Healthcare Jenga: Stabilizing the Individual Market

With the recent "Notice of Proposed Rulemaking," changes in the ACA are anticipated. Learn how it might affect payers, members and more.

Jodi JohnsonFebruary 23, 2017

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Since the presidential inauguration, much of the country has been anxiously awaiting the new administration’s actions relative to the Affordable Care Act (ACA). Trump’s “repeal and replace” rallying cry was a central theme on the campaign trail, and few have doubted his commitment to dismantling the ACA – though the tone and tenor of the message has evolved.

From “repeal and replace,” to “repeal and delay,” to the latest buzzword, “repair,” Republicans may be finding it hard to build consensus around a strategy, even within their own party. And while there were calls for new plans to be established within the first 100 days in office, the latest indications are that it could be late 2017 before a replacement plan is solidified.

Where the ACA Stands Today

The one constant, however, has been the pervasive unease across the individual healthcare market. With healthcare plan and rate filings for the 2018 plan year due in May, payers have been understandably concerned not only about the sustainability and stability of the individual market in future years, but also about the possibility of a more imminent collapse in 2017, fueled by insufficient details which are introducing business risk. As 2016 drew to a close, some even suggested that Trump would take measures specifically intended to hasten the demise of the individual markets and usher in a kind of healthcare Armageddon.

Alas, the sky has yet to fall, and on February 15, the Department of Health and Human Services (HHS) released a aimed at stabilizing the individual and small group health insurance markets. It also proposed an extension of the filing deadline for Qualified Health Plans (QHPs) to submit their 2018 plans and rates for participation in the Federally Facilitated Marketplace (FFM) from May 3 to June 21.

That is not to say, however, that one proposed rule is a magic bullet. A good way to think of the individual market is to picture the game of Jenga – that tower of blocks that starts as a relatively solid construction, but as blocks are removed from below and placed on top, its stability becomes increasingly precarious. The trick is to ensure that the blocks that are removed aren’t those critical to the integrity of the entire structure.

The HHS proposed rule tackles a number of issues around the ACA, some of which address long-standing concerns among health insurers. In our Jenga analogy, the rule sets out to replace some of those blocks missing from the foundational levels, and gives insurers the confidence to continue to “play” in a profitable market. So let’s take a brief look at each issue under the rule, and then consider whether these actions, if finalized, would provide the stability the market so desperately needs.

Open Enrollment

The first proposed change is to tighten open enrollment even further for the ACA marketplace for plan year 2018, in an effort to reduce the risk of adverse selection and late entrants due to illness or injury. For the last two years, enrollment has gone from November 1 through January; the proposed rule shortens that period to November 1 through December 15 – more closely aligned with those of Medicare Advantage and the Federal Employees Health Benefits Program.  This also allows insurers to collect a full year of premium for a plan year.

Special Enrollment Periods (SEPs)

Open enrollment allows individuals to elect healthcare coverage on an annual basis, while SEPs enable them to enroll when certain life events change their circumstances. Insurers have noted that lax restrictions have enabled unqualified, unhealthy individuals to gain coverage by abusing the system. To address this, proposed changes effective June 2017 would require pre-enrollment verification of eligibility for 100% of new enrollees, as opposed to the current 50%. Enrollment and coverage would be pended until eligibility verification is completed.

Other SEP changes include

  • Limits on mid-year QHP or coverage level changes due to SEPs
  • Proof of prior coverage for marital and change-in-residence SEPs
  • Loss of Coverage SEP—verification that non-payment of premium wasn’t cause of termination
  • Significant limits to the exceptional circumstances SEP

Guaranteed Availability

Guaranteed availability is a well-intended effort in consumer protectionism that has allowed, according to some payers, enrollees to “game the system.” Under guaranteed availability, qualified enrollees cannot be denied coverage by issuers due to unpaid premium under another product. So an individual whose coverage was terminated for nonpayment in a prior plan year can simply enroll the following year in another product without penalty, although payers can pursue collections.

Under the proposed rule, payers would be allowed to deny coverage for any unpaid premiums in the previous 12 months, as well as apply any premium received for a new plan year’s coverage to a prior year’s unpaid balance without effectuating the new plan. The rule would only apply for coverage and past-due premiums with the same payer.

Actuarial Value

The ACA individual market offers enrollees plans at different tiers, or “metal levels,” based on Actuarial Value (AV). To enable some flexibility in plan designs and acknowledging the difficulty in precise calculation, however, the ACA has allowed a small range in AV, called a de minimis variation, for each plan. The proposed rule would expand the de minimis range for each tier to a variation of negative 4 to positive 2 percentage points. This is intended to spark competition by increasing plan design variance, while also allowing payers to offer plans with lower premiums and higher cost sharing.

Network Adequacy

Payers offering plans on the exchanges have increasingly offered narrower networks to enable lower member premiums, but the ACA requires that QHPs maintain standards for network adequacy and provider availability as conditions of certification. To ease federal restrictions, the proposed rule would shift responsibility for oversight in 2018 and beyond from the federal government to states for review and regulation of network adequacy going forward. In the absence of established state review processes, HHS would rely on accrediting bodies such as NCQA or URAC.

Essential Community Providers (ECPs)

The ACA defines ECPs as “providers that serve predominately low-income, medically underserved individuals.” These can include Federally Qualified Health Centers, Family Planning Providers, Indian Providers, Safety-Net Hospitals, and others. Currently, the ACA requires that 30% of ECPs in a geographic area must be included in a QHP’s provider network. The proposed rule would lower the participation threshold to 20%, and allow payers to “write-in” ECPs not identified on the HHS website, as allowed in past years.

Also Under Consideration—Continuous Coverage

In addition to the proposed rules, the HHS is also seeking commentary on continuous coverage requirements, presumably as they explore alternatives to ACA provisions such as the individual mandate and the comprehensive pre-existing condition exclusion prohibition.  They appear to be considering whether continuous coverage rules under the Health Insurance Portability and Accountability Act (HIPAA) might be applied, and what feasible SEP “look-back” periods, waiting periods, and penalties for breaks in creditable coverage might be.

A Crucial Step Towards Stability

This proposed rule represents a good first step towards increasing stability in the individual market. It’s a critical step, no matter how small, since it seems to reflect a commitment on the part of the administration to the ongoing health and viability of the individual marketplace. Response from payers could be viewed as “cautiously optimistic,” which should come as no surprise.

The fact is, these proposed changes represent small steps in the context of a market rife with uncertainty. There is still no replacement plan in place, or even a viable timeline. Major issues have yet to be resolved, chief among them the fate of the individual mandate. On the very day of this proposed rule release, the IRS reported that it had decided not to reject form 1040 “silent returns” that failed to indicate continuous healthcare coverage. Insurers feel that without the individual mandate, or enforcement of the associated penalties, the risk pools on the individual market will grow even more unhealthy leading to higher premiums and/or higher risk of losing money.

The IRS decision was reportedly made in response to Trump’s ACA Executive Order, instructing agencies to “exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.” While the Trump position on the ACA has been no secret, an Executive Order that undermines ACA provisions without the balance of an alternate plan can only add to marketplace anxiety.

Then there are the more global issues of ACA subsidies. The future of Cost Sharing Reduction (CSR) remains in limbo, as the Trump administration and the House of Representatives just filed a joint motion February 21 in the House v. Burwell case (now House v. Price), asking for an extended stay in the case. This means that any further actions on the case, with the exception of status updates every three months, are suspended for the foreseeable future. On the positive side, the administration could have dropped their appeal in the case, which would have ended federal funding for CSR and certainly led to mass turmoil and a mass insurer exodus from the market. On the negative side, we are no closer to a decision on CSR either short-term or long-term, and have no idea if the House might appropriate funds for the subsidies.

On other fronts, we still don’t know what may become of Advanced Premium Tax Credits (APTC). While many of the Republican ACA replacement plans envision some sort of premium tax credit, and advanced payments of these, they are little more than a concept to be defined later. On another front, regarding risk corridor payments, an insurer won a recent court victory in the court of claims, but litigation on the issue is widespread and the recent decision in no way represents binding precedent. In short, there are rampant questions in the market from both a subsidy perspective, as well as whether insurers will ever be able to recoup the full funds for excessive losses originally promised through ACA risk adjustment and redistribution programs.

It remains to be seen what insurers will do for the 2018 plan year. While Humana is the latest insurer to pull out of the exchanges for 2018, citing the “unbalanced risk pool” in their February 14 announcement, it remains to be seen if this will mark a trend among remaining insurers. Let’s keep in mind that the new administration has been in office for just more than a month. You can’t take next steps without a first step, and the signs indicate that if we’re not headed down a road towards maximum stability, we’re at least headed towards greater stability and away from total chaos.

In Jenga, instability is a game and collapse is a foregone conclusion. In the individual marketplace, millions of people are depending on the market’s stability, and collapse is the one outcome that can’t be allowed to happen.

To learn more, feel free to download our white paper “Personalizing the Member Experience To Deepen Member Engagement.”

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