Thursday, August 24, 2017

ACA marketplace remake: Iowa leverages Wellmark's warm cooperation

This week the Iowa Insurance Division formally filed an ACA innovation waiver request to radically remake the state's individual market for health insurance.

The plan is cast as an emergency stopgap for a market said to be collapsing -- facing a 53% average requested rate increase for silver plans from its sole remaining insurer. The waiver submission forecasts a loss of 18-22,000 unsubsidized enrollees should the plan not be implemented.

The basic tradeoff in the proposal, dubbed the Iowa Stopgap Plan, seems to be to exchange Cost Sharing Reduction (CSR) subsidies for reinsurance and a more generous premium subsidy structure, which makes subsidies available to enrollees at all income levels and yields lower net premiums to almost all comers. Harsh as the loss of CSR for enrollees under 200% FPL would be, the repurposed dollars seem to yield a disproportionate dividend in premium reduction.

The plan would eradicate the ACA metal levels, including the CSR-enhanced silver levels, and establish a single plan design with an actuarial value (AV) of  68-72%, corresponding the ACA silver. That plan would have a per-person deductible and out-of-pocket max  of $7,350, but with primary care visits, prescription drugs and an array of other services not subject to the deductible. Premium subsidies would adjust for income and age but would be "flat" within each income/age band (133-150% FPL, 150-200% FPL, etc.)

It's something of a  mystery to me how the subsidized premiums can be as low as they are for AV 70% coverage. For a 40 year-old, they're estimated at $12 per month in the 133-150% FPL income band, $18/month at 150-200% FPL, $37/month at 200-250% FPL,  $84/month at 300-400% FPL, and $372 at over 400% FPL (subsides drop about fourfold at 400% FPL)

That's way cheaper than benchmark silver in the ACA marketplace, which would average. at income levels above those where CSR skews the comparison, $166 for enrollees with incomes in the 200-250% FPL range, $247 at 250-300% FPL and $341 at 300-400% FPL, according to the report.

The plan seems to get a lot of mileage out of essentially redirecting CSR dollars to reinsurance, and thus not only getting the premium improvement driven by reinsurance itself, but also by keeping wealthier (and presumably healthier) enrollees in the pool. In 2017, according to a cited Milliman estimate, Iowans will receive $194 million in premium tax credits and $48 million in CSR subsidies. CSR thus accounts for 20% of total subsidy. In 2018, the plan proposes to spend $305 million on premium subsidies and $80 million on reinsurance -- that is, 21% of federal pass-through funding on reinsurance.

That swap doesn't fully account, I don't think, for the dramatic net premium improvement up and down the income scale.  The report projects, for example, that the unsubsidized Medica premium for two 55 year-olds in Iowa City 2018 in the ACA marketplace would be $2,724, versus $1,628 in the stopgap plan. That's a 40% drop. Reinsurance can have a strong effect on premiums, but not generally that strong.

Much of the promised benefit derives, I suspect, from the pledged participation of Wellmark, the 800-pound gorilla in Iowa's individual market. In a letter to Iowa Insurance Commissioner Doug Ommen, appended to the waiver application, Wellmark CEO John Forsyth pledged, "If the Stopgap Measure is approved, we anticipate that Wellmark will file rates that are no higher than those set forth" in the actuarial report that provides the proposal's premium estimates.

According to the actuarial report, Medica's 2018 filed rates are between 22% and 69% higher than Wellmark’s 2017 premium rates (the range reflects regional variation). Medica rates swell the pass-through funding; Wellmark's cooperation may set the premium clock back and maximize that windfall.

Wellmark, pledging here to be a part of this proposed solution, is a big part of the problems besetting Iowa's ACA marketplace. The company declined to participate for the first three years, entered in 2017 and has withdrawn for 2018. From the ACA marketplace's launch to the present,  enrollment in Wellmark's pre-ACA grandfathered and grandmothered plans has outstripped the state's marketplace enrollment. In April 2016, a Wellmark spokesperson told me that the company had 90,000 enrollees in pre-ACA plans. Sarah Lueck, a senior policy analyst at the Center for Budget Policy and Priorities (and an Iowa native), told me told me at that time that in Iowa, Wellmark “has longstanding relationships with people, and a dominant presence in that market." According to the waiver submission, Iowa still has 85,000 enrollees in noncompliant plans. In February, CMS reported just 46,519 enrollees in Iowa's ACA marketplace.

While a $7,350 deductible sounds horrific, by ACA standards an AV 70% plan offered at the Iowa Stopgap Plan's prices is a good deal -- a better deal, frankly, than the ACA marketplace offers to most enrollees with incomes over 200% FPL.  The sacrifice, of course, is of the affordability of actual care for roughly 20,000 enrollees in the 138-200% FPL range currently getting strong CSR, raising the AV of their plans to 94% (for those with incomes up to 150% FPL) or 87% (for those in the 150-200% FPL range). The waiver submission predicts, probably rightly, that most will stay enrolled, as premiums are very low in this income group, topping out at $41 per month for a 64 year-old with an income of 200% FPL. And they don't get nothing for the money: doctor visits are $35 and Tier 1 drugs are $10. They'd just better not spend two days in the hospital.

It seems, though, that given the pass-through arbitrage enabled by Wellmark's warm cooperation, there ought to be room to ease the out-of-pocket costs of people in an income range where, ample research indicates, even small co-pays induce enrollees to forgo needed care.

This plan will be approved, I'm willing to bet. The Price HHS would likely pass a conservative plan -- one shifting resources from the near-poor to the middle class -- with much thinner actuarial cover than Iowa's powers that be have mustered.

UPDATE, 8/25: Timothy Jost posted an updated analysis of the Iowa proposal yesterday. For sure I brushed too quickly past the proposal's myriad transgressions of ACA Sect. 1332 guardrails -- including not only the requirement to provide "“cost sharing protections against excessive out-of-pocket spending that are at least as affordable” as under the ACA, but also the violation of guaranteed issue in the 12-month continuous coverage requirement for special enrollment periods. Jost also points out that without auto-reenrollment, the assumption that most current enrollees will re-enroll through an untested, hastily stood-up state system is highly questionable. Jost concludes that the proposal constitutes a test whether Price's HHS is willing to violate the letter of ACA law.  Jost's post also reinforces my sense that the fix is in with Wellmark in this proposal, especially as this locally dominant insurer has tens of thousands of enrollees in grandfathered and grandmothered plans that will expire in 2019.

Dave Anderson, in turn, homes in not only the ACA Sect. 1332 cost sharing requirement, but on HHS guidance spelling out that "Waivers are evaluated not only based on how they affect affordability on average, but also on how they affect the number of individuals with large health care spending burdens relative to their incomes." That would seem to be dispositive unless/until the Price HHS altes that guidance.


  1. Iowa seems to be proposing magic. The feds will pay what they would have paid anyway absent the waivers and everybody will pay the same or less than they would have in premiums. How is redeploying the $48M that would have been paid in CSRs enough to achieve this miracle?

  2. On page 2 of the additional materials, the actuaries compare what would happen in 2018 without and with the Iowa Stopgap (ISM). With the ISM, total enrollment would go up 25%, total claims would go up 10% and total premiums plus fed reinsurance money plus Iowa reinsurance money would go up 3.5%.

    This makes no sense to me. How does it work? How do the insurers afford this, and why are we assuming that if enrollment goes up 25%, claims will go up only 10%?

  3. Hey, thanks for that. I had the actuary report open from a different link, and it didn't include that. As for the numbers...a) about 20,000 enrollees go from AV ~90% to AV 70%, and b) wealthier enrollees might be healthier?

    1. Sorry I was dim here; initially was thinking you were talking about Gold enrollees and not people under 200% of poverty. Those 20,000 people wouldn't have insurance under this ISM plan, under any reasonable definition of insurance, any more than you or I would have insurance if we had something with a five million dollar deductible. The cynical ISM plan is to take insurance away from 20,000 poor people in order to entice more middle income people, and younger people, to buy insurance.

    2. Wait wait wait, now I'm confused. I was adding up what the insurers would take in and pay out with and without ISM. I'm trying to look at this from the point of the insurers. Let's consider the person with the income of 199% of FPL, with and without the ISM, with a plan that would have a deductible of $7350. They are facing a procedure that was supposed to cost them $5000. With cost sharing, they pay let's say $200, the Feds pay $4800, the insurance company pays $0. With ISM, they would pay $5000, the Feds would pay nothing, the insurance company would pay nothing. In that scenario, the insurer doesn't get any savings from ISM because they weren't paying anyway.

      So I don't see how taking away the CSRs here is saving the insurers very much money. To be sure, under ISM the insurance company would be saving some money for their portion of what would have been their costs of the foregone care. But is this huge? It doesn't seem like it's nearly big enough to account for the savings Iowa says they'll get.

  4. If I accept that 25% more people have only 10% more claims, how is 3.5% more money enough to pay those claims?

  5. KFF says that in 2016, Iowa had 2906 Gold enrollees.,%22sort%22:%22asc%22%7D

    1. Seems like there's about $8150 per person collected in the stopgap proposal, vs. about $9925 in the ACA marketplace.