’s dime.

Centers for Medicare and Medicaid Services

Telehealth flexibilities lapse, and Disproportionate Share Hospital payments pause

A couple of other programs getting collateral damage from the shutdown fight are telehealth flexibilities for Medicare and Disproportionate Share Hospital (DSH) payments.

The telehealth policy is an interesting case because, rather than make permanent changes, Congress has just continued to extend pandemic-era flexibility. It expired on October 1st, and CMS has asked its contractors to take a 10-day pause before releasing reimbursements to give Congress time to make a decision. They helpfully advise providers that, without action, they are prohibited from billing for

DSH payments are made by CMS to help hospitals cover the gap between commercial insurance rates and Medicare and Medicaid. Without congressional action, there will be an $8b cut to hospitals that provide a “disproportionate share” of care to government beneficiaries, though the timing of these payments is somewhat at the discretion of states.

Analysis

A challenge for small, independent, or otherwise lean provider and hospital groups is that these tend to be relatively low-margin businesses, so any delays or payment changes are going to impact them much more than their larger counterparts. I’m thinking about The Corvallis Clinic, which was purchased by Optum a few years back. A change to Oregon’s tax laws, the pandemic, and the Change Health data breach all compounded cashflow issues, and Optum Health stepped in as the buyer of last resort after a few other groups were scared off by the debt load.

This chart from MEDPAC gives you a sense for how important these payments are to making the math work for these hospitals:

In HCA’s 2024 annual report, they mentioned their DSH (among other) adjustments were $42m out of $70b in total revenue. They are unlikely to be too bothered by delays to these payments, but depending on how long the shutdown goes and how important telehealth reimbursement and DSH payments are to the smaller hospitals and providers, this could spark another cash crunch. If you’re in corporate development or a banker, maybe you’re starting to think through whether there’s anything strategic that could get picked up for a song.

Medicare Advantage

MA enrollment is down 2% and premiums are declining as plans focus on profitability

CMS released information on how the Medicare Advantage market is shaping up ahead of open enrollment. A few key points from their press release:

• The average monthly plan premium is estimated to decrease from $16.40 in 2025 to $14.00 in 2026.

• MA enrollment is expected to decrease 2% in 2026, going down to 48% compared to 50% in 2025.

• Access is good at a national level, with 99% of Medicare beneficiaries having access to a plan, and 97% of Medicare beneficiaries will have access to 10 or more MA plan choices.

• The total number of available MA plans nationally will decrease slightly from 5,633 in 2025 to approximately 5,600 in 2026. 

This is the first year enrollment has declined in the program, at least in its current form, in what has otherwise been a consistent upward trajectory.

Analysis

HealthScape Advisors published an interesting study into regional health plans, showing the frankly pretty dire financial straits these plans find themselves in, with 71% of plans showing an annual loss in 2024.

My first thought was that the string of exits from MA markets by the national players might be a tailwind for these smaller, regional plans.

But of course, the national players are exiting markets where they aren’t able to squeeze out a reasonable profit, so there’s some selection bias when it comes to the members and regions they’re leaving.

I was chatting with Michael Bagel from America’s Community Health Plans, and he pointed out that when there’s a large influx of members into these regional plans, they need to put up regulatory reserves with the state to cover potential losses for these members. Setting aside the operational challenges of adding a bunch of members the hard-nosed, profit-seeking firms didn’t want, if you’ve been operating with negative margins for a few years, it might be hard to come up with the regulatory capital to even consider being able to take advantage of this influx.