The American Health Care Act (AHCA) and the Senate’s ill-fated Better Care Reconciliation Act (BCRA) attempted to deliver on two promises: 1) protecting patients with preexisting conditions, and 2) eliminating the Medicaid expansion. Though repeal efforts seem to have stalled for the time being, future GOP attempts to replace the ACA will undoubtedly involve the delicate task of appeasing conservative party members while maintaining provisions of the ACA that remain immensely popular with voters. While others have already discussed the failings of the proposed legislation with respect to the Medicaid expansion and preexisting condition protections, most analyses have overlooked a subtle connection between these two facets of the ACA. We worry that if Congress eventually revives its plan to phase out the Medicaid expansion, many marketplace enrollees with preexisting conditions will find their protections eroded and coverage rendered worthless.

Discriminatory Benefit Design in the Marketplace

Previous work has already established that patients in Medicaid non-expansion states face higher premiums than their counterparts in expansion states. With the elimination of the expansion, we similarly expect to see premium increases as high-cost enrollees sign up for marketplace plans after losing their Medicaid coverage. But this represents only one way that the rollback of the Medicaid expansion could affect patients in the health insurance marketplace.

With the loss of the expansion and the repeal of the individual mandate, payers will be desperate to control rising health expenditures among marketplace enrollees. Out of necessity, they will need to find some way of discouraging high-cost patients from enrolling in their plans while strictly managing utilization for existing enrollees. This could be achieved by designing benefits in such a way that patients with expensive chronic conditions are dissuaded from enrolling in certain marketplace plans. A previous analysis of marketplace drug coverage found evidence of this strategy, observing that more than 52 percent of plans required ≥30 percent coinsurance for all covered drugs in at least one therapeutic class, particularly for expensive conditions such as cancer, HIV/AIDS, and multiple sclerosis. Structuring formularies in this way—a phenomenon termed “adverse tiering” by Jacobs and Sommers—could enable payers to sidestep protections for patients with preexisting conditions. While not documented previously, we suspect that adverse tiering may be a byproduct of some states’ refusal to expand Medicaid and—just like the higher premiums in non-expansion states—will be an inevitable result of eliminating the expansion.

Adverse Tiering and Medicaid Expansion: A Case Study

To illustrate the potential connection between the Medicaid expansion and benefit design, we examined how adverse tiering practices might vary for patients with HIV/AIDS based on their state’s Medicaid expansion status. These patients make an ideal case study because they have historically faced discrimination but benefited tremendously from the ACA, with coverage gains through the expansion as well as the marketplaces (due to preexisting condition protections). However, the budgetary impact of newly insured HIV/AIDS marketplace enrollees concerned payers, with spending on antiretroviral therapies (ARTs) surpassing medication costs for diabetes, hepatitis C, and cancer.

Some marketplace plans responded to the looming threat of unsustainable prescription drug spending by placing many antiretrovirals on a formulary tier requiring substantial cost sharing. A recent assessment of adverse tiering echoed the concerns of activists that the practice was inherently discriminatory and aimed at discouraging HIV/AIDS patients from seeking marketplace coverage. We extended this investigation to assess whether adverse tiering was more frequent in non-expansion state marketplaces, given that much of the HIV/AIDS spending could be explained by low-income enrollees who would otherwise have received coverage through the expansion.

Our sample included a mix of early expansion and non-expansion states, as well as a state (Louisiana) that expanded Medicaid during 2016-2017. We selected a total of 11 states that have been disproportionately impacted by the HIV/AIDS epidemic so as to be reflective of the real-world marketplace options faced by these patients. Plans were selected based on enrollment size and captured the formularies for 95-100 percent of individuals with marketplace coverage in each state. The final sample represented nearly 700 plans offered to just under 60 percent of health insurance marketplace enrollees in the U.S. and approximately 70 percent of Americans living with HIV. We used the percentage of plans placing all multi-class combination products used to treat HIV on a specialty tier as a proxy measure for high patient out-of-pocket costs and consequently adverse tiering. We chose to focus on combination therapies because they are associated with improvements in medication adherence and viral suppression, making these regimens ideal for HIV/AIDS patients, all of whom must receive lifelong treatment. Figure 1 displays the percentage of health exchange plans engaging in adverse tiering in 2016 and 2017.

Our exploratory analysis revealed two key findings. First, adverse tiering is a much greater problem in states that have not adopted the Medicaid expansion, wherein 33 percent of plans available in 2016 placed all ARTs in our sample on a specialty tier compared to just 12 percent in expansion states. Second, the possible protective effect that the Medicaid expansion has against adverse tiering was supported by the changes in tier status of antiretrovirals observed among exchange plans in Louisiana after this state expanded Medicaid eligibility in early 2016: the number of insurers engaging in the practice fell from 40 percent to 18 percent after only a single year, a relative reduction of over 50 percent. This precipitous drop in adverse tiering was far greater than the small decline (3 percent) observed in both early expansion and non-expansion states during the same period, which may be partially attributable to decreased participation in the insurance marketplaces or increased scrutiny of the practice by regulators in some of these states.

What Are The Implications For Health Reform?

Our findings are particularly noteworthy given that any future GOP proposals will likely attempt to eliminate the Medicaid expansion while ostensibly preserving the guaranteed issue provision of the ACA. This ill-advised strategy could have profound cost implications for anyone seeking coverage through the marketplaces, but particularly patients being treated with expensive specialty drugs. All enrollees could see a sharp increase in premiums as high-cost patients formerly enrolled under the Medicaid expansion (such as those with HIV/AIDS) seek out marketplace plans, resulting in a sudden financial shock to fragile state marketplaces. Insurers already dealing with strained budgets will likely withdraw from the market, and those that remain will be forced to redouble their efforts to manage utilization of expensive therapies.

In effect, states that have been shielded from adverse tiering may see an explosion in the practice as payers desperately try to control rising drug expenditures. Without congressional action, existing marketplace enrollees will find that restructured formularies have caused exorbitant increases in the amount they pay for their medications — in the case of HIV/AIDS patients a tripling of out-of-pocket costs. This financial burden could leave patients struggling to afford needed medications, potentially worsening health outcomes and increasing medical spending.

If Congress does move forward with plans to phase out the Medicaid expansion, they have left states with few options to discourage adverse tiering. In Florida, existing state laws prohibiting coverage discrimination against HIV/AIDS patients have been used to great effect against insurers who attempted to engage in adverse tiering. However, this strategy relies on constant vigilance from activist groups and will do little to address the problems faced by sufferers of unprotected conditions (e.g., cancer, multiple sclerosis, et cetera). We worry that other legislative remedies, such as New York’s prohibition on the use of a specialty tier, may be a temporary fix, as insurers could simply expand prohibitive cost sharing to the remaining tiers of their formulary. For a low-income patient being treated with a specialty drug, there is little comfort in having their medications on a non-preferred tier if their out-of-pocket costs remain insurmountable.

Although ideological opposition to the Medicaid expansion makes its future uncertain, policymakers should be cognizant of the unintended consequences of modifying the expansion. They should also be aware that insurers may expand their use of adverse tiering in order to circumvent protections for individuals with preexisting conditions, leaving sicker, low-income patients with ineffectual coverage and no viable alternative. Any serious replacement proposal that seeks to maintain protections for these patients while rolling back the Medicaid expansion must grapple with the fact that guaranteed issue does not always mean guaranteed access.

Figure 1. Adverse Tiering in Health Exchange Plans across Eleven States, 2016-17

Note: a) Non-expansion states included Alabama, Florida, Georgia, North Carolina, and Texas. b) Early expansion states (those that expanded before 2016) included California, Illinois, Maryland (and DC), New York, and New Jersey. c) Louisiana expanded Medicaid in 2016, however they did so after the marketplace open enrollment period for 2016 had already closed and therefore any effects of the expansion would not be seen until 2017. d). All averages are weighted by market size in terms of enrollment.

Author’s Note

Dr. Doshi reports serving as a consultant for Allergan, Ironwood Pharmaceuticals, Shire, Sanofi, and Vertex; and has received research funding from Abbvie, Biogen, Humana, Janssen, PhRMA, Pfizer, Regeneron, and Sanofi, all unrelated to the content of this blog post. Her spouse holds stock in Merck & Co and Pfizer.