Health Insurance Health Reform Regulation

How do states plan to control Obamacare premiums?

Obamacare mandates that individuals need to buy health insurance or else they will face a financial penalty. This threat, however, is not credible unless there are affordable health insurance options for most Americans. What are states doing to hold down health insurance rates in the ACA’s health insurance exchanges? A RWJF working paper provides some options which I describe below:

  • Supplemental or Alternative Reinsurance Program. The ACA provides for a temporary reinsurance program to operate from 2014 through 2016 in all states.   The federal approach sets an attachment point at $60,000, the level of individual incurred medical expenses above which reinsurance funds will be made available, a coinsurance rate (80%), the share of medical expenses for which the insurer will be reimbursed above the attachment point, and a cap ($250,000), above which no reinsurance payments will be made.  States have the option of using state funds to increase premium protection provided by reinsurance or to create their own alternative reinsurance program.
  • Supplemental Risk Corridor. The federal temporary risk corridor program redistributes funds from exchange-based qualified health plans (QHP) with lower than expected costs to those with higher than expected costs in an attempt to  increase market stability. The program compares actual QHP medical costs to the plan’s projected medical costs. If the actual costs are less than 97 percent of the expected, a share of the savings goes to HHS; if the actual costs are more than 103 percent of the expected, a percentage of the excess costs is paid to the QHP by HHS.   States can supplement this program, although none have yet chosen to do so.
  • Geographic Rating Areas. Rating areas define the geographic regions within which a plan’s enrollees with the same characteristics—in the case of the ACA, these are age and smoking status—will be charged the same premium.  States have flexibility to determine rating areas to align with available cost and utilization patterns and reduce premium spikes for certain geographic areas, or states can default to federally determined areas. For instance, MN, NY, OR and RI use a determination based on their own state definition but AL, NM and VA use the federal definition.  The federal definition defines the rating areas as one rating area per metropolitan statistical area (MSA) and one additional rating area, which will include all non-metropolitan statistical areas in the state.  This approach is very similar to the geographic rating areas Medicare uses for its hospital wage index.  On the other hand, Oregon has seven county-based areas, and Rhode Island itself is a single rating area. Maryland allows insurers to set their own rating areas; New Mexico uses the federal definition, however, it has made the additional risk-sharing move of capping the maximum differential between the highest and lowest rated areas at 40 percent.
  • High-Risk Pool Transition. Before the ACA was enacted, 35 states had created high-risk pools to provide a coverage option for people with pre-existing conditions These are policies to transition individuals out of the current state high-risk pool (HRP) programs into HIE plans. Since HIE plans cannot alter premiums based on pre-existing conditions, the HRP are no longer needed.
  • Early Renewal Regulation. Prevent or constrain insurers from renewing plans early, delaying compliance with ACA market rules
  • Age Rating. The federal rules currently have 3 age bands, 0-20, 21-63, and 64 and older. States have flexibility to establish their own age curves, which determine the distribution of rates across age bands. The more age bands available, the closer plan prices are to actuarial value but the further they are from full community rating.  New York relies on pure community rating without age bands and Minnesota increased the relative premiums that could be charged to children in order to prevent insurers from being discouraged to sell to children.
  • Restricting the sale of catastrophic plans to limit selection effects and attract catastrophic plan enrollees to exchange plans.  Currently, the ACA restricts the sale of catastrophic plans to two groups: those under 30 years of age at the start of the plan year and those without other affordable offers of health insurance coverage.  The goal of state policies to further limit the sale of catastrophic plans is  to avoid adverse selection which could occur if all healthy individuals decided to buy catastrophic plans leaving standard HIE with a sicker patient population, thus leading to high insurance premiums.
  • Additional Oversight and Regulation of Non-Traditional Products. Certain insurance products, such as association health plans (health plans sold through professional associations), discount medical plans, short-term policies, and coverage through health sharing ministries have often been treated differently, for regulatory purposes, than standard small group or individual health insurance. While some of these plans are independent and might be self-insured, others have been set up by insurance companies in an effort to offer insurance products not subject to more restrictive state laws.  Thus, some States have included additional regulation of these plans, often treating them as small group plans within the HIEs.
  • Broker Compensation. Standardizing broker compensation inside and outside of the exchange markets to prevent brokers from steering customers away from one market and towards the other.
  • Network adequacy. The ACA  requires the inclusion of a new category of providers called “essential community providers,” which provide care to underserved populations. The ACA does not, however, impose a network adequacy standard on insurers selling policies outside the exchanges, but many states have their own standards, particularly for Medicaid plans and commercial health maintenance organizations (HMOs).  Narrow network plans have low up-front costs and fewer providers, which can attract healthy individuals who have fewer provider needs. States can set similar network adequacy standards inside and outside of the exchange.
  • Service Area Alignment. Regulating insurers’ service areas to ensure they are not cherry-picking healthier service areas.
  • Plan standardization. Mitigating the potential for variations in plan benefit design within coverage levels, as well as plans outside and inside the exchange, reducing opportunity for benefit designs that may disproportionately attract healthy individuals.
  • Requirements to Offer at Specified Metal Levels. Preventing insurers from avoiding higher risk individuals by requiring them to offer plans at a range of coverage levels.


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