Des Moines, Iowa – The Iowa Insurance Division recently approved two 364-day short-term limited-duration health plans, one of which may be renewable for up to three years. Additional 364-day short-term limited-duration health plans are currently being reviewed. These approved products will provide another option for many Iowans currently priced out of the ACA individual health insurance market.
“As the ACA individual health insurance market has become unaffordable for anyone not utilizing federal subsidies, Iowa has continued to work in common-sense ways to help provide options so Iowans have access to affordable health coverage. While short-term limited-duration coverage was previously meant to fill small gaps, due to the unaffordability of ACA coverage recent federal changes expanded short-term limited-duration plans to provide coverage of up to 364 days and may be renewable for up to three years,” Iowa Insurance Commissioner Doug Ommen said. “All states have the ability to ensure that the coverage provided by short-term limited-duration plans meet benefit design and cost sharing requirements and that consumers understand the coverage. That is exactly what we have done in Iowa. For example, all policies are required to at least cover the minimum benefits in Iowa’s regulation and any policy that is longer than six months in duration must provide preventative and wellness services. Additionally, all renewable policies must cover preexisting conditions that may arise during prior coverage periods. Iowans should consult with a licensed insurance agent to fully understand what is and what is not covered by any health coverage and make sure that the coverage best fits their individual needs and budget.”
The Iowa Insurance Division approved the sale of short-term limited-duration health insurance policies up to 364 days to Golden Rule Insurance Company and United States Fire Insurance Company. Golden Rule’s product is also renewable for up to three years. Iowans should see these approved products entering the market in the coming months at the carrier's discretion. The Iowa Insurance Division is also working with several other carriers who are interested in entering the market to sell short-term limited-duration policies in Iowa.
The Iowa Insurance Division adopted administrative rules earlier this year to provide meaningful minimum standards of benefits and enhanced consumer protections for short-term limited-duration policies.
“Contrary to some national talking points, all short-term limited-duration policies are not ‘junk’ plans. Every state has the authority to ensure minimum standards and consumer protections. Under Iowa’s administrative rules, short-term limited-duration policies are a viable health coverage option, especially for the many Iowa consumers priced out of the ACA individual health insurance market,” Ommen said.
The need for options like 364-day short-term limited-duration plans comes from the structural flaws of the ACA, which the Iowa Insurance Division has continually called on Congress to address.
“Congress needs to fix this federal problem. Whether the “fix” is amending the ACA, or replacing the ACA with a law by a different name with some of the same coverage guarantees, it is clear that something must be done,” Ommen said. “Until Congress can reach a solution, Iowa will continue to call on Congress to return authority to states so we can properly regulate our own market in the best interest of Iowans.”
The structural flaws within the ACA can be identified as follows:
1. The lack of a predictable reinsurance mechanism that addresses the disproportionate share of Iowans with high cost, persistent condition claims in the individual market that were previously served under HIPIOWA, Iowa’s high risk pool;
2. An income-only-based subsidy design that results in a single 28 year-old with an income of $48,559 having the same price experience as a single 62 year-old with the same income. Both age groups pay $399 per month for the same silver plan. It defies both actuarial science and common sense that a 28-year-old and a 62-year-old should pay the same for healthcare coverage, but that is what is happening under the flawed ACA subsidy structure. This flaw removes any actual risk determination from the price structure in the ACA and has resulted in an older, sicker risk pool in which young Iowans have fled the market causing skyrocketing rates for those who remain;
3. The ineffectiveness of a mandate without effective continuous coverage requirements; and
4. An age banding limitation of 3:1 that disadvantages young adults driving them away so that the middle-aged Iowans in the ACA risk pool now pay more than triple the rate they paid when they shared the market with more young people under Iowa’s pre-ACA 5:1 rate banding limitation;
Lack of a Reinsurance Mechanism
When the ACA was implemented, individuals with preexisting and persistent health conditions entered the individual market in large numbers. HIPIOWA, Iowa’s high risk pool, had over 4,000 members prior to the ACA as many of these individuals likely had difficulty obtaining comprehensive coverage at affordable rates prior to the ACA, as many insurance companies performed underwriting and either denied individuals with serious health conditions or charged high premium rates. All but 229 individuals have left HIPIOWA to join the ACA risk pool as the ACA has no preexisting health requirements. Now, the high cost of care for those individuals is strictly borne by the small amount of farmers, entrepreneurs and early retirees that make up the ACA individual market, causing rates to skyrocket.
Carriers did not fully understand the health status of the population when the ACA markets first opened, and found that these individuals were, on average, less healthy than those who receive coverage through their employer sponsored plans and had a high level of healthcare utilization.
This trend continued and in 2016, 5% of the population in the individual health insurance market accounted for 70% of the claims experience. As premiums continued to rise to compensate for these catastrophic claims, healthy individuals departed the market. At this juncture, the ACA provides no fall back mechanism for the insurance carrier to shield the rest of its risk pool from these catastrophic claims.
The ACA’s income-based subsidy structure is severely flawed. The ACA’s subsidy structure does not account for either net worth or age. Both are vital to making the ACA market function properly.
Younger individuals are choosing not to participate in the ACA-compliant market because their premium rates are not correlated to their risk; rather, their premium rates are capped based on their income at a percentage amount determined and applied across all individuals. The risk associated with insuring a 62 year-old is higher than that for insuring a 28 year-old, and the subsidy structure has destroyed this correlation.
The ACA’s flawed 3 to 1 age-based risk band restrictions, coupled with an income based subsidy structure, has always been unappealing to healthy, lower to moderate income earning young adults. The premium amount that subsidized consumers are responsible for contributing is capped under the ACA at a percentage of the consumer’s income and remains capped at this federally established level regardless of their age or how high the premiums increase. The most that a subsidized individual will pay in premium costs for a silver plan is 9.86% of their income. This amount is the same whether an individual is age 28 or age 62. The most any single individual who receives subsidies will pay is $399 per month for a silver plan. As premiums have skyrocketed, these individuals have seen no increase in what they actually pay for their monthly premiums as they have already hit the cap based on their income. Other federal taxpayers pick up the balance between the income capped premium payment and the ever-increasing premium costs.
Given the ACA’s flawed subsidy structure, there is currently no incentive for carriers to lower premium costs as long as they are meeting the 80% medical loss ratio. As nearly all Iowa consumers in the ACA are now subsidized and feel no actual impact from premium rate increases, insurance carriers can build all of the claims costs into their premium rates, with the federal taxpayers paying the difference. However, those consumers who do not receive federal subsidies (incomes above 400% federal poverty level) will be forced to pay the entire amount of these substantial premium rates and have acutely felt the dramatic spike in premiums.
The subsidy structure has also lead to the development of a dramatic rate cliff for individuals and families near the eligibility line. There is a drastic difference in rates for individuals and families based on a few hundred dollars of annual income. As an example, the premiums for a couple living in Iowa City who are both 55 years and earn just under 400% FPL (approximately $65,838) are capped at 9.86% or $6,492 annually. On the other hand, the premiums for a couple living in Iowa City who are both 55 years and earn just over 400% FPL (approximately $65,842,) are $30,315 annually. There is a $23,832 increase in premiums for a $4 difference in income! Many individuals whose incomes fall near the rate cliff of 400 percent of federal poverty level have likely shunned buying ACA-compliant coverage. Something as simple as a small end-of-year bonus that moves the couple over the rate cliff by a few dollars could in effect cause them to have to repay tens of thousands of federal subsidies (advanced premium tax credits) back to the federal government.
Families may have found it necessary to restructure their income to become eligible for subsidies or qualify for small group coverage. Net worth is not taken into account within the ACA’s flawed subsidy structure. For example, an early retiree with millions of dollars in assets, but with little or no income can qualify for the same federal subsidies that a person making just enough to not qualify for Medicaid but less than 400 percent of federal poverty level.
Some individuals may have simply put their own business on hold. The Division has anecdotal evidence of couples divorcing in order to lower their income and receive subsidies or members of a family quitting a job or cutting hours to reduce income in order to qualify for subsidies. Some have sought refuge in health sharing ministries and others have sought small group coverage.
Ineffectiveness of a Mandate Without Effective Continuous Coverage Requirements
Individuals wanting to purchase ACA-compliant plans via the ACA Marketplace are subject to an open enrollment period at the end of the calendar year to purchase coverage for the following year. The ACA also includes a number of “special enrollment periods.” The special enrollment periods were designed to allow individuals to purchase coverage if they have a change in employment status and lose their coverage, add or lose a dependent, or other defined reasons.
The federal government has been unable to effectively regulate these special enrollment periods resulting, in part, from the inability to adequately verify the qualifying event for the special enrollment. Accordingly, individuals have found it easy to “game” the special enrollment periods and enter or leave the market whenever care is needed or not needed. That is not how insurance works.
Additionally, enrollment data shows that many individuals enroll at the beginning of the year to get the coverage and treatment they need, then drop coverage. As noted above, the ease at which individuals are able to re-enter the market allows them to simply re-enroll when they need more treatment. This structure does not allow these consumers’ risk to be spread throughout the year, negatively impacting costs to the carrier as no premium dollars are collected to “off-set” the claims. The costs of individuals who enroll during special enrollment periods have been found, both by local and national carriers, to be nearly double those incurred by individuals who enter during open enrollment.
It is important to have stronger coverage incentives, specifically to encourage and require continuous coverage. Continuous coverage requirements would keep individuals who choose to enroll in the ACA-compliant market in the risk pool throughout the year, whether they need care or not at any given time. The individual mandate was a penalty designed to ensure that individuals stayed in the ACA market; however, given the skyrocketing ACA premiums and the limited cost to consumers that failed to pay for ACA-compliant coverage, the individual mandate did not serve as adequate incentive.
Age Banding at 3:1
The full effect of the age banding has become more evident as the other structural defects of the ACA were realized. Iowa’s individual ACA market is now almost entirely subsidized and has a significantly higher proportion of consumers who are over the age of 45 or who have high healthcare costs. Premiums are calculated based on the claims experience of those who remain in the market. These charts show the impact of the 3:1 banding.
In 2019, average premiums for a 28-year-old are over $600 per month; and average premiums for a 62 year-old are nearly triple that amount.
Premiums for a 28-year-old are now more expensive than they were for the 62-year-old prior to the ACA.