States need more rules to protect individual insurance market

Dive Brief:

Without more rules in place, state regulators won’t be able to fully protect the individual health insurance market from adverse selection when the individual mandate penalty ends in 2019 and if the Trump administration expands association health plans (AHPs) and short-term catastrophic plans, according to a new Commonwealth Fund report.
States can “ensure a level playing field among coverage options to promote market stability,” but current state regulations won’t be able to stabilize the Affordable Care Act exchanges or protect against consumers exposed to fraud and financial risk.
Some states have already stepped up enforcement of non-ACA-compliant plans and added protections against adverse selection. Massachusetts has its own individual mandate that predates the ACA and other states are looking at similar policies.

Dive Insight:

The report found no state will fully protect the individual market, but states may consider additional regulatory options to protect the individual insurance market given the federal government’s health insurance changes.

“The decisions states make will likely have a significant impact on their residents’ access to adequate and affordable coverage and on the stability of their individual health insurance markets,” according to the report.

The Trump administration wants to expand short-term catastrophic plans. Currently, the law restricts those plans to three months and to either young people or those who can’t afford regular health insurance. The Trump administration wants to expand that to 12 months and open them to everyone.

The report cited an estimate that short-term plan enrollment could skyrocket from about 160,000 people at the end of 2016 to 4.2 million members in 2019 if the administration follows through with its plans.

AHPs allow small businesses and self-employed people to group together. The administration’s plans would allow AHPs to buy health insurance across state lines. About 30% of percent of people with nongroup coverage are self-employed. The Commonwealth Fund said that expanding AHPs could mean millions fleeing nongroup coverage for less expensive plans with less coverage, leaving fewer people in the ACA marketplace.

The report said the AHP policy change’s effect on the individual market will depend “on the leeway AHPs are afforded in marketing to the self-employed and using members’ health status to determine eligibility, premiums and benefits. Perhaps most critically, however, the proposal’s effects will depend on whether states will continue to have broad authority to regulate AHPs to ensure a level playing field across their markets.”

Meanwhile, healthcare sharing ministries allow members with a “common set of religious beliefs” to contribute funds for qualifying medical expenses. Membership in those plans grew from fewer than 200,000 members in 2010 to 1 million today, likely because of the individual mandate requiring health insurance.

Though they are a more popular option now, healthcare sharing ministries have large out-of-pocket costs, which are not capped like ACA-compliant plans. So, there’s no safety net to protect someone from financial ruin.

The Commonwealth Fund’s report is only the latest on the topic. Another recent study said ending the individual mandate penalty will result in healthy ACA plan members dropping insurance, which could lead to huge premium increases.

Yet another recent report prepared for the National Association of Insurance Commissioners said non-ACA-compliant plans may lead to more out-of-network care, further imbalance the ACA plan risk pool and increased member premiums for individual plans. The NAIC is concerned that payers selling plans across state lines would lead to insurance companies choosing states with the fewest regulations to set up plans.

That report argued allowing interstate sales would actually reduce consumer options. Payers may cherry pick the healthier and lower risks in the market. This would lead to ACA-compliant health plans ending up with sicker risk pools and higher premiums.

ACA supporters worry these regulatory changes will return individual health insurance back to the days before the landmark law. Then, payers charged individual plan members higher premiums based on their health status and pre-existing conditions. The ACA banned that practice.

The ACA also required plans to cover 10 essential health benefits like maternity care and prescription drugs. However, the Trump administration wants to remove those regulations for AHPs and short-term plans. So, this would mean payers could offer much cheaper plans, but with little coverage.