Tag Archive: single statewide risk pool

Return to high risk pools implies failure of ACA’s single statewide risk pool

The return to state high risk pools encouraged by Trump administration executive action and as proposed in the American Health Reform Act pending in the Senate — mechanisms phased out with the Patient Protection and Affordable Care Act reforms of the non-group segment effective in 2014 — carries with it a critical implication. Specifically, the individual market even with single statewide risk pools mandated by Section 1312(c) the Affordable Care Act are too small —  in some less populous states at least — to achieve a sufficient spread of risk. Therefore, the logic implies, individuals with conditions who use largely disproportionate amounts of medical care must be excluded from the statewide pool and cordoned off in high risk pools in order to maintain the pool’s actuarial viability and ward off adverse selection in the individual market.

That cuts against a core assumption of the Affordable Care Act — that by having all individuals and family members in a given state treated as one large risk pool, a sufficient spread of risk would be achieved. In addition, the law’s premium stabilization programs and an ongoing risk adjustment mechanism to compensate health plan issuers who take on members with costly, complex chronic conditions would act as buffers to ensure the actuarial integrity of the pool and reduce the likelihood of adverse selection. The proposed revival of high risk pools would suggest that’s not the case and the amount of medical care utilized by some pool members is so costly that it skews an entire state’s risk pool.

This in turn leads to a far larger implication. If 5 percent of the pool population account for 50 percent of the costs — or 1 percent accounting for 20 percent to use another expression of the ratio cited in this National Institute for Health Care Management data brief — then medical care may not be an insurable risk due to insufficient spread of risk. If that’s the case, it could result in plan issuers ceding most or all of the loss risk to the government as is currently the case in Medicare and Medicaid managed care. Notably, Aetna CEO Mark Bertolini reportedly suggested just that, according to this account at Reason.com, with nominal insurers taking on the role of plan administrators handling “back room” transactions:

The government doesn’t administer anything. The first thing they’ve ever tried to administer in social programs was the ACA, and that didn’t go so well. So the industry has always been the back room for government. If the government wants to pay all the bills, and employers want to stop offering coverage, and we can be there in a public private partnership to do the work we do today with Medicare, and with Medicaid at every state level, we run the Medicaid programs for them, then let’s have that conversation.

Note the second condition in Bertolini’s statement: If employers want to stop offering coverage. Complain as they may about rising premiums in group coverage, there’s no indication that the highly entrenched employee benefit model of covering medical care for the non-elderly is going to be abandoned by employers anytime soon. Even if the Affordable Care Act’s mandate on employers of 50 or more to offer coverage is repealed given favorable tax treatment of employer-sponsored medical care plans.


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. 

Honoring basic insurance principles proves challenging in state individual health insurance markets

A growing number of Minnesotans are tapping tax credits through the health law that discount premium costs on the policies. But eligibility for subsidies depends on income, and there’s growing evidence that those who don’t qualify for tax credits or have other affordability problems are fleeing the market. On Thursday, the Minnesota Council of Health Plans released numbers that show 80,000 fewer residents covered in the individual market now than a year ago, a decline of 30 percent. The current tally of 190,000 will likely drop further, insurers say.A shrinking market is a bigger problem for insurers than a drop in revenue. People with costly health problems tend to maintain even expensive coverage, knowing it’s a better deal than paying the full cost of health care. So, a shrinking market at a time of skyrocketing premiums leads insurers to conclude that healthy people are leaving the mix.

Source: Health insurers say they need insurance protection from big claims – StarTribune.com

The Patient Protection and Affordable Care Act aims to improve the spread of risk and honor the law of large numbers — bedrock principles that underpin all forms of insurance — by pooling most everyone not covered in the three main pillars of health coverage (Medicare, Medicaid, employer-sponsored coverage) into a single risk pool in each state. But even putting everyone in a given state into a single, statewide risk pool may not be enough in states with fewer residents as this account illustrates. When there are too few “covered lives” in the pool in insurance industry lingo, the risk spreading mechanism of insurance gets stressed and the pool threatened by adverse selection. That occurs when a relatively small number of people incur large claims costs as the case here in Minnesota.

Since the individual market is comprised of only a relatively small segment of the population nationwide given the dominance of the big three pillars of health coverage, honoring fundamental insurance axioms may only be possible in states with large populations such as California, New York, Texas and Pennsylvania.


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. 

Concern arises over effectiveness of ACA’s individual risk pool integrity mechanisms

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

Individual premium increases point to worse than expected statewide risk pool profiles, medical utilization

The chart below appeared in a Wall Street Journal article updating plan year 2016 individual health insurance premium rate filings across several states. What’s noteworthy is the upper half of the states listed indicate rate increases in excess of the seven percent “trend” of recent years. While the Patient Protection and Affordable Care Act restored the risk spreading function of insurance to the individual health insurance market by mandating statewide risk pools for plans established after the law was enacted in March 2010, the article suggests the risk profile of some statewide pools is poorer and the rate of medical services utilization higher than expected. Also consider the law’s premium stabilization programs (reinsurance, risk corridors and risk adjustment). They are designed to moderate loss experience among health plan issuers so that any one issuer won’t experience adverse selection requiring large rate increases of the magnitude shown here.


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. 

Federal government expands ACA transitional relief for individual, small group plans

The U.S. Department of Health and Human Services issued guidance today affording states and health plan issuers more time to optionally keep in place health plans not compliant with Patient Protection and Affordable Care Act requirements relating to minimum benefit levels, modified community based rating and guaranteed issue to all applicants without medical underwriting.

The Center for Consumer Information and Insurance Oversight’s extended transitional policy provides transitional relief from these requirements for plans issued through October 1, 2016 as well as the ACA’s requirement that health plan issuers use single statewide risk pools for the individual and small group markets, respectively.

The newly issued guidance follows on similar guidance issued to state insurance commissioners in November 2013 that gave states the option of relieving individual and small group plans from these ACA provisions through September 2015. That guidance was issued in response to a consumer uproar when health plans issued cancellation notices for non-ACA compliant health plans — many of them falling into a time gap between grandfathered plans that were in place when the ACA was enacted in March 2010 and January 1, 2014 when all individual and small group plans must be ACA compliant. President Obama complained the ACA grandfather clause proved “insufficient” in allowing for this gap.

Today’s guidance also extends guidance issued December 19, 2013 permitting individuals whose non-ACA compliant policies were cancelled to qualify for a hardship exemption from the requirement all individuals have health coverage. That exemption allows them to purchase catastrophic coverage and is being extended to October 1, 2016.

Under today’s guidance, states may choose to adopt both the November 2013 transitional policy and the extended transitional policy through October 1, 2016, or adopt one but not the other. States also have the option to apply the relief to both the individual and the small group markets or just one market. Additionally, states can opt to apply the transitional relief solely to large employers if they choose to define the small group market as being employers of 100 or fewer employees for policy years beginning on or after January 1, 2016 as authorized by the ACA.


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. 

For some areas, Affordable Care Act’s goal of enhanced competition proves elusive

The individual and small group insurance market reforms of the Patient Protection and Affordable Care Act are based on a principle known as managed competition. As the term implies, managed competition attempts to bolster market competition by imposing market rules governing what is sold in a given market segment and under what conditions. (The role of managed competition in health care was first described in the late 1970s by economist Alain Enthoven).

The Affordable Care Act’s brand of managed competition is designed to improve choice and value for individuals and small employers when it comes to buying health plans. For insurers, the reforms are also aimed at restoring functionality to these insurance market segments by enhancing the risk spreading function of insurance by mandating they lump together individuals and small employers, respectively, into single statewide risk pools.

The Affordable Care Act gives health plan issuers — including those of multi-state plans created under the law aimed at boosting plan competition and choice — the option to determine whether to offer plans in a given state rating region and at what price. It also doesn’t affect the number of health care providers in a given region, which can vary widely across the United States and particularly between urban and rural areas. Consequently, the Affordable Care Act’s goal to enhance competition and value in individual and small group health coverage can be difficult to achieve in some areas of the nation as Jordan Rau of Kaiser Health News reports. Click here for Rau’s piece published in The Washington Post.


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. 

Multiple factors skew plan year 2014 enrollment toward older population

The Patient Protection and Affordable Care Act seeks to achieve a better spread of risk in state individual health insurance markets by requiring heath plan issuers to accept all applicants for coverage without medical underwriting and treating all enrolled individuals as part of a single statewide risk pool effective January 1, 2014. In addition, the law bars individuals from “going bare” without any form of health coverage under pain of a tax penalty. This provision is largely aimed at young adults who aren’t covered under their parents’ plans and are less likely than older people to incur high medical treatment costs. To broaden the pool to include them, the ACA also imposes a flatter premium pricing structure so that older individuals can be charged a maximum of three times the rate charged young people.

Policy wonks worry too few young adults will enroll in coverage, leading to an actuarially unsustainable risk pool overly populated by higher cost older individuals. Those concerns are underscored by early reports on state health benefit exchange enrollment such as this Wall Street Journal item indicating initial exchange enrollees tend to be older. While the WSJ story characterizes the trend as unexpected, I think it’s entirely expected since the greatest pent up demand likely exists among older individuals not yet eligible for Medicare and who have gone without coverage – in many instances for years – due to unaffordable premiums or rejection by health plans based on their health histories.

Socio-economic factors are also likely to initially hinder the goal of getting sufficient numbers of so-called “young invincibles” into state risk pools to better balance out risk for plan issuers. The vast majority of working age Americans continues to equate health coverage with employment. This is probably even more the case with young adults more dependent on employment income than older adults who have more education and work experience and thus in a better position to sustain themselves though self-employment. Over the short term, going without coverage while seeking a job with health benefits (and paying the modest $95 first year tax penalty) may factor as a rational financial calculation for many unemployed young adults, particularly when money is tight and there’s little to pay for individual health 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. 

State insurance chief faults health exchange for cancellations – latimes.com

State insurance chief faults health exchange for cancellations – latimes.com.

Policy disagreements between health plan regulators and state health benefit exchanges are complicating the launch of the marketplaces in some states. California’s exchange, Covered California, acted earlier this year to close a loophole discussed here that has the potential for generating adverse selection in the state’s individual market risk pool and consequently driving up premium rates for plan year 2015 and later years.

Covered California’s contract with its participating plans requires plan issuers to agree to play under plan year 2014 rules that require a single statewide risk pool. The exchange wants to avoid a split risk pool: one operating under the 2014 rules that require plans to accept all applicants for coverage having less healthy people and another operating under pre-reform rules able to exclude these individuals. That would set up a scenario where the single statewide 2014 pool would contain a disproportionate number of people who would generate higher medical costs. The loss “experience” of that pool as it’s called in the insurance business would lead to a higher baseline index for plans effective in 2015 and later years, likely leading to higher premiums. “Covered California has always been guided by the vision of starting 2014 with a level playing field and a single risk pool, which allows Californians to get better benefits in a more stable market,” Covered California Executive Director Peter Lee told The Los Angeles Times.

Covered California’s policy prompted health plans participating in the exchange — which includes the state’s major plan issuers — to notify current policyholders their current policies are being cancelled effective January 1, 2014.  California Insurance Commissioner Dave Jones however maintains California law requires at least six month’s notice of cancellation and pressed one plan issuer, Blue Shield of California, to reluctantly allow its members to keep their 2013 coverage through March 31, 2014.

California HealthLine provides some context behind this development:

According to Jones, the move came after Blue Shield took advantage of a “loophole” in state law that allowed them to submit their plans to a regulator who oversees managed care plans. However, that shift required the insurer to give policyholders a 180-day notice of cancellation, and Blue Shield only provided a 90-day notice.



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. 

ACA individual, small group market reforms curb underwriting in hopes of restoring risk spreading function

Since the individual and small group market reforms of the Patient Protection and Affordable Care will become effective in less than two months, many Americans and especially those who buy their own health plans or who work for small enterprises are now becoming much more aware of them.

Many do not however understand what brought them about.

Insurance is based on two essential functions: risk spreading and underwriting. Insurers spread the risk of losses across a large number of people or enterprises. Underwriting is selecting those that will be offered coverage and on what terms.

The ACA reforms came about because in recent years health plans experienced increasing difficulty spreading the risk of claims for medical services. Without adequate spread of risk, insurance simply doesn’t work anymore than, for example, fire insurance if the insurance company insures 100 homes and several are on fire while many others are firetraps.

Since risk spreading was no longer working very well, plans relied more on selective underwriting to ensure they were covering individuals and small employers the least likely to incur high medical costs. But that presented a Catch 22. The more they tightened medical underwriting standards, the fewer individuals and small employers could qualify for or afford coverage. That generated fewer insureds to share medical costs for the plan though their premiums and membership fees. Plans were collapsing in on themselves in a process known as adverse selection.

The ACA hopes to restore these market segments by significantly paring back the role of underwriting in determining who gets coverage and under what price and conditions. Beginning January 1, 2014 health plans must accept all individuals who apply for coverage and cannot base premiums on the health status of a small enterprise’s employees. Underwriting factors are limited to age, residence, and family status and in states that permit it, tobacco use.

The idea is by limiting the use of underwriting, the risk spreading function can be restored to health by getting more individuals and small employers into the risk pool. To enhance the spread of risk, the ACA also puts all individuals and small employers into two separate, single statewide risk pools.

Whether these reforms will achieve adequate spread of risk and restore these market segments to healthy functioning won’t be known for at least several years since they represent a radical rejiggering of how these markets have operated for decades.


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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