Between 8 million and 24 million people could potentially lose their Medicaid coverage during the 12-month Medicaid eligibility redetermination process that began as early as April 2023.¹ As of June 29, 2023, over 1.5 million Medicaid enrollees have already been disenrolled.² This significant reduction in Medicaid membership poses a considerable challenge to Medicaid-focused insurers, potentially impacting their profitability and overall operations.

To address this issue for Medicaid insurers, in February 2021 we released a white paper proposing a potential solution to retain some Medicaid members by establishing a Patient Protection and Affordable Care Act (ACA) individual line of business.³ This strategic move aims to offer individual ACA plans to people losing Medicaid coverage, thereby providing them continuous coverage.

Between 2021 and 2023, at least 15 Medicaid insurers who previously only offered Medicaid plans have entered the exchanges and started offering individual ACA plans.⁴ This trend is depicted in Figure 1.

Considering the ongoing Medicaid redetermination process, we anticipate that this number will continue to rise in the coming years as more Medicaid insurers recognize the need to diversify their offerings and cater to the changing landscape of healthcare coverage.

In this paper, we present several key considerations and challenges associated with starting an ACA line of business. By addressing these considerations and overcoming the challenges, organizations can make informed decisions and effectively navigate the process of expanding into the ACA market.

Opportunities

1. Alignment with the health plan’s mission

Many Medicaid-focused health plans have a mission grounded in serving lower-income communities. Studies indicate that Medicaid insurers are more inclined to offer the lowest-premium ACA plan options, with an estimated 30% of consumers nationwide having access to these affordable plans by 2023.⁵ This trend suggests that Medicaid-focused insurers may tend to prioritize affordability over profitability, aligning with their mission to provide accessible healthcare options to low-income members.

2. Care integration and waste reduction

Lack of care coordination is a major source of clinical waste, representing 0.7% to 2.1% of national health spending.⁶ Medicaid-focused insurance companies have the potential to reduce wasteful healthcare utilization by coordinating benefits and care churning between Medicaid and ACA plans over a longer period, as Medicaid members tend to lose and regain eligibility relatively frequently. Leveraging an ability to conduct longitudinal studies on patient outcomes, these insurers can identify opportunities for care coordination and integration, leading to better outcomes and cost savings. This improved utilization management opportunity may help Medicaid insurers offer low-cost ACA plans, further enhancing their value proposition.

3. Investment in social determinants of health and member retention

Collaboration between payers and providers is crucial for addressing the nonmedical factors that influence health outcomes.⁷ Medicaid-focused insurers often have existing relationships, practices, and funding in place to address social determinants of health for their Medicaid members. However, if these members are likely to switch to other insurers offering ACA plans, or lose coverage completely, then the return on investment for Medicaid-focused insurers could likely be dampened.

To increase the likelihood of a return on investment, Medicaid-focused insurers may consider deploying ACA plan offerings to retain members who participate in these collaborative initiatives. By retaining these members within their organizations, insurers may see enhanced returns from investing in programs and interventions that address social determinants of health, ensuring continuity in the care provided and potentially improving health outcomes for this population.

4. Targeted marketing and enrollment

Medicaid-focused insurers possess valuable primary source data on each member’s income, family composition, and Medicaid enrollment history. This data could help facilitate appropriate outreach to Medicaid members who are losing coverage and might benefit from enrolling in an ACA plan. Such members may be more likely to enroll in plans offered by the same insurance company. Members anticipating coverage transitions between Medicaid and ACA plans may be more likely to enroll in plans offered by the same insurance company. This reduces members’ frustrations in navigating a new insurance plan, including the challenges of finding new primary care providers, reducing potential delays in care, and improving member experience.

5. Leverage Medicaid claims data for risk adjustment and quality performance reporting

Medicaid-focused insurers have valuable experience data from their existing Medicaid claims data, which they can leverage when venturing into the ACA market. This data can be leveraged even before the plan year starts to support several crucial aspects of their ACA lines of business.

First, the Medicaid claims data can be utilized for targeted chart reviews and improving chart reviews in risk adjustment. Risk adjustment is a critical component of the ACA market, as it ensures that insurers are appropriately reimbursed based on the health risks of their enrolled populations. By utilizing their Medicaid claims data, insurers can more accurately assess the risk profile of their members and target current year diagnosis code collection efforts on members whose risk score might otherwise be understated This allows them to have a better understanding of their population's health risks and also secure appropriate reimbursement to support the delivery of care, particularly for members staying in the ACA plans less than a full calendar year.

Additionally, Medicaid claims data can be utilized for monitoring and reporting on quality performance. Quality improvement is a key focus in the ACA market and may soon be linked to penalty payments in certain states. By leveraging their existing Medicaid claims data, Medicaid-focused insurers can have a head start in monitoring and reporting on various quality measures, such as preventive care, chronic disease management, and patient outcomes. This enables them to demonstrate their commitment to providing high-quality care in the ACA plans from the outset and enhances their ability to meet quality performance targets.

Challenges

1. Finding the best market entrance time

Entering a new insurance product line, such as offering ACA plans, can take significant time, ranging from six to 18 months according to several studies.⁸ To ensure a successful market entrance, Medicaid-focused insurers need to carefully plan and execute their launch strategies. This involves addressing competing priorities, securing sufficient funding, and obtaining necessary approvals from boards or governing bodies. By effectively managing these steps and streamlining their launch plans, insurers can potentially shorten the lead time to enter the ACA market.

Furthermore, leveraging existing resources and functions can significantly expedite the process. Medicaid-focused insurers already have established infrastructure, expertise, and systems in place to serve their Medicaid members. By capitalizing on these existing resources, insurers can avoid reinventing the wheel and leverage their knowledge and experience to streamline the transition into offering ACA plans. This can help reduce the learning curve and operational challenges associated with entering a new market.

2. Contract negotiation

Medicaid-focused insurance companies typically start with their existing Medicaid provider networks when venturing into the ACA line of business. However, in the past two years, we have observed that providers are increasingly reluctant to accept low payment levels for ACA members. Therefore, Medicaid-focused insurers may need to gather market-wide claims data and benchmark payment rates to evaluate and negotiate contracted terms and rates effectively. In addition, signing sufficient providers to meet the network adequacy requirements can add more challenges to the rate negotiation.

3. Learning curve for a new market

Medicaid-focused insurance companies may face a learning curve when entering the ACA market, as they need to familiarize themselves with new federal regulations, state rules, the qualified health plan (QHP) certification process, and terminologies and processes specific to ACA plans. This includes understanding the ACA market landscape, setting a targeted market position, obtaining actuarial certification of benefits and rates, and successfully completing premium rate negotiation processes in applicable states. However, over the past 11 bidding years, knowledge and expertise have accumulated among executives and professionals who are ready to support the launch of new ACA lines. As a result, the learning curve for Medicaid-focused insurance companies entering the ACA market now is expected to be less steep than it was five or 10 years ago.

4. Operational readiness

Setting up an ACA line of business may require Medicaid-focused insurance companies to establish new functions and functional units that were not required for the Medicaid line. For example, because ACA plan members are required to effectuate their policies and some members must pay premiums on a monthly basis, a dedicated functional unit for premium billing and collection would be necessary. This unit would handle the invoicing, payment processing, and reconciliation of premiums and premium tax credits. Some operation functions applicable for both Medicaid and ACA markets, such as risk adjustment, need different setups and processes. Overcoming these challenges can be facilitated by seeking guidance from experienced professionals in the ACA market who can provide insights and best practices to navigate the complexities of establishing an ACA line, ensuring compliance with regulations, and optimizing operational efficiency.

Conclusion

In summary, a Medicaid-focused insurer should carefully consider alignment with its mission, care integration, investment in social determinants of health, targeted marketing, and leveraging of Medicaid claims data when starting an ACA line of business. These considerations can help insurers provide stable and affordable care while maximizing member retention and addressing nonmedical factors that influence health outcomes.

Despite the challenges involved, such as finding the best market entrance time, the contract negotiation, the learning curve, and operational readiness, Medicaid-focused insurers can leverage their accumulated knowledge and expertise from the Medicaid market to overcome these obstacles.

Overall, venturing into the ACA market can be a strategic move for Medicaid-focused insurers to expand their reach and impact. By offering ACA plans, these insurers can provide continuous, comprehensive, and high-quality care to a broader population, including parents, family members, and communities beyond their Medicaid members. This expansion aligns with the goal of improving healthcare access and affordability for a wider range of individuals. Moreover, by entering the ACA market, Medicaid-focused insurers can contribute to enhancing the overall healthcare landscape. This expansion aligns with their mission of providing stable and quality care to underserved communities, and it can positively impact the healthcare system by promoting equality and accessibility.

Caveats and limitations

The analysis provided in this brief is based on data from a variety of sources. We have not audited or verified this data and other information. If the underlying data or information is inaccurate or incomplete, the results of our analysis may likewise be inaccurate or incomplete. The author is a member of the American Academy of Actuaries and meets its qualification standards to provide the analysis in this issue brief.

¹ Tolbert, J. & Ammula, M. (June 9, 2023). 10 Things to Know About the Unwinding of the Medicaid Continuous Enrollment Provision. Kaiser Family Foundation. Retrieved July 16, 2023, from https://www.kff.org/medicaid/issue-brief/10-things-to-know-about-the-unwinding-of-the-medicaid-continuous-enrollment-provision/.

² Kaiser Family Foundation (July 14, 2023). Medicaid Enrollment and Unwinding Tracker. Retrieved July 16, 2023, from https://www.kff.org/medicaid/issue-brief/medicaid-enrollment-and-unwinding-tracker/.

³ Man, A. & Zen, M. (January 2021). Medicaid-Focused Insurers May Benefit From Having an ACA Line of Business Post-COVID-19. Milliman Brief. Retrieved July 16, 2023, from https://www.milliman.com/en/insight/medicaidfocused-insurers-may-benefit-from-having-an-aca-line-of-business-postcovid19.

⁴ Chan, E. et al. (April 11, 2023). The Individual Health Insurance Market in 2023. McKinsey & Company. Retrieved July 16, 2023, from https://www.mckinsey.com/industries/healthcare/our-insights/the-individual-health-insurance-market-in-2023.

⁵ Ibid.

⁶ Health Affairs (June 9, 2022). The Role of Clinical Waste in Excess U.S. Health Spending. Retrieved July 16, 2023, from https://www.healthaffairs.org/do/10.1377/hpb20220506.432025/.

⁷ Kannarkat, J.T. et al. (June 2021). Need for Payer-Provider Partnerships in Addressing Social Determinants of Health. JMCP.org. Retrieved July 16, 2023, from https://www.jmcp.org/doi/pdf/10.18553/jmcp.2021.27.6.791.

⁸ Canaan, M. & Cusick, K. (October 9, 2019). Modernizing Insurance Product Development. Deloitte Insights. Retrieved July 16, 2023, from https://www2.deloitte.com/us/en/insights/industry/financial-services/insurance-product-development-capabilities-modernization.html.