Actuarial Specialties | Health | The ACA@10 | Web Exclusives

The ACA’s Impact on Rural Areas

Health insurer participation is lower, hospital closure rates are higher and insurance premiums see greater increases in rural regions compared to urban areas

Ryan Mueller March 2020

Photo: Shutterstock/Lane V. Erickson

It is no secret the individual health insurance market has faced significant obstacles since 2014, the year the most significant provisions of the Affordable Care Act (ACA) were implemented. Individual market premium rates increased dramatically in most regions of the country, several major health insurers exited the individual health insurance market, federal funding for cost-sharing reduction (CSR) subsidies was eliminated and the individual mandate penalty was effectively erased as well. These challenges raised significant concerns about the viability of the individual health insurance market. While the individual health insurance market appears to have stabilized since 2018, some challenges persist.

In rural regions of the country, the challenges have been more pronounced. Premium rates in rural regions have increased more substantially than in urban areas. For example, annualized premiums for a family of four enrolled in the lowest-cost silver plan in Chicago (Cook County) increased from $7,600 in 2015 to $13,200 in 2020, before any premium tax credits, for a cumulative increase of 62 percent.¹^,²^,³ However, premiums for the same family of four in Hardin County, located in rural southern Illinois, enrolled in the lowest-cost silver plan increased from $10,400 in 2015 to $25,100 in 2020 for a cumulative increase of 126 percent.⁴^,⁵

Additionally, health insurer participation has been lower in rural regions compared to urban areas. In counties where 20 percent or less of the population lives in an urban area, 68.4 percent of counties had two or more health insurers offering coverage in the federally facilitated marketplace (FFM) in 2020.⁶^,⁷ This is a significant decrease from 2015 when 92.7 percent of counties had two or more insurers offering coverage.⁸ In counties where at least 80 percent of the population lives in an urban area, 87.9 percent of counties had two or more health insurers offering coverage in the FFM in 2020, compared to 98.8 percent in 2015.⁹^,¹⁰

DIFFERENCES IN PREMIUM RATES AND INSURER PARTICIPATION

To assess the difference in premium rates and health insurer participation between rural and urban areas in the individual health insurance market, we analyzed premium rates for qualified health plans offered by FFM health insurers for calendar years 2015, 2018 and 2020.¹¹^,¹²^,¹³^,¹⁴^,¹⁵^,¹⁶^,¹⁷^,¹⁸ Given the significant changes that occurred in the individual health insurance market between 2015 and 2018 (e.g., large premium rate increases and health insurers exiting the market), we did not analyze data from 2016 and 2017. Since 2018, premium rates in the individual health insurance market have remained relatively stable and insurer participation has increased, particularly in urban areas.

Our analysis shows premium rates decrease as the proportion of the population residing in an urban area increases, and that the difference in premium rates between rural and urban areas has increased since 2015. Our analysis shows premium rates per-member-per-month (PMPM) for a family of four in 2020 are $4.87 PMPM lower for each percentage-point increase in the proportion of the population living in an urban area. This means for a rating area where 20 percent of the population resides in an urban area, premium rates relative to a rating area where 80 percent of the population resides in an urban area are expected to be $292 PMPM higher. Figure 1 summarizes the expected difference in premium rates PMPM between rating areas where 20 percent and 80 percent of the population resides in an urban area. It shows the difference in premium rates PMPM between urban and rural areas grew significantly between 2015 and 2018—from $73 to $308—but has decreased modestly to $292 PMPM in 2020.

Figure 1: Expected Difference in Premium Rates PMPM Between Urban and Rural Areas

Hover Over Image for Specific Data

Sources:
Centers for Medicare & Medicaid Services. 2015 QHP Landscape Individual Market Medical. Data.Healthcare.gov, August 19, 2015 (accessed February 24, 2020).
Centers for Medicare & Medicaid Services. QHP PY2018 Medi- Indi- Land. Data.Healthcare.gov, February 18, 2019 (accessed February 24, 2020).
Centers for Medicare & Medicaid Services. QHP Landscape PY2020 Individual Medical Zip File. Data.Healthcare.gov, February 24, 2020 (accessed February 24, 2020).

Given the large difference in premium rates between urban and rural areas, it is not surprising a U.S. Census Bureau analysis showed uninsured rates were higher in rural areas compared to urban areas in 2017 (12.3 percent of residents in completely rural counties were uninsured, compared to 11.3 percent of residents in mostly rural counties and 10.1 percent of residents in mostly urban counties).¹⁹ Data from the U.S. Census Bureau also shows the uninsured rate has changed relatively uniformly in rural areas relative to urban areas since 2013.

INSURER PARTICIPATION HAS CHANGED NOTICEABLY

Our analysis also shows insurer participation increases as the proportion of the population residing in an urban area increases. The number of health insurers offering coverage in the FFM in 2020 is expected to increase by 0.025 for each percentage-point increase in the proportion of the population living in an urban area, meaning a rating area where 80 percent of the population resides in an urban area would be expected to have 1.5 more health insurers offering coverage in the FFM in 2020, on average, compared to a rating area where 20 percent of the population resides in an urban area. This represents a decrease from 1.7 more health insurers in 2015, but it represents an increase from 1.4 more health insurers in 2018.

Figure 2 summarizes the proportion of counties with one health insurer offering coverage in the FFM for counties with 20 percent or less of the population residing in an urban area and counties with 80 percent or more of the population residing in an urban area. Between 2015 and 2018, health insurer participation dropped significantly, resulting in a significant increase in the proportion of counties with one health insurer offering coverage. However, since 2018, health insurer participation has increased, particularly in urban areas.

Figure 2: Proportion of Counties With One Insurer Offering Coverage in the Federally Facilitated Marketplace

Hover Over Image for Specific Data

The differences in insurer participation between rural and urban areas in the FFM may be driven by a variety of factors. Greater economies of scale may be achieved in urban areas relative to rural areas (e.g., lower marketing costs per enrollee). Competition among providers, and therefore unit prices, is also likely to be greater in urban areas, since urban areas typically are served by multiple provider systems and hospitals relative to rural areas. More provider systems and hospitals in an area increases the likelihood health insurers are able to differentiate themselves through the use of provider networks by offering narrow network products that feature lower provider reimbursement rates and different product types (e.g., health maintenance organization (HMO) products vs. preferred provider organization (PPO) products).

While individuals purchasing coverage through the FFM in rural areas have fewer benefit plan options from which to choose, less competition and higher premium rates may benefit individuals who are eligible for premium tax credits. Premium tax credits are a function of the second-lowest-cost silver plan and household income (e.g., a family with a household income of 200 percent of the federal poverty limit (FPL) will be eligible for a monthly premium tax credit equal to the difference between the premium for the second-lowest-cost silver plan and 6.49 percent of monthly income in 2020). In areas where only one health insurer offers coverage in the FFM, the health insurer has greater control in determining the premium difference between the lowest-cost-silver plan and the second-lowest-cost silver plan.

For example, in addition to offering plans at other metal levels, a health insurer may choose to only offer two silver plan options: one with the lowest actuarial value and price possible and another at the highest actuarial value and price possible. If a health insurer is able to create a 10 percent premium rate spread between the lowest-cost silver plan and the second-lowest-cost silver plan through benefit plan designs, individuals receiving premium tax credits could enroll in the lowest-cost silver plan or a bronze plan at little or no out-of-pocket premium expense. As premium rates increase, the ability for individuals receiving premium tax credits to buy down to lower premium plans increases. Typically, the lower premium plans offer less comprehensive coverage levels, but in some areas the practice of “silver loading” has allowed individuals to buy down to lower premium plans in exchange for richer coverage levels.²⁰

IS ACCESS TO CARE IN RURAL AREAS A CONCERN?

Current premium rates are not affordable for many uninsured individuals living in rural areas who are not eligible for premium tax credits, and there are growing concerns regarding access to care in rural areas. A report released by the United States Government Accountability Office (GAO) in August 2018 highlighted a significant increase in the number of rural hospital closures.²¹ Between 2013 and 2017, 64 rural hospitals closed, and while the closures only represented 3 percent of all rural hospitals in 2013, the number of rural hospital closures between 2013 and 2017 was more than double the number of rural hospital closures between 2008 and 2012.²²^,²³

This GAO report highlighted that most rural hospital closures were preceded by financial distress. The GAO report also highlighted that individuals living in rural areas tend to be older and have lower incomes relative to individuals living in urban areas, which results in a greater proportion of the population being enrolled in Medicare or Medicaid relative to urban areas. As a result, hospitals and physicians practicing in rural areas tend to receive a greater proportion of payments for their services from Medicare and Medicaid and less from commercial payers relative to hospitals and physicians practicing in urban areas. At the same time, advancements in technology are reducing the need for some services (e.g., shifting of surgical services from an inpatient setting to an outpatient setting) or allowing patients to seek care at more renowned hospitals and providers in urban areas more easily (e.g., administering chemotherapy through a portal device instead of at a hospital), which has reduced revenue for many rural hospitals.

Rural hospitals and providers tend to treat more Medicare and Medicaid patients, which may make them more sensitive to changes in Medicare and Medicaid eligibility and payment rates. The ACA reduced Medicare payments to hospitals and Medicare Advantage plans. Since the ACA was passed in 2010, two pieces of legislation significantly altered Medicare reimbursement rates:

The Middle Class Tax Relief and Job Creation Act of 2012 reduced Medicare payments for bad debt starting in federal fiscal year 2013.
On April 1, 2013, Medicare payment rates, including payments to Medicare Advantage plans, were reduced 2 percent as a result of a sequestration order required by the Budget Control Act of 2011.

These two reductions in Medicare payments likely caused or added to the financial distress some rural hospitals were experiencing. However, under the ACA, states were allowed to expand Medicaid. The GAO report found hospitals operating in states that expanded Medicaid generally improved their financial position and that a disproportionate share of rural hospital closures occurred in states that did not expand Medicaid.²⁴^,²⁵

The impact on premium rates in the individual health insurance market due to recent financial pressures on some rural hospitals is not clear. If rural hospitals continue to close and individuals are no longer able to access care, individuals may see less value in purchasing insurance, which could result in greater anti-selection. Additionally, individuals may be more likely to postpone care, which could result in higher claim costs if the intensity of services performed is greater than it would have been had care been received sooner. Increasing the affordability of individual health insurance coverage in rural areas for individuals who are not eligible for premium tax credits will not only reduce the number of uninsured individuals, but it may also bring greater financial stability to rural hospitals and providers. Regardless, if the forces operating in rural areas continue, namely increasing premiums and the loss of rural hospitals, residents in rural areas will continue to struggle with access to care and the affordability of coverage, particularly those with incomes that make them ineligible for premium subsidies.

Ryan Mueller, FSA, MAAA, is a senior consultant at Oliver Wyman Actuarial Consulting Inc.

References:

1. Centers for Medicare & Medicaid Services. 2015 QHP Landscape Individual Market Medical. Data.Healthcare.gov, August 19, 2015 (accessed February 24, 2020). ↩
2. Centers for Medicare & Medicaid Services. QHP Landscape PY2020 Individual Medical Zip File. Data.Healthcare.gov, February 24, 2020 (accessed February 24, 2020). ↩
3. In the examples cited, a family of four is defined as a 40-year-old primary, a 40-year-old spouse and two dependent children between the ages of 0 and 14. ↩
4. Supra note 1. ↩
5. Supra note 2. ↩
6. The proportion of the population residing in an urban area was determined using information published by the U.S. Census Bureau from the 2010 Census. ↩
7. Supra note 2. ↩
8. Supra note 1. ↩
9. Ibid. ↩
10. Supra note 2. ↩
11. Supra note 1. ↩
12. Centers for Medicare & Medicaid Services. 2015 Marketplace Open Enrollment Period Public Use Files. CMS.gov, November 27, 2019 (accessed March 13, 2020). ↩
13. Centers for Medicare & Medicaid Services. QHP PY2018 Medi- Indi- Land. Data.Healthcare.gov, February 18, 2019 (accessed February 24, 2020). ↩
14. Centers for Medicare & Medicaid Services. 2018 Marketplace Open Enrollment Period Public Use Files. CMS.gov, November 27, 2019 (accessed March 13, 2020). ↩
15. Centers for Medicare & Medicaid Services. 2019 Marketplace Open Enrollment Period Public Use Files. CMS.gov, November 27, 2019 (accessed February 24, 2020). ↩
16. Supra note 2. ↩
17. A regression analysis was completed to assess the relationship between premium rates and the proportion of the population in a rating area residing in an urban area and the relationship between the number of health insurers participating in the FFM and the proportion of the population in a rating area residing in an urban area. The lowest-cost silver plan for each rating area was based on a weighted average of the lowest-cost silver plan across all counties within a rating area. ↩
18. Information from calendar year 2014, the initial year of the FFM, was not included in our analysis due to the challenges observed with the rollout of HealthCare.gov and county-level data for individuals selecting coverage through the FFM not being available. ↩
19. Cheeseman Day, Jennifer. Rates of Uninsured Fall in Rural Counties, Remain Higher Than Urban Counties. U.S. Census Bureau, April 9, 2019 (accessed February 24, 2020). ↩
20. “Silver loading” refers to the practice of health insurers increasing premium rates for silver plans offered in the FFM and state-based exchanges to reflect the cost associated with providing CSR subsidies to enrollees since the federal government stopped funding CSR in the fall of 2017. In some areas, this has resulted in premium rates for silver plans that exceed premium rates for gold plans, which allows individuals who are eligible for premium tax credits but not eligible for CSR subsidies to access richer coverage levels at a lower premium. Silver loading has resulted in higher premium rates for silver plans offered in the FFM and state-based exchanges, which has led to an increase in premium tax credits for subsidized enrollees. ↩
21. United States Government Accountability Office. Rural Hospital Closures: Number and Characteristics of Affected Hospitals and Contributing Factors. United States Government Accountability Office, August 2018 (accessed February 24, 2020). ↩
22. Ibid. ↩
23. For reference, 2 percent of urban hospitals closed between 2013 and 2017. ↩
24. Supra note 21. ↩
25. 83 percent of rural hospital closures from 2013 to 2017 occurred in states that did not expand Medicaid. In 2013, approximately 51 percent of rural hospitals were located in states that did not expand Medicaid. ↩