How to stabilize individual health insurance markets and lower premiums for consumers is rightly one of the hot button issues before policy makers at the state and national levels. Providing ongoing direct funding of the cost-sharing reduction subsidies and creating a national reinsurance program are among the good ideas getting appropriate attention.
What is getting far too little attention, however, is another proven way to increase enrollment, lower premiums, save consumers money, and encourage health plan participation to stabilize the markets: making major investments in marketing and outreach.
Marketing is one of the most important elements of creating and continuing any successful business. Investments are critical to convincing consumers to buy all types of products and services. The individual health insurance market is no different. Indeed, selling health insurance can be harder than selling other products because of human biases against spending money today for potential benefits tomorrow, and also because consumers often need education and assistance to understand and choose among coverage options.
Accordingly, over the last two years the federal government has increased its marketing and outreach investments to support enrollment in the individual markets served by the federally-facilitated marketplace (FFM). The annual spending for marketing and enrollment support (notably through the Navigator program) increased from $118 million for the 2016 enrollment year to $163 million for the 2017 enrollment year.
However, the Centers for Medicare and Medicaid Services (CMS) announced on August 31 that it would dramatically cut its spending for marketing by 90 percent and spending for Navigator outreach by 41 percent. This would reduce the total marketing and outreach spending for the FFM by 72 percent, to $47 million. And the actual cuts may be even more extreme, as the administration reportedly has stopped funding the navigator program altogether.
Evidence from California suggests that this course if misguided. If instead of cutting marketing and outreach spending, CMS increased spending to $480 million, or 1.4 percent of FFM premiums—the same percentage of premiums that Covered California spends on marketing and outreach, which complements spending by health plans—the FFM would see an increase in enrollment and a healthier risk mix, leading to lower costs for consumers.
In “Marketing Matters: Lessons from California to Promote Stability and Lower Costs in the National and State Individual Insurance Markets,” Covered California, the state’s exchange, details California’s experience and the evidence that supports robust marketing. The report shows that an increase in federal market and outreach investments to $480 million would likely yield a return on investment of from 300 percent to 500 percent. The evidence suggests that over a three-year period with annual spending increases over the $480 million base equal to increases in the consumer price index (CPI), premiums could decrease by more than 3 percent, and 2.1 million more Americans could become insured. The total three-year spending of $1.5 billion would represent only 1 percent of total FFM on-exchange gross premiums.
The report also models the potential impact of the announced 72 percent reduction in marketing and outreach spending, for a national FFM spend of $47 million for 2018. The evidence suggest that there will be 1 million fewer Americans getting insurance, a less healthy risk pool, and premiums that will be over 2.5 percent higher in 2019 (representing a premium increase for those remaining insured of $1.3 billion).
The Need for Aggressive Marketing and Outreach
Covered California’s analysis is based on the most extensive experience with supporting individual market enrollment in the nation, and the positive results to show for those efforts. Behavioral science makes clear that health insurance is a product that needs to be explained, promoted, and sold: While sick people are motivated to buy insurance, healthier people need to be reminded, nudged, and encouraged to purchase something that does not provide an immediate return or may never be used.
In California, even with high name recognition for Covered California and awareness of the Affordable Care Act generally, many of those eligible for financial help are not aware that the benefits of the law are available to them. At the same time, we now have four years of experience and know that about 40 percent of those enrolled in the marketplace leave each year for employer-based insurance and other sources of coverage. Marketing and outreach is essential to continually reach out to the newly uninsured.
In this environment, Covered California continues to maintain an aggressive marketing and outreach campaign and has budgeted $111 million for the upcoming 2018 coverage year. These investments complement spending on marketing by health plans and payment of commissions to agents to promote enrollment (see Figure 1). The resulting total investment of $255 million is a significant amount and comes on the heels of similar spending over the past four years. But that spending is relatively small as a portion of premium—reflecting about 1.4 percent of on-exchange premium and 0.9 percent of total individual market premium—and it is the critical component to creating a good risk mix and fostering lower rates.
Figure 1. California On-Exchange Total Marketing and Outreach Investments (Millions)
Significant Return on Investment
It is difficult to establish empirically the precise effects of marketing and the specific benefits of each incremental dollar invested. But there are two critical pieces of evidence that Covered California’s aggressive efforts have been paying off.
First, Covered California has achieved a take-up rate among those who are subsidy-eligible that is nearly 25 percent higher than the average for FFM states (see Figure 2). As of 2016, Covered California enrolled about 79 percent of subsidy-eligible individuals, compared to the average for FFM states of 64 percent.
Figure 2. Comparing California and Federal Marketplace Take-up Rates: 2014-2016
Source: Covered California analysis of Kaiser Family Foundation estimates of Subsidy Eligible Population (2015 and 2016) and CMS/ASPE Effectuated Enrollment snapshots (December 2014, March 2015, March 2016).
Second, as documented and reported by CMS, Covered California’s enrollment reflects a substantially healthier mix of enrollees. The CMS-calculated risk scores of California individual market enrollees are about 20 percent lower than the national average (see Figure 3). This bigger and healthier enrollment translates to 20 percent lower costs than California would have otherwise if it had the national average risk mix — representing on-exchange premium savings of $2.6 billion for 2015 and 2016.
Conservatively attributing only one-third of the $2.6 billion in premiums savings for 2015 and 2016 to the state’s relatively more robust marketing and outreach efforts, California has earned a more than three-to-one return on marketing investment. California’s efforts in these areas have also contributed to the state having one of the most stable markets in the nation — the same 11 plans that were part of our marketplace in 2014 are participating in 2018, and we have had a four-year average rate increase of only 8.5 percent.
Figure 3. Comparison of FFM, SBM and Covered California Risk Scores
Further study is warranted to explore the specific returns for different levels of incremental investment in marketing and outreach, and the specific mixes of strategies and tactics that work best in particular states and regions. Marketing Matters highlights California’s successful approach and is offered to inform other marketplaces as they evaluate their marketing and outreach strategies moving forward. Those who are interested in further information on the California experience and details regarding the projected effects of increasing marketing and outreach spending are encouraged to read the full report.
Overall, the evidence so far is clear: marketing and outreach are effective and efficient mechanisms for improving take-up, lowering premiums, saving consumers money, and stabilizing the marketplace. If the FFM goes ahead with its announced reduction in marketing and outreach, the results will likely be both immediate and far-reaching. One million fewer Americans will get coverage, rates will increase, and health plans will be likely to continue to exit many marketplaces. If the FFM invested in marketing and outreach at the same percentage of premium as Covered California, it would represent a $480 million investment, which is ten times what CMS is currently proposing. Covered California’s experience shows that there would likely be an immediate increase in the number of consumers who sign up for coverage and a healthier risk pool, which would in turn lower cost for all who are insured and for the federal government—a win for everyone.