UPDATE x2: Idaho Gov. Otter forcing carriers & enrollees into a Prisoner's Dilemma scenario

 

Last year, after 7 years of doing everything in their power to undermine, sabotage and weaken the ACA, Congressional Republicans tried every which way they could to repeal the law. They tried passing AHCA , B-CRAP, ORRA, Graham-Cassidy and a few other variants along the way to no avail.

Finally, in late December, desperate for a win on "repealing Obamacare"--any type of win--they said "screw it" and just repealed the ACA's individual mandate all by itself. They didn't replace it with a reasonable inducement for people to get covered, mind you, against the advice of actuarial expert advice, mind you; they just...got rid of it.

The vote to repeal the mandate penalty was incredibly short-sighted and will almost certainly lead to negative consequences when it actually goes into effect (which won't be until next year, causing much confusion until then, but that's a different discussion)...but at least it's legal.

The same can't be said for Idaho's decision last week to simply ignore federal law altogether in the future:

Last week, Idaho made a startling announcement: It will allow insurers to sell health insurance that does not comply with Obamacare regulations. This means that, in Idaho, health insurance plans could once again deny coverage to people with preexisting conditions — or charge them higher prices.

They could decide to not cover certain benefits that Obamacare mandates (maternity coverage, for example, was often left out before the health law) or put lifetime caps on their benefits. Idaho is the first state to roll out this type of regulation; it did so in a bulletin last week, first reported by the Wall Street Journal.

What we know: The Idaho rules clearly run afoul of federal law. The Affordable Care Act outlaws the exact type of plans that Idaho wants to allow onto its insurance market.

What we don’t know is what happens next.

To be honest, I'm not entirely sure I understand why Idaho would do this. Yes, of course the deep red state government opposes the ACA in general and sure, they want to "lower premiums" on the individual market, but Trump's recent "ShortAss Plan" executive order would do pretty much the same thing (allowing non-ACA compliant off-exchange "Short Term/Association Plans" which amount to the same thing...without putting GOP Gov. Butch Otter's fingerprints all over the ugly stories which would soon follow if/when people started actually enrolling in these types of policies. Besides, as much as Idaho claims to hate the ACA, they seem to be quite proud (and rightly so) of their own state-based ACA exchange, Your Health Idaho. Idaho is unique in that not only is it the only fully GOP-controlled state to set up their own exchange (Kentucky's was created by a Democratic governor but then shut down by his GOP successor), it's also the only state which has moved off of the federal exchange onto their own platform after the first enrollment period.

In any event, Kliff notes that there are two very good reasons why insurance carriers in Idaho are very likely to refuse to touch this new "freedom" with a ten-foot pole:

...Those that sell on the marketplace will still have to offer coverage there that does comply with Obamacare regulations — that is the only way Idaho residents can still access their tax credits.

But insurers will have the option to also sell other plans, off the marketplace, that don’t comply with Obamacare rules — that might reject sick people or cover a skimpier set of benefits in order to offer lower premiums.

Assuming this was legal (which it very clearly isn't), it would amount to pretty much the exact same thing as Ted Cruz's insane "Cruz-Lee Amendment" proposal which crashed and burned last summer:

His proposal, which he’s circulating to his colleagues on typed handouts, wouldn’t explicitly create and fund the special insurance markets, as the House bill did. Instead, insurance experts said, it would create a sort of de facto high risk pool, by encouraging customers with health problems to buy insurance in one market and those without illnesses to buy it in another.

...There is no public legislative language yet, but here’s how Mr. Cruz’s plan appears to work, based on his handout and statements: Any company that wanted to sell health insurance would be required to offer one plan that adhered to all the Obamacare rules, including its requirement that every customer be charged the same price. People would be eligible for government subsidies to help buy such plans, up to a certain level of income. But the companies would also be free to offer any other type of insurance they wanted, freed from Obamacare’s rules.

It was a stupid idea last summer and it's just as stupid today, but it's even worse because it would be, you know, totally and blatantly illegal, as Kliff goes on to note:

It is ... not clear that insurance plans actually want to offer these plans.

...For one thing, it’s a really big legal risk. Insurance plans could easily end up facing lawsuits, for example, for capping a member’s lifetime benefits when the ACA clearly outlaws those limits.

But there's a second risk as well, which goes back to the reason the Cruz Amendment would've been a disaster:

They might siphon off all the healthy people into these skimpy plans — while leaving premiums in their ACA-compliant plans to go up and up. Health insurance plans strongly prefer to operate in an environment where everybody plays under the same set of rules.

Idaho is offering a scenario where there are two sets of rules: one for the marketplace, and one for other plans. It’s far from clear any insurance plans want to test out that second scenario, even if offered the opportunity.

OK, so it's pretty unlikely that any actual carrier would jump on this idea (though you can expect a lot of sleazy fly-by-night scam outfits to do so, just as they'll already do with the #ShortAssPlan executive order). Let the buyer beware and all that.

HOWEVER, Kliff goes on to note that if any of the "real" insurance carriers did go for it after all, that would place the other carriers in the state in an extremely awkward position, tantamount to the classic Prisoner's Dilemma:

...if one insurer decides to take the legal risk and sell non-ACA coverage — will that goad other plans into doing the same thing?

Insurers, after all, don’t want to see all the healthy people siphoned off into their competitors’ coverage. So one thing they’ll likely be thinking about is whether some other insurer is going to offer a bare-bones plan.

One possibility is that every carrier might also jump into the (risk) pool as well: All for one and one for all! This would create the scenario I laid out in the Cruz Amendment piece, with more and more people dropping off the exchange plans turning the ACA exchange into an extreme example of a High Risk Pool, with only the sickest & poorest enrolling in high-premium, highly-subsidized policies while healthy/wealthy people get dirt cheap junk plans...leaving sick/middle-class people to be utterly screwed with nowhere to turn.

That would be nightmarish enough, but there's also another possibility if one carrier jumps into the Illegal Off-Exchange Policy market, the other carriers in the state...

...might raise their premiums on Obamacare plans as a result, expecting that some healthy people will exit to those types of plans.

“It will probably force insurers to increase their premiums, just to account for the possibility that their competitors are going to take the good risk,” said Sam Berger, a senior adviser at the Center for American Progress and former Obama administration staff member. “Idaho’s claim is that their premiums are too high. But we know what insurers do when there is uncertainty: They raise premiums.”

#Irony.

UPDATE: I previously had a lengthy section centered around an article in the Idaho Statesman which seemed to contradict much of what I had heard about this proposal...but further details from other sources, including the bulletin itself posted below, have made me conclude that the Statesman article has too much wrong about it to keep here, so I've removed that entire section.

Sabrina Corlette, ACA expert & Senior Research Fellow at Georgetown University has clarified much of this stuff and as I suspected, it's pretty bad:

Allowing issuers to charge up to 15X the standard rate for age/health status, impose pre-ex exclusions, and eliminate maternity, specialty drugs, and more seems like much more than "nominally weaker."

— Sabrina Corlette (@SabrinaCorlette) February 2, 2018

GI yes but bulletin says health status rating allowed up to 50% over standard rate; age rating allowed at 5:1. Adjustments are cumulative. So if you're 64 and a cancer survivor, you're not likely to find these plans affordable.

— Sabrina Corlette (@SabrinaCorlette) February 2, 2018

OK, so I had it mostly right the first time: Guaranteed issue is technically included (sort of), but otherwise it's almost as sucky (or close to it) as the pre-ACA world after all.

Here's the details from Corlette's analysis of the proposed new "State-based Plans" (SBPs) over at Georgetown:

...To sell these plans, insurers would have to:

  • Sell ACA-compliant plans on the Idaho health insurance marketplace (exchange). Idaho is one of just 17 states that run their own exchange;
  • Include SBPs and exchange plans together in a single risk pool for rating purposes;
  • Submit the new SBPs to the DOI for review, and
  • Inform consumers that the plan is not compliant with federal health insurance requirements.

These four points are actually positive things, all things considered:

  • The first one should weed out bottom-feeder fly-by-night scam-type companies, since none of them would be able to offer a policy up to the standards/requirements of the ACA exchanges in the first place.
  • The second should, in theory, prevent the premium disconnect between on and off-exchange policies from getting out of control (because presumably there wouldn't be any disconnect); the rates would presumably go up hand in hand.

After that, however, comes the bad news:

SBPs would be exempt from many ACA rules and standards, including essential health benefit (EHB) standards, restrictions on health status, age, and gender rating, and requirements to cover care for pre-existing conditions. While the DOI guidance lays out some coverage requirements, insurers have significant flexibility to decide what to cover. For example, while SBPs must cover prescription drugs, unlike exchange plans there is no requirement that they cover insulin, HIV/AIDS treatments, or treatments for bipolar disorder.

...There are significant legal and financial risks for insurers who might want to sell SBPs. First, by doing so they will be in violation of federal law. This exposes them to the risk of large federal fines (as much as $365,000 in potential fines per customer every year). These insurers also face the threat of private litigation for offering an essentially illegal product.

...Insurers could charge older, sicker consumers premiums as much as 15 times that of a young, healthy person. Insurers can design skimpy benefit packages that don’t cover critical items or services for people with chronic diseases, leaving them exposed to high out-of-pocket costs. While young, healthy consumers may find these plans attractive, older, sicker ones will gravitate to ACA-compliant plans both on and off the exchanges. This adverse selection will result in higher premiums for ACA-compliant plans, rendering coverage unaffordable for many Idahoans who don’t qualify for the ACA’s premium tax subsidies.

...which brings things pretty much right back where they started.

HARD PASS.

UPDATE x2Thanks to farmbellpsu in the comments for providing the link to the actual bulletin sent out by the Idaho Insurance Dept., which lays the rules out for these proposed (and again, illegal) policies:

Pursuant to Governor Otter’s Executive Order 2018-02, the Idaho Department of Insurance (“Department”) has outlined the provisions that will be required for new health products to comply with Idaho Code, Title 41, Chapter 52. Such plans will be identified as “state-based health benefit plans” or “state-based plans” and will not be subject to the federal restrictions applied to “grandfathered” or “transitional” plans.

Carriers must file the forms and rates for each state-based plan with the Department, and must not market or sell the plans until the Department has finished reviewing and closed the filing. The Department will review these plans against the following requirements, in addition to other applicable provisions found in Title 41:

1. Carrier participation in Idaho Exchange: A carrier must offer an exchange-certified health plan in the individual market as a condition to offering a state-based plan within the same service area. If a carrier discontinues offering exchange-certified health plans, any state-based plans offered by that carrier will also be considered discontinued.

2. Guaranteed issue and renewability: Carriers must provide guaranteed availability and issuance of coverage in any state-based plan offered. Dependents under age 26 must be eligible for coverage. No special enrollment period is needed to enroll in any state-based plan. Such policies must be guaranteed renewable in accordance with Idaho Code.

3. Preexisting condition coverage: Carriers are prohibited from applying a preexisting condition exclusion period, provided there is continuous prior coverage. As required by Title 41, carriers must waive any preexisting condition exclusion for any applicant with evidence of qualifying previous coverage within 63 days of when the new state-based plan coverage takes effect.

4. Minimum health benefits: Title 41 requires that all health benefit plans cover certain minimum health benefits, and carriers may offer additional benefits beyond that minimum. The minimum required benefits for these plans include (with examples as sub-bullets):

  • Outpatient/ambulatory patient services
    • Provider office visits
    • Outpatient surgery (facility and provider)
    • Anesthesia services
    • Chronic disease treatment
  • Emergency care
    • Emergency room
    • Transportation
    • Hospitalization
    • Inpatient facilities and providers, including surgery o Inpatient laboratory and medications
  • Maternity and newborn care (maternity must be included in at least one state-based plan)
    • Obstetrician visits and other physician care
    • Hospital costs
    • Newborns added to their parent’s policy are covered from the moment of birth, regardless of health condition
  • Mental health and substance use disorder services o Inpatient evaluation, diagnosis, and treatment
    • Outpatient evaluation, diagnosis, and treatment
    • Must be in accordance with mental health and substance use disorder parity rules
  • Prescription drugs
    • Generic
    • Brand-name
    • Specialty drugs
  • Rehabilitation treatment
    • Hospital-based rehabilitation o Outpatient and office-based rehabilitation
  • Laboratory services
    • Diagnostic laboratory
    • Diagnostic and therapeutic radiological services
  • Preventive care
    • Physicals
    • Immunizations

Additional benefits: Carriers may offer benefits beyond the minimum. Any additional benefits may be included as part of the base contract or as an optional rider. Such optional riders will be permitted as long as there is an appropriate, corresponding premium filed and justified.

5. Premium rates: The Department intends to enforce the rating restrictions on premium rates delineated in Title 41. State-based plans and exchange-certified health plans must comprise a single risk pool, with one market-wide adjusted index rate. The carrier’s rate filing for statebased plans must justify each adjustment from the market-wide adjusted index rate; and carriers must not include plan-level adjustments beyond: cost-sharing design, provider network, delivery system characteristics, covered benefits, and administrative costs. Those adjustments must not account for any actual or expected health status of the individuals that choose or are expected to choose a particular health benefit plan.

The resulting plan adjusted index rate must be filed, along with the base rate for each state-based plan, which by law must not be less than 50% of the plan’s index rate. From the plan adjusted index rate, the following consumer-level adjustments may be applied to determine an applicant’s premium:

  • Age – Carriers may define their own unisex age curve for state-based plans; however, at some future point a standardized age curve may be established. Age rating must not exceed a 5:1 ratio among individuals or dependents ages 20 and older. The same age factor must apply to all dependent children up to age 26. The dependent child factor must fall within the 5:1 ratio, and a premium may be charged for each child. In calibrating the plan adjusted index rate for the carrier’s state-based plan age curve, carriers must use the same population distribution as the exchangecertified health plans.
  • Tobacco use – If used, it must be a single factor that does not vary by age or geography.
  • Geography – The six allowable geographic rating areas must not differ from those defined by the Department in Appendix D of the 2018 Idaho Standards for Health Benefit Plans. Carriers must not use expected health status or claims in setting the area factors. Any differences between exchange-certified health plan geographic rating area factors and state-based plan area factors must be justified.
  • Medical underwriting/risk factor – Underwriting criteria must be limited to those questions found on the Idaho Universal Health Statement Addendum and available claims data. The resulting risk factor must follow Idaho Code and therefore must not result in a premium more than 50% above or below the carrier’s filed plan adjusted index rate after applying all allowable case characteristics.

OK, this is where Corlette gets her 15:1 premium rate factor. Let's say the "base rate" for a given plan was $100/month for a 20-year old. Under the ACA, a 64-year old could only be charged $300 for the same policy regardless of the health of either enrollee.

Under the proposed (illegal) Idaho policies, the 64-year old could be charged $500/month...but if the undewriting found them to be high risk, that could go up to as high as $750/month, for a 7.5:1 ratio. Furthermore, if the 20-year old was found to be in extremely good health, they might be charged as little as $50/month. As a result, you could potentially have a 64-year old paying up to 15x as much as a 20-year old for the exact same policy.

As M E notes in the comments below, some of this is semantics; the base rates would be 5:1, not 15:1, and I suppose you could argue that current unsubsidized ACA policy enrollees are technically paying infinity:1 more than someone receiving a fully-subsidized, zero-premium Bronze plan. Still, the fact remains that Person A could pay up to 15x as much as Person B in this scenario.

6. Annual limits: The Department will consider health plans with an overall annual dollar benefit limit of no less than $1 million per individual. Any individual reaching $1 million in annual paid benefits must be assisted by the carrier in transitioning without a break in coverage to one of the carrier’s exchange-certified health plans.

In other words, if you get really expensive (i.e., diagnosed with cancer or whatever), they'll kick you over to the ACA exchange, which again would amount to nothing more than a High Risk Pool at this point. And as long as APTC/CSR subsidies continue to flow, that might be fine...unless you happen to earn more than 400% of the poverty line, in which case you're once again royally screwed since you'd be kicked out of the "State-based plan" but wouldn't be able to afford full price for the exchange plan. Which is exactly the "Cruz amendment" nightmare scenario I described.

There's something else which I don't get here, however: Remember, under this proposal, all enrollees in both exchange and "state-based plans" would be part of the same risk pool. Now that's a good thing, however, it also means that kicking the $1 million patient off of the SBP onto an exhange policy would cost the carrier exactly the same amount of money to cover them. Which in turn means they would still have to raise their premiums by the same amount as if they kept them on the SBP. Which defeats the primary reason for having SBPs in the first place.

Apparently there'd still be no lifetime limits, which I suppose is a good thing; you could go up to $999,999 per year without being kicked to the curb.

7. Maximum out-of-pocket: Maximum out-of-pocket provisions shall be inclusive of all deductibles, copayments, coinsurances, or other cost-sharing for all minimum health benefits. The maximum out-of-pocket is allowed to be partitioned to have a separate maximum for specific services, such as a medical maximum out-of-pocket separate from a prescription drug maximum out-of-pocket.

8. Disclosure: A carrier that elects to offer a state-based plan that is not fully compliant with federal non-group health insurance requirements must disclose on the face page of the policy that:

  • The policy is not fully compliant with federal health insurance requirements.
  • Any preexisting condition is covered provided there is qualifying prior coverage.