To restore the dysfunctional individual health insurance market, the Patient Protection and Affordable Care Act took risk pooling and medical underwriting away from health plan issuers and created single statewide individual risk pools. The law also put in place mechanisms to ensure the reforms work as intended.
Two of those mechanisms are designed to preserve the spread of risk in statewide individual risk pools and ward off adverse selection that crippled the pre-2014 market so the pools contain enough people who don’t use a lot of medical services to pay in premium dollars to cover the care of those who do. One such device is limiting enrollment in individual health plans to a set time of year to reduce churn and keep the pool population relatively stable. There are exceptions to these limited enrollment periods such as when people lose employer-sponsored coverage, change their place of residence or their family status such as getting married for having a child.
Health plan issuers are concerned these exceptions are being gamed in the majority of states where the federal government operates health benefit exchanges to effectively enable people to obtain short term coverage of less than a year to cover needed medical care – contrary to the Affordable Care Act’s policy intent to require continuous annual enrollment. That degrades spread of risk and increases the likelihood of adverse selection, which in turn will require higher premiums. That was the fundamental, fatal problem facing individual health plan issuers before the law overhauled the individual and small group health insurance market segments. In response to their concerns, Andy Slavitt, acting administrator of the Centers for Medicare and Medicaid Services, told a J.P. Morgan health-care conference in San Francisco this week that CMS will tighten up its rules on exceptions for enrollments outside of the annual open enrollment period, The Wall Street Journal reported.
Another device to ensure the integrity of the state risk pools is federal income tax penalties assessed on those who opt to go without health coverage, particularly if they believe they are unlikely to need medical care over the near term. They act as a stick to nudge people into the pools if they don’t have coverage through an employer or government program. As with the limited open enrollment periods, they are designed to ward off adverse selection and preserve the risk spreading function of the pools. Here too, there are concerns they may not be working as intended. Some individuals – especially those earning more than 400 percent of federal poverty and thus ineligible for tax credits to offset individual health plan premiums – are doing back of the envelope calculations and opting to go uninsured and pay the penalty if their annual premium exceeds the penalty amount, according to The New York Times.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email