Tim Jost at Health Affairs is THE go-to source for fast, accurate and informative health policy reads on legislation and rule making. On the 28th he highlighted three bills that could start working their way though Congress that have actual health policy implications.
Let’s take a look at these three bills and figure out what is happening and what a liberal who wants a functioning individual market should think about these actions.
TLDR: These are technical correction bills that should have been going through committee and debated in 2014 and 2015 and 2016
Bill #1 Special Enrollment Periods:
The first bill would (for plan years beginning on or after January 1, 2018) prohibit insurers from making coverage effective for new enrollees who enroll during special enrollment periods (SEP) until HHS verified that individual’s eligibility for SEP enrollment. The bill directs HHS to create a SEP eligibility verification process through interim final rulemaking (rulemaking without prior notice and opportunity for public comment). The bill provides that the verification process should be similar to the review and assessment process described in the preface to the 2017 final payment rule, which merely called for the collection of and assessment of documentation to assess eligibility. HHS has already begun a pilot program for verification of eligibility for some SEP applications beginning in June of 2017, but this bill would extend full documentary verification to all SEP applications.
The problem it is trying to address is the belief that some healthy people are gaming the exchanges by staying uninsured until a major medical event happens. At that point, the claim is that these individuals then use the special enrollment period to get a high actuarial value plan and run up massive charges while not paying into the pool for long or for much money.
There is decent evidence that this is a bit of a problem. Covered California (Feb 2016 board meeting) has a good discussion about the different behavior of SEP enrollees versus open enrollment enrollees.
The first observation is that SEP enrollees have a higher per member per month cost than OEP enrollees. Secondly, SEP members are about two years younger than OEP members, which exacerbates the cost difference. Third, health plans are reporting their strong belief that substantial SEP enrollment does not meet requirements of SEP criteria. When comparing the SEP cost difference between their off exchange and on exchange, the cost difference between SEP and OEP drops at least 50%
Off-exchange SEP enrollment is verified while on exchange on-enrollment is not verified.
The goal of this bill is to tighten up the screening mechanisms so that more people who are relatively healthy buy insurance in the open enrollment period and pay in during low use months.
Bill #2 Age Banding
A second bill would increase the ratio by which insurers may vary the rates charged to older enrollees in the individual and small group market to the rates they can charge younger enrollees from the current ratio of three-to-one to a ratio of five-to-one, or to any other ratio established by a state. Insurers have long complained, with some justification, that the three-to-one ratio is not actuarially accurate and that a five-to-one ratio is more so.
The argument is that young people are subsidizing old people too much and therefore healthy young people are not signing up in sufficiently high numbers to create a balanced, healthy pool. I think there is a caveat that we need to throw in here. This does not apply to subsidized individuals. If a person is receiving a subsidy they don’t care about the list price of the policy that they are buying. They care about the post-subsidy price. A 5:1 band for an above benchmark Silver will have a slightly lower post-subsidy price for a 22 year old than a 3:1 banded above benchmark Silver but it is a small effect that should be swamped by the spread between the lowest cost Silver and the benchmark Silver. This policy matters more for non-subsidized buyers. More younger adults (U-35) would buy off-Exchange if the policies were cheaper at the cost of fewer older adults who would now be facing more expensive non-subsidized policies. The concern is that the most valuable and profitable member for an insurer is a 64 year old who uses no services. That individual is less likely to buy. Whether or not and then how much of a good idea this is will dependent on the dueling actuarial models.
Bill #3 Shorter Grace Periods
A third bill would, for plan years beginning during 2018, reduce the ACA’s 90-day grace period to catch up on missed payments for individuals who are receiving premium tax credits; the grace period would instead be the period established by state law or, if there is none, to one month. Under current rules, insurers must cover claims for the first 30 days of the grace period, but may then pend claims for the remaining two months and only pay them if the enrollee catches up with missed premiums. Only after 90 days may the insurer terminate coverage for the rest of the year
The argument is that under current law, healthy and devious people can pay for nine months of coverage and get twelve months of actual coverage. The thought process is very similar to the one way option that exists in COBRA where coverage can be retroactively started up to 63 days after reciept of the COBRA rights notice. People who are healthy under this scheme would incur few claims as they pay their premiums through September. In October, they don’t pay their premium. At this point, the insurer is on the hook for the claims. In November and December, the still healthy person would not pay their premiums. However if they are run over by an egg nog addled elf and his octect of reindeer, the person who is not in the ICU would pay their premiums for October-November-December and get the insurer to pay tens of thousands of dollars in claims.
Now what should Democrats do about these bills? I say, actively engage on them is the right thing to do as these are the types of technical correction bills that a major social welfare program needs especially a new one. None of these bills threaten the core structure of the ACA individual market coverage expansion. The bills are actively grappling with known trade-offs and problems in the ACA and trying to do things that are not actuarially impossible.
If the Republican Party is moving to the point where they realize that throwing 20 million people off of their insurance right before an election either through active legislation repealing the law without a replacement or systemic and obvious sabotage will produce protests that make this week look like a Boy Scout jamboree and thus are seeking to repair and rename, I have no problem with that. The ACA text is not infallible. It had a bunch of trade-offs in it and assumptions about behavior. We now have good data on those trade offs and assumptions. We should course correct when possible.