Extending cancelled individual insurance policies for another year may seem appropriate for states where the federal government has taken over and ?fumbled? on exchanges, but states ahead of the game are put in an unfair bind by President Obama's about-face on the Affordable Care Act.
If state regulators and exchange operators reject the president's proposal, they stand to take the blame now directed at the administration. But if they keep non-compliant plans in force, states face the prospect of upending the delicate balance of risk that makes the exchanges viable for insurers and consumers.
Take California, the first state to set up an exchange following passage of the ACA in 2010. Covered California has had its share of hiccups, but the exchange has run much smoother than the federal Healthcare.gov site, having enrolled 30,830 Californians the first month, nearly a third of the nationwide signups.
After years of political, legal, and technical preparation, California carefully and meticulously crafted a system that works pretty much the way the ACA envisioned it. Some of California's major insurers decided not to participate, but the 11 that did were given assurances that they are playing by one set of rules designed to balance out the promise of increased enrollment with the financial risks of insuring an unknown quantity of lives.
Each qualified health plan had to sign a contract with Covered California that requires them to cancel policies that are not compliant with the ACA as of Dec. 31. (This excludes grandfathered plans in place before 2010).
Health plans, actuaries, and insurance commissioners warn that if the generally healthy residents who have these non-ACA policies are allowed to continue with them, they will not have incentive to enroll in the exchange, leaving a disproportionate amount of unhealthy purchasers in the exchange. Because California has heretofore allowed medical underwriting, the exchange is initially attracting people with pent-up demand: those who were unable to get insurance because of pre-existing conditions or face exclusion of coverage for certain conditions. The fear is that adverse risk will cause premiums to rise to unsustainable levels and create a death spiral. This wasn?t the bargain insurers struck with the state when they entered the exchange.
Obama has no authority, absent legislation, to force insurance departments to extend these policies, but they could do so without violating the ACA. States would have to inform consumers that they would be giving up the comprehensive benefits of the new law as well as forfeiting potential tax subsidies from enrolling in the exchanges.
Some states that run their own exchanges have already said they will not continue cancelled policies, including Arkansas (which has a state partnership with the federal government on the exchange), Massachusetts, Minnesota, Rhode Island, and Washington.
Other state insurance commissioners and exchange operators are taking this week to carefully ponder their response. California, Connecticut, and New York leaders have not made a decision, while Oregon's commissioner has already allowed cancelled policies to remain in effect another year, according to comments made at a press conference held Monday by Families USA. California is set to decide by the end of the week.
It's a decision not to be taken lightly. In California?which has the nation's largest individual insurance market with 1.7 million insured?900,000 policyholders have been notified of cancellations. Many of them?especially healthy people with limited-coverage policies?are facing new alternatives with much higher premiums. Many of them are confused about the law, and resentful of having to pay more to balance out the costs for those who have been long denied coverage or forced to pay high rates because of their age and medical conditions.
Obama has an ally in Insurance Commissioner Dave Jones, who objected to Covered California's policy cancellations and already pressured Blue Shield of California and Anthem Blue Cross to extend some of their policies for a few months, citing compliance issues. But his department regulates only PPOs. The Department of Managed Health Care, which regulates HMOs, has yet to weigh in.
Insurers are urging Covered California to stay the course, warning that delays will cause significant disruption in the marketplace.
A key question in California (and likely other states) is whether cancelled policies need to be resubmitted for regulatory approval and re-priced, since premiums were based on 2013 assumptions, without ACA required benefits factored in. Resubmitting and re-pricing policies would be administratively burdensome, creating a lot of work in a short amount of time and stealing the focus away from other pressing matters facing the exchange.
The saving grace for insurers is that the ACA has built in risk protections, including a risk corridor that shields insurers from losing or making too much money in the exchanges the first three years, based on the assumptions they made on risk. In fact, in its letter to state commissioners, the U.S. Department of Health & Human Services says the risk corridor should help ?ameliorate unanticipated changes in premium revenue? and said it was open to modifying the program to achieve the desired result.
Whatever happens, the latest wrinkle in ACA implementation is adding to the confusion among consumers, making it ever more important that state leaders get it right.
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