Monday, August 06, 2018

Psst, red states, want to destroy your ACA-compliant market? Set strict standards for short-term plans

Most discussion of the Trump administration's finalized rule allowing short-term health plans to be sold for a term of up to one year and renewed for up to three years spotlights not only the likely damage to risk pools in the ACA-compliant market, but also the dangers to enrollees posed by far-from-comprehensive insurance.

The Kaiser Family Foundation, for example, analyzed current short-term offerings available in 45 states. The report emphasized the impact of medical underwriting, exclusions for pre-existing conditions, medical loss ratios averaging 67% (and 50% for the two largest carriers) -- and the holes in coverage:
Of the short-term products offered on eHealth and/or Agile Health Insurance across all states, 43% do not cover mental health services, 62% do not cover services for substance abuse treatment (both alcohol and other drugs), 71% do not cover outpatient prescription drugs, and no plans cover maternity care. In seven states, none of these four benefit categories are covered in the short-term policies offered.
The plans on offer on eHealth.com do look pretty bad. I looked at one that does provide "prescription drug coverage" -- with a relatively low deductible of $1000 -- but with this caveat:
Covered after plan deductible when prescribed on an inpatient basis for a covered Injury or Sickness. Outpatient not covered; discount only.
As for the hospital where you have to get that covered drug prescription: benefits are capped at $1000/day.

When reading about such Swiss-cheese coverage, I've wondered: what if the federal government or a state required these medically underwritten plans to meet ACA standards, or something close to them? -- e.g., cover Essential Health Benefits, offer actuarial value of at least 60%, perhaps meet a minimum MLR of, say 75%? Or: what if insurers decided to take advantage of a new market opportunity and offer ACA-comparable plans in the noncompliant market?  Suppose they offered EHBs and a relatively high actuarial value, but with a yearly benefit cap?

I suspect that the public policy impact might be worse than under current rules, which allow plans to exclude pretty much whatever they want.

The main reason ACA-compliant plans are more expensive than pre-ACA individual market plans is because the ACA required insurers to offer insurance to all comers without regard to their personal medical history or condition.  The mandatory Essential Health Benefits add some cost, but guaranteed issue and modified community rating add far more.

In 2013, an analysis commissioned by Covered California, conducted by Milliman, estimated that extra health benefits mandated by the ACA (compared to typical pre-ACA offerings in the state) would add 4.8% to premiums. Ignoring enrollees' health status would add 26.5% (those are "best estimates": high estimates were 6.5% for more benefits and 40% for pre-existing condition protections.)

If insurers were to offer medically underwritten plans that complied with all or most ACA requirements, those plans would still be much cheaper than ACA-compliant plans in the guaranteed-issue market -- though the cost to the insurer of undertaking the medical underwriting process would have to be priced in.  Such plans might be much harder for people who don't qualify for ACA premium subsidies to pass up.

Most (not all) unsubsidized individual market customers have incomes above 400% of the Federal Poverty Level (FPL). They are leaving the ACA-compliant market in droves -- off-exchange enrollment dropped 38% from Q1 2017 to Q1 2018 according to the Kaiser Family Foundation.On-exchange unsubsidized enrollment dropped 17% in the same period, while subsidized enrollment rose 1.3%.*

Prospective individual market customers with incomes over 400% FPL are presumably relatively savvy. While many are likely to be wary of the junk insurance currently offered in the short-term market, those who could clear medical underwriting would presumably find discounted comprehensive insurance in the short-term market very attractive. The off-exchange market would bifurcate more sharply than in a junk-vs.-comprehensive market.

The situation would be reminiscent of that envisioned by Brookings Institute analyst Matthew Fiedler when the MacArthur-amended ACA repeal bill, the American Health Care Act (AHCA) was nearing passage in the House.  The amended ACA gave states the option of allowing medical underwriting for prospective enrollees who failed to maintain continuous coverage. Fiedler argued that healthy prospective enrollees would voluntarily subject themselves to medical underwriting:
Health (sic) people would always prefer to pay an underwritten premium since it would allow them to avoid being pooled together with sicker people who have higher health care costs. Indeed, a healthy person opting into the underwritten pool could realize savings of hundreds or thousands of dollars per year. As discussed in detail in the next section, there would likely be no barrier to a healthy person opting to enroll in the underwritten pool. Moreover, it would also be in an insurer’s interest to not only allow prospective healthy enrollees to purchase underwritten policies, but to actively guide enrollees in that direction. If one insurer was unwilling to offer underwritten policies in these cases or failed to make enrollees aware of the option, another insurer could do so and thereby steal the healthy enrollees.
A state that really wants to unmake its ACA-compliant market -- and waiver requests by Iowa and Idaho suggest that some do -- could, somewhat counterintuitively, require short-term insurers to offer plans comply or come near complying with ACA coverage rules. That would make insurance much more affordable for the healthy unsubsidized -- and put it out of reach for the unhealthy unsubsidized. Which is exactly what many red states, and Republican elected officials and administrators in general,  have been clamoring to do.

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* According to CMS's effectuated enrollment snapshots for March 2017 and March 2018, effectuated unsubsidized on-exchange enrollment was 1,623,002 as of  February 2017 an 1,414,017 in Feb. 2018. As I've noted before, however, CMS's 2017 snapshot left out of the equation 539,352 enrollees whose first payment was due in March. Taking 88.5% of that total to account for attrition, I've added about 76,000 unsubsidized enrollees to the 2017 totals, and 401,000 subsidized enrollees. Update, 8/7: in a straight typo, I wrote "subsidized" rather than "unsubsidized" on-exchange enrollment dropped 17%. Fixed now, with apologies.

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