Yet even though the federal government has been seeking to undermine health coverage, states can fight back. Here are three proven ways that states can combat current sabotage efforts:
-Pass a state-level individual mandate.
-Create a state reinsurance program, preferably through a State Innovation Waiver.
-Prohibit the sale of substandard plans, or limit their use to narrow circumstances.
Each of these policies has been implemented in at least one state, and taken together, they would significantly reduce premiums, increase coverage, and maintain important consumer protections.
Protections provided by the Affordable Care Act
The ACA reformed the individual insurance market through three primary means: consumer protections to prevent discrimination against people with health conditions; financial assistance to help people afford coverage; and a requirement to have health insurance so that markets would have a balanced risk pool with lower premiums.
Prior to the passage of the ACA, most insurers built their business model around avoiding high-cost enrollees, including by denying people with pre-existing conditions coverage altogether, charging them exorbitant premiums to have coverage, not covering treatment for their pre-existing conditions, or seeking to end people’s coverage when they had large health costs. The ACA put an end to this by prohibiting discrimination based on health status, requiring that everyone be offered coverage, requiring insurance to provide basic health benefits, and ending unfair insurer practices. The ACA also provides financial assistance to help people in the individual insurance market afford the cost of coverage.
Because insurers must sell coverage to anyone who wants it, and cannot charge someone more if they have a high-cost health condition, there is an incentive for healthy people to avoid paying for insurance until they need it. This drives up costs for everyone since insurers rely on premiums from currently healthy enrollees to help cover the costs of enrollees needing care—and then when those healthy enrollees eventually need care, their costs are paid for with the premiums of other enrollees in turn. To address this problem, the ACA included an individual mandate that required individuals who could afford coverage to obtain it or pay a penalty. This provision made sure that healthy individuals stayed in the risk pool, lowering premiums in the market.
President Trump and Congress have sought to undermine these protections by making it easier for insurers to avoid the requirements of the ACA and for healthy people to avoid having coverage. These types of changes lead to segmented risk pools, in which currently healthy people obtain less expensive, skimpy coverage that does not provide the consumer protections of the ACA, driving up premiums for people who need the care provided by ACA-compliant plans—and when those healthy people eventually do need care, they will be forced back into the now higher-priced market for ACA-compliant plans.
Reducing premiums and coverage losses through a state-level individual mandate
The repeal of the federal individual insurance mandate penalty starting in 2019 will have significant consequences for state insurance markets.
Without the penalty provision, people are far more likely to delay signing up for insurance until they think they will need to use it, increasing premiums for everyone in the individual insurance market. These higher costs will make it more difficult for people to afford coverage, particularly middle-class families that do not receive tax credits to help cover their premium costs. As some of them exit the market, this has the potential to push premiums even higher for those who remain. All told, the Congressional Budget Office estimates that repeal of the mandate penalty will mean 13 million fewer people covered by 2025 and premiums increasing 10 percent in 2019. To put that in perspective, a typical middle-class family buying health insurance on their own would see their premiums increase nearly $2,000.
To prevent this premium increase and reduction in insurance coverage, states can enact their own individual mandate, which a number of states are considering. Massachusetts has an individual mandate that predates the ACA, which has proven very successful. Former Treasury official Jason Levitis has drafted legislation for states to either utilize the existing rules and regulations for the federal mandate or create a free-standing state mandate. A state-level individual mandate would work just like the federal mandate, making sure that healthy people purchase coverage or pay a fine. Not only will this increase coverage and bring down premiums, but it also could reduce uncompensated care costs and increase state revenue.
Reducing costs through state reinsurance programs
Perhaps the most significant effect of sabotage to date has been increased premiums. By taking steps to decrease the number of healthy people in the risk pool, as well as seeking to undermine the market more broadly, federal policymakers have forced insurers to increase premiums to cover higher costs in an uncertain market. Nationwide, the benchmark premium in the individual marketplace increased 37 percent for 2018, much greater than the single-digit increase that was expected in the absence of sabotage.
One effective step that states can take to reduce premiums is to create a state-level reinsurance program. This program provides a pool of funding that is used to defray the costs of particularly expensive individuals. Because insurers do not have to price in the possibility of having an expensive outlier, they are able to reduce premiums for everyone.
The ACA created a temporary federal reinsurance program, which ended in 2016—Medicare Part D also has a reinsurance program, which is permanent. Since the ACA’s reinsurance program ended, three states have enacted their own reinsurance programs: Alaska; Minnesota; and Oregon. Alaska’s reinsurance program lowered premium increases from 42 percent to just 7 percent for 2017.
In enacting reinsurance programs, states can reduce their own costs by implementing the program through a State Innovation Waiver, or 1332 waiver, named after the section of the ACA that allows for them; this was the approach taken by Alaska, Minnesota, and Oregon. State Innovation Waivers let states waive certain requirements of the ACA as long as they provide coverage that is as affordable and comprehensive as coverage under the ACA for at least as many people without increasing the federal deficit. These waivers also allow states to use the savings they provide to the federal government to fund their programs; because reinsurance reduces the cost of federal tax credits by reducing premiums, states can offset a significant portion of their programs’ cost through a waiver approach.
While waivers must account for the specifics of each state’s insurance market, a number of states have put forward reinsurance proposals, providing a wide range of helpful examples that other states can draw from in crafting their own approach. But given the time required to draft, submit, receive approval for, and implement a waiver, states interested in doing so for the 2019 plan year likely would need to enact state legislation enabling the governor or relevant state agency to seek such a waiver in the first quarter of 2018.
Prohibiting substandard health plans in state insurance markets
In addition to increasing premiums, Trump has sought to encourage the proliferation of plans that do not provide the ACA’s consumer protections, such as short-term, limited duration coverage. These plans can cherry-pick healthy individuals out of the individual market; discriminate against people with pre-existing conditions; charge women and older people more; impose onerous annual limits and exorbitant deductibles; and exclude coverage for necessary services such as maternity care and prescription drugs. They also employ some of the shady insurance practices that the ACA outlawed. In one example, a couple with short-term coverage faced a $900,000 bill for the husband’s triple bypass surgery after their insurer canceled their coverage post-surgery, claiming they had not disclosed conditions for which, at the point of enrollment, the husband had never been diagnosed.
These plans are bad both for the individuals who purchase them and for those who obtain coverage in the individual market. Individuals who buy these plans because of their lower premiums often do not realize that they are buying substandard plans that will not cover a range of services. The poor coverage exposes them to the risk of massive bills and even medical bankruptcy while increasing uncompensated care costs in the health system as a whole. And because these substandard plans draw healthier people out of the individual market, they increase costs for those who need care the most.
Despite these dangers, Trump issued an executive order in October that directed federal agencies to make it easier for such plans to be sold as an alternative to comprehensive coverage. States can adopt two approaches to dealing with these plans. States such as New York and New Jersey require all plans to meet the ACA’s requirements. Other states, including Minnesota, limit the use of these plans to specific circumstances where individuals are truly seeking short-term coverage. In either case, it is important for states to address the issue comprehensively to avoid unintentionally creating loopholes that leave the door open to novel types of junk plans. By prohibiting or substantially regulating these plans, states can lower premiums in the individual market and prevent people from the significant downside risks of having substandard plans.
Conclusion
The ACA and state insurance markets have shown impressive resilience in 2017. Given the increased pace of efforts to sabotage the markets, however, states need to act quickly to mitigate pending threats that would increase premiums, decrease coverage, and lead to more substandard plans. By enacting legislation as outlined above to replace the federal mandate with a state counterpart; implement a reinsurance program through a State Innovation Waiver; and limit the sale of non-ACA-compliant plans, states can make significant headway in protecting their citizens from the effects of health care sabotage.
In addition, there are more commonly adopted policies that all states would do well to follow. Many states have expanded Medicaid—most recently, Maine—which increases the number of people with affordable, high-quality coverage and lowers premiums in the individual insurance market. A number of other states may consider expanding Medicaid in 2018, including traditionally conservative states such as Idaho and Utah. Some states have also sought to mitigate the effects of Trump’s decision to end cost-sharing reduction payments by having insurers apply the required premium increase only to silver-level marketplace plans. By increasing premiums for only these plans, states insulate most consumers from the effects and many plans are actually cheaper for people who receive federal tax credits since the amount of tax credits available is pegged to the cost of silver-level plans.
In conjunction with the other steps outlined above, these sorts of changes can significantly improve the affordability and quality of care available in state insurance markets. Given the federal efforts to undermine access to affordable care, states should consider all options to protect and improve their insurance markets. Once they have identified what steps they wish to take, they should act quickly to limit the effects of health care sabotage.
This article was published by the Center for American Progress.
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