Tag Archive: health benefit exchanges

Too early to declare failure of individual health insurance market statewide risk pooling

One of the primary reforms of the individual health insurance market under the Patient Protection and Affordable Care Act was to create a single risk pool for entire states for individual health plans effective 2014 and later. The purpose was to rescue the individual market from a death spiral crisis of adverse selection that threatened its existence. To keep their individual plans solvent pre-2014, plan issuers resorted to playing a game of whack a mole with their plans. As losses mounted in existing plans, they would shut them down and place them into runoff mode by closing them off to new enrollees. Then they set up new plans containing new enrollees stringently screened via medical underwriting in an attempt to hold down claims costs.

The result was widespread market failure. Many consumers in the individual health insurance market couldn’t purchase coverage because they couldn’t meet the increasingly strict medical underwriting criteria. Those already in existing plans faced steep premium rate increases making coverage unaffordable.

There are widely differing views on whether the Affordable Care Act’s single statewide risk pooling mechanism is achieving adequate spread of risk to remedy the adverse selection that plagued the market pre-2014. Media coverage is sloppy. Accounts such as this one conflate the statewide risk pool with the health benefit exchange marketplace. They are not one and the same. Individual plans are sold both on and off the exchanges. There is no separate risk pool for those enrolling in the individual market through exchanges and another for those who do not.

Many media reports frequently report individual market enrollees are “sicker than expected.” Higher medical utilization as the 2014 reforms kicked in was in fact expected. The Affordable Care Act contained premium stabilization mechanisms that took into account the possibility of high utilization due to pent up demand from those who were previously without coverage either voluntarily or because they fell short of medical underwriting standards or couldn’t afford the premium increases as the market imploded.

A problematic issue with current mainstream media coverage is the tendency to jump to the conclusion that high anticipated medical utilization in the early years of the individual market reforms are indicative of its long term viability. As the standard investment exculpatory disclaimer goes, past performance doesn’t guarantee future results, good or poor. Ditto short term volatility.

Respected health care industry blogger Timothy Jost offers a sharply contrasting perspective to bearish sentiment that the statewide risk pooling mechanism is a failure. He cites a report issued this week by the Centers for Medicare and Medicaid Service indicating claims costs were flat year over year from 2014 to 2015 as evidence the statewide risk pools are functional. Higher premiums for 2017, he writes, are due to health plan issuers adjusting rates to comport with actual experience in 2014 and 2015 plan years instead of the educated guessing they employed for 2014, the first year of the major individual market reforms. Also being factored in is the end of the reinsurance component of the Affordable Care Act’s premium stabilization mechanisms starting in 2017.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Policy tension over restricted exchange open enrollment emerges in California

A primary element of the Patient Protection and Affordable Care Act’s reforms of the individual health insurance market is the elimination of medical underwriting and requiring health insurers to accept all applicants for coverage regardless of their medical history and condition, including pregnancy.

For plans sold on the state health benefit exchange marketplace, Section 1311(c)(6) of the law requires the federal government to determine limited to annual open enrollment periods such as those used in large employer group health plans. In addition, Section 2702(b) of the Public Health Safety Act allows health plan issuers selling plans outside the exchange marketplace to restrict enrollment to open or special enrollment periods. Individuals and families can enroll outside these periods only if, for example, they move to another state, lose employer-sponsored coverage or change their family status. Changes in health status are not excepted.

A request this week by California’s U.S. senators, Dianne Feinstein and Barbara Boxer urging their state’s health benefit exchange, Covered California, to add pregnancy to the list of exceptions to the open enrollment timeframe reflects an emerging policy tension point in the implementation of the Affordable Care Act’s individual market reforms.

Nicole Evans of the California Association of Health Plans cautioned “[i]f we start to provide exceptions for people to wait to get coverage until they have a need, you could be undermining the goals of the Affordable Care Act.”

The rationale for restricting enrollment to specified periods of the year is to deter opportunistic enrollment by those who might purchase coverage only when they have a health crisis requiring costly medical treatment and allowing it to lapse once their course of care is completed. Supporters of this policy might argue that allowing enrollment at any time (such as permitted for small group insurance and Medicaid) would convert an insurance product sold in the private market into something more like a government mandated (and subsidized for those who qualify) benefit.

A contrary view is expressed by Anthony Wright, executive director of the consumer nonprofit Health Access California. Wright suggests ending specified open enrollment periods would bring more generally healthy people into coverage offsetting any potential adverse selection, noting those in poor health have the greatest motivation to obtain coverage and are likely already in the risk pool. Wright’s position is reinforced by analysis of 2014 plan year enrollment indicating that those with costly, chronic medical conditions and who might have been denied coverage in the past were among the first to sign up for coverage.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health insurance returning to traditional role of covering unexpected, high cost care

A basic insurance principle is returning to health coverage: mitigating the financial risk of a major, unexpected or accidental need for medical care. That’s how it worked in the period immediately following World War II, when health insurance was termed “major medical” and designed to cover high cost care such as injuries resulting from accidents or a medical crisis such as a heart attack or stroke.

The big driver of the change: sharply rising premium rates over the past decade. Costly premiums are driving people to choose plans with more cost sharing and the lower premiums that come with greater cost sharing such as deductibles, co-pays and co-insurance. Even when premium rates are subsidized, 85 percent of those purchasing individual plans sold on state health benefit exchanges in 2014 chose bronze and silver rated plans over higher priced gold and platinum rated plans that have less cost sharing. Bronze and silver rated plans cover 60 and 70 percent, respectively, of expected annual health care costs while gold and platinum, 80 and 90 percent.

The upshot of these less generous plans is people will become less inclined to view health plans as pre-paid medical care and more as insurance for medical financial emergencies. It’s back to the future of major medical plans of the 1950s and 1960s – a reversal of the all-inclusive managed care plan trend that began in the 1970s and 1980s.

A consequence is likely to be less wasteful utilization of primary care for issues that typically clear up on their own such seeking an antibiotic prescription for a minor cough. That’s a highly beneficial development amid widespread concern of a looming shortfall of primary care physicians at the same time more people gain medical coverage under the Affordable Care Act.

Related trends are the rise of cash paid primary care options including prepaid direct primary care physicians and clinics, retail and drugstore clinics and companies offering quickly accessible online telehealth consultations. These services provide consumers convenient care within and outside of normal business hours without the need for an appointment plus reduce the uncertainly of whether a particular primary care visit will be covered by their health plan. Also, tax advantaged health savings accounts that allow money to be set aside to pay for minor care.

All of this fits nicely into the growing ethos that wellness is a personal responsibility that for the vast majority of people is secured with healthful lifestyles rather than frequent engagement with medical providers.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Long waits frustrate callers to health exchanges | The Detroit News

Long waits frustrate callers to health exchanges | The Detroit News.

The take away from this account is expectations about how people do business with the health benefit exchange marketplace need some adjusting. While some people are comfortable purchasing health insurance online, many others are not. As California’s experience shows, lots of folks are using the web portal for that state’s marketplace, Covered California, to “showroom” plans — to browse what’s available and on what terms and conditions. They then call the customer service center to get more details before making a purchasing decision, overwhelming staff also pressed to respond to consumers having trouble enrolling online.

But enrolling in health insurance over the phone isn’t easy and quick either, particularly given that the transaction in the exchange marketplace involves an eligibility process to determine if an applicant qualifies for Medicaid or premium and co-pay subsidies. Adding to the enrollment challenge is many households having complex family situations.

Marketplace plan enrollment is proving for many more akin to preparing and filing an income tax return, particularly considering the amount of personal and financial information applicants must provide.

With the benefit of hindsight now that the plan year 2014 open enrollment period is nearly over, it’s clear that instead of heavily relying on web and phone enrollment, the marketplace needs to adjust to one more based on in-person enrollment using assisters, county social service workers and insurance agents.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Exchange executives, IT vendors held accountable for flawed launches

The health benefit exchange marketplace is essentially one that exists in cyberspace. As such, it is very dependent on a well-functioning IT platform. If that platform fails to work properly, the marketplace falters. And when that happens, those in charge look for someone to hold accountable.

So far, the list of those being called to account includes the primary IT contractor for the federally operated web portal, healthcare.gov, after last fall’s problematic rollout that stymied enrollments on the front end for consumers and the back end for health plan issuers. Its contract was not renewed.

The list also includes the executive directors of five state-run exchanges (Maryland, Oregon, Hawaii, Minnesota and most recently this week, Nevada) where enrollment problems can threaten the continued existence of the exchanges since they must under the Patient Protection and Affordable Care Act be financially self-sustaining starting next year on enrollment-based fees paid by participating plan issuers. Some of the IT contractors could also be called to account in the courts, where they face potential litigation claiming they didn’t deliver a functioning web portal per their contracts.

The take away for the health benefit exchange marketplace: it stands or falls on IT implementation.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Will individuals ineligible for exchange premium subsidies turn to catastrophic plans?

Less than half (48 percent) of Americans who currently buy health coverage for themselves and their families in the individual market will qualify for advance tax credits to subsidize coverage purchased in the state health benefit exchange marketplace, according to a Kaiser Family Foundation paper issued this month. (That figure does not include those who qualify for Medicaid coverage in states that elect to expand coverage for households earning up to 133 percent of the federal poverty level.) The exchange advance tax credit subsidy is available in six income tranches for those with incomes between 100 and 400 percent of the federal poverty level. Those earning more than 400 percent of the federal poverty level ($45,960 for singles; $92,200 for a family of four) are ineligible for the subsidies.

A big question as the exchanges prepare to open for 2014 enrollment this October is to what extent this cohort will find their premiums exceed eight percent of their incomes. The Affordable Care Act and implementing regulations regard premiums at this level as unaffordable and exempt those meeting this test from the law’s individual responsibility requirement and associated penalties for not having coverage. They allow these individuals to obtain a certificate of exemption from state exchanges that entitles them to purchase lower cost “catastrophic” coverage on or off the exchange marketplace. (Pending California legislation, SB 639, would restrict off-exchange sales to plan issuers offering catastrophic plans through the exchange marketplace). Catastrophic plans must include the 10 essential benefits required for all individual plans beginning in plan year 2014 as well as at least three primary care visits – with a flat deductible of $6,250 for individuals and $12,500 for families.

Federal rules (45 CFR § 156.155(c)) specify that for family catastrophic coverage, each enrolled family member must meet the eight percent income to premium affordability exemption or be under age 30. Lower premiums for catastrophic plans would enable these individuals and families to avoid going without coverage in case of a major, unexpected accident or illness as well as potentially facing very costly standard hospital “rack rate” charges for those without insurance.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Limited tax subsidy could diminish market power of active purchaser health benefit exchanges

An underlying economic principle of the health benefit exchange marketplace that kicks off this fall with open enrollment for 2014 is demand aggregation in the individual health insurance market.  Individuals and families who would otherwise have no negotiating power with health plan issuers will be able to pool their purchasing power via the government-chartered purchasing mechanism of the state exchanges. That power will be strongest in those states – California, Oregon, Massachusetts, New York, Oregon, Rhode Island and Vermont according to an April 1 Kaiser Family Foundation compilation – that have opted to be “active purchaser” exchanges.  Those exchanges will act as gatekeepers, using an actively managed competitive selection process to determine which plans will be offered on their exchanges — and which will not.

As voluntary markets, neither health plan issuers nor individuals are required to transact individual coverage through the state exchanges.  Therefore to help concentrate the purchasing power of individuals in the exchange marketplace, the Patient Protection and Affordable Care Act provides for subsidies in the form of advance tax credits applied toward plan premiums to create incentive for individuals and families not covered by employer or government-sponsored plans to purchase coverage through the exchanges.

Those subsidies are not offered for individual coverage sold outside state exchanges. And as I recently blogged, the subsidies are unavailable to those earning more than 400 percent of the federal poverty level.  Those individuals and families would have little incentive to purchase coverage in the exchanges, thus reducing the exchanges’ potential purchasing power relative to health plan issuers and by extension, their ability to bargain with plans for lower premium rates.

Going forward, it will be interesting to see how this policy manifests in states with active purchaser exchanges.  Will it lead to a bifurcated individual market where plan issuers offer products exclusively outside the exchanges aimed at a higher income demographic such as high deductible, health savings account compatible plans?  Or plans that bundle pre-paid direct primary care with insurance to cover high cost care?  (Such plans would likely also have sold in the exchanges since the Affordable Care Act specifically recognizes them as qualified health plans eligible for sale through the exchanges.)


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

We are the 401%: Middle class households ineligible for exchange subsidies could reignite health reform

A little more than three years ago, steep premium increases in California’s individual market sparked outrage from Sacramento to Washington, providing a political tipping point for the enactment of the then-moribund Patient Protection and Affordable Care Act (PPACA). This fall and into 2014, those without government or employer-sponsored health coverage who earn more than 400 percent of the federal poverty level (FPL) ($45,960 for singles; $92,200 for a family of four) may find themselves outraged yet again by sharp double digit premium increases.  Under the PPACA, those earning in excess of 400 percent of FPL are ineligible for income tax subsidies available for qualified health plans purchased through state health benefit exchanges.  They will bear the full amount of higher premiums on their own.

Projections of the impact of the PPACA individual market reforms issued this week by the Society of Actuaries (on the medical cost impact of those newly insured under the law) and the actuarial consulting firm Milliman (on premiums in California) suggest premiums for plan year 2014 will rise significantly for these relatively higher income middle class households.  The Society of Actuaries estimates the PPACA individual market reforms will drive up claims costs by an average of 32 percent nationally by 2017 and by double digits in as many as 43 states.  The Milliman study commissioned by the California exchange, Covered California, estimates those currently insured with incomes exceeding 400 percent of FPL purchasing the lowest cost “bronze” rated plan covering 60 percent of expected costs can expect a 30.1 percent premium hike for 2014.   “Currently insured individuals with incomes greater than 400% of FPL will experience the largest increases,” the Milliman study notes.

Those in this income range likely to be hit with the biggest increases are middle class people in their 50s and 60s – the large Baby Boomer demographic not yet Medicare eligible and not covered by employer-sponsored plans.  A major potential implication of higher premiums on top of the already relatively high rates paid by this age group (new age rating rules under the PPACA will provide some relief) is many of them may find even bronze-rated coverage unaffordable and go uninsured, contrary to the policy goal of the PPACA to increase affordability and access to coverage.

If 2014 rate increases for 401+ percent FPL households boost the price of the cheapest plans too high, tax penalties built into the law for those without public or private coverage won’t provide incentive for these individuals to purchase coverage.  The PPACA’s individual mandate expressly exempts those who have to spend more than eight percent of their incomes to purchase the cheapest bronze plan offered in their geographic rating region. The law also provides for a financial hardship exemption.

Because of the sheer size of the Boomer demographic and Boomers’ willingness to seek political redress of their grievances, if the premium increases for the 401 percenters predicted indirectly by the Society of Actuaries and directly by Milliman materialize, it could create impetus for further reforms in 2014.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health plans concerned ACA’s age rating rule could spawn adverse selection

Health plans worry the limitation on using age as a basis for setting premiums in the individual health insurance market come January 2014 could jeopardize its financial viability and lead to adverse risk selection the Patient Protection and Affordable Care Act is intended to alleviate.

The ACA requires individual health insurers to deemphasize age as a rating factor by reducing the current five or six age rating bands currently used to a maximum of three, meaning the oldest plan members would pay premium rates not exceeding triple those of the youngest.  The goal under the ACA’s modified community-based rating scheme is to flatten out premiums to make them more affordable to middle aged people who over the past several years have seen them rise to a level rivaling the amount of a modest mortgage payment.

According to this Washington Post article, while older people would enjoy lower rates, younger people would consequently experience rate increases.  Particularly those under age 30 that modified community-based rating envisions balancing out state risk pools by bringing in a typically healthier population with lower medical utilization.

The Post article contains contrasting analyses on the how this so-called “young invincible” demographic will respond to higher premiums.  Consulting firm Oliver Wyman – which the article notes has been retained by the health plans’ dominant trade association – predicts the age rating limitation will result in 80 percent of those in their 20s paying more for tax subsidized coverage purchased through state health benefit exchanges than they now pay for even basic, low cost coverage.  But economist Jonathan Gruber – who consulted in the drafting of the ACA – expects plans sold on the exchanges notwithstanding higher premium rates will appeal to this cohort when income tax credits to offset premiums are taken into account. More so than going bare and paying a penalty — and even more than low cost, high deductible catastrophic plans available only to those under age 30.

Which prognostication ends up being more on target won’t be known until plan issuers release premium information this summer and the exchanges gear up for open enrollment in the fall for coverage effective in January 2014.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Employer health benefit exchange notice requirement takes effect March 1

Effective March 1, 2013, employers must notify new and existing employees in writing about their state’s health benefit exchange and advance premium tax credits available through the exchange to help them purchase individual coverage.

The requirement is contained in Section 218b of the federal Fair Labor Standards Act of 1938.  The U.S. Department of Labor (DOL) is charged with issuing regulations providing more specific guidance on the notice but has not yet done so.  Section 218b requires the following information be included in the notice:

  1. A description of the services provided by the exchange and the manner in which the employee may contact the exchange to request assistance.
  2. If an employer provides employer-sponsored health coverage that does not provide minimum actuarial value (60 percent of expected costs for benefits provided under the plan), the employee may be eligible for a premium tax credit and reduced cost sharing (deductibles, copayments, and coinsurance) if the employee purchases individual coverage through the exchange.
  3.  If an employee purchases a qualified health plan through the exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for federal income tax purposes.

Update: On January 24, DOL issued guidance stating employers are not required to comply with the employee notification requirement until the rules are issued.

In the meantime, DOL said it is considering “model, generic language” among alternative methods for employers to comply with the notice requirement, adding that forthcoming guidance will provide employers flexibility and adequate time to comply with the requirement.  DOL added it expects the timing for distribution of notices will be the late summer or fall of 2013 to coordinate with the exchange open enrollment period beginning October 1, 2013.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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