Thursday, April 4, 2019

Des Moines, Iowa – Iowa Insurance Commissioner Doug Ommen today issued a bulletin providing guidance to Iowa consumers and insurers regarding the CMS decision to allow transitional policies to be extended through 2020.

“I appreciate CMS taking the action to extend transitional policies through 2020.  Without this action, over 82,000 Iowans would be forced off their healthcare plans and forced to choose between purchasing a policy that would be in excess of 25 – 200 percent higher than their current premiums or perhaps going uninsured,” Ommen said.  “As we’ve seen with the rest of the collapsed ACA market over the last year, those that would have to bear the full brunt of those premiums would simply choose to not purchase ACA-compliant insurance through the marketplace.  Transitional policies are not a long-term solution, but ultimately only Congress can fix the structural flaws in the ACA.  Until Congress acts, these transitional policies need to be extended.”

The Iowa Insurance Division has continually called on Congress to address the structural flaws of the ACA.

“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 the 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 24-year-old with an income of $48,000 having the same price experience as a single 64-year-old with the same income.  Both age groups pay $394 per month for the same silver plan.  It defies both actuarial science and common sense that a 24-year-old and a 64-year-old should pay the same for healthcare coverage, but that is what is happening under the flawed ACA subsidy structure.  Actuarially, if the 64-year-old is married their individual price experience is $264 per month compared to the single 24-year-old’s $394 per month. This flaw has removed any 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 disadvantages young adults.  This drives younger individuals away from the ACA risk pool and the middle-aged Iowans 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 pre-existing and persistent health conditions entered the individual market in large numbers.  HIPIOWA, Iowa’s high risk pool, had roughly 3,000 members prior to the ACA.  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 roughly 300 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. Carriers 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.   

Income-Only-Based Subsidieson exchange enrollment - adverse selection

The ACA’s income-based subsidy structure is severely flawed.  The ACA’s subsidy structure does not account at all 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, they 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 age-based risk band restrictions, coupled with an income based subsidy structure, has always been unappealing to healthy lower and moderate income earning young adults.  youth and subsidy disadvantageThe 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 $398 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 these claims cost 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) are 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, for a couple living in Iowa City who are both 55 years old and earn just under 400% FPL (approximately $65,675) premiums are capped at 9.86% or $6,476 annually.  On the other hand, for a couple living in Iowa City who are both 55 years old and earn just over 400% FPL (approximately $67,650) premiums are over $30,000 annually.  There is a $23,500 increase in premiums for a $2,000 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 advanced premium tax credits back to the federal government.

income cliff 28 singleincome cliff 28 familyincome cliff - 55 couple

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 no or little 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.

The Division has anecdotal evidence of couples divorcing in order to lower their income and receive subsidies.  Some have simply put their own business on hold or have quit a job or cut hours to reduce income and 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.  However, the statute provides for a number of “special enrollment periods” that are also available to consumers.  The special enrollment periods were designed to allow consumers 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, consumers have found it easy to “game” the available special enrollment periods and enter and 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, get the coverage and treatment they need, then drop coverage.  As noted above, the ease at which consumers 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’ risks 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. Such a continuous coverage requirement would keep consumers that choose to join 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.

aca rate climb - single

aca rate climb - married
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.

###