Fun with risk pools: Mississippi ACA premiums are up to 12% higher than they should be due to transitional plans STILL being left in place

OK, my math here is gonna be a bit sloppy, but I'm just trying to illustrate a larger point about how splitting risk pools is, generally speaking, a Bad Thing.

Under the Affordable Care Act, non-ACA compliant healthcare policies were given until December 31st, 2013 to become fully ACA-compliant, including the new regulations mandating guaranteed issue, community rating, essential health benefits, no more annual or lifetime limits on coverage and so forth. All major medical policies offered from that day forward had to be fully ACA compliant (although there were some exceptions for short-term plans and so forth).

However, there was an exception made: Any existing policy which someone had been continuously enrolled in since before the ACA was signed into law by President Obama in March 2010 was considered to be "grandfathered" in. As long as the insurance carrier chose to keep offering those non-compliant policies, existing enrollees could remain enrolled, although premiums would of course increase from time to time. The "locked in" pool of enrollees would gradually dwindle as enrollees died, aged onto Medicare, got jobs with employer coverage and so on.

In November 2013, however, President Obama and the HHS Dept. faced a massive backlash from several million people who had enrolled in policies after March 2010. These people received termination notices for their non-compliant policies from their carriers, letting tem know that their plans would expire as of 12/31/13, and they were were encouraged to instead check out the ACA policies available on the exchange.

In many cases, these ~5 million people would have ended up paying either less or roughly the same for much more comprehensive coverage thanks to the ACA's subsidy structure. In other cases, however, they'd be paying more than they were for their non-compliant plans. Either way, many of them freaked out and started screaming at Obama because of his repeated "If You Like It You Can Keep It" claim.

As I've said many times before, I agree that Obama's statement was, frankly, foolish. I understood his larger points:

  • He wasn't ripping apart the entire existing healthcare system for all 320 million+ and replacing it with something new.
  • The new regulations mainly focused on the Individual and Small Group markets...perhaps ~25 million people or so combined at the time.
  • Even then, with the pre-2010 grandfather clause, the 25 million was cut down even further, to perhaps ~15 million between the two markets.
  • And of course, private insurance companies change their plan offerings, get bought out/merge with other companies, etc. all the time.

However, that's not what Obama said. His "You Can Keep It" talking point didn't include any caveats or disclaimers; it was seen as an all-encompassing blanket statement, which meant that a lot of those ~15 million or so were indeed upset (~5 million on the Individual market, ~10 million in Small Group plans), and caused a massive backlash right as the HHS Dept. was finally getting a handle on the technical problems at HealthCare.Gov.

In response, President Obama and his HHS Dept. issued a new policy: They gave individual states the right to decide whether or not to allow a one-year extension of these policies...specifically, non-ACA compliant policies which people had enrolled in between March 2010 and October 2013. About 1/3 of the states chose not to allow the extension. The other 2/3 did so (although a few only allowed them for the individual market or the small group market, not both).

Eventually, HHS bumped out the extension by another two years...then three. Eventually it became a bit of a running joke, with the ball on "transitional" plans (also known as "grandmothered" plans) being kicked down the field a year at a time by both the Obama and then the Trump administrations. A few more states did eventually cut them off (Colorado, Illinois and Oregon), and in some cases the individual insurance carriers either did eventually terminate these plans or simply ran out of enrollees.

Like grandfathered policies, enrollment in "grandmothered" plans has also been gradually dwindling as people age off of them, move to other types of coverage, move out of the area or pass away. At this point I've stopped distinguishing between the two, and estimate that there's likely fewer than 2 million people on both types of policies combined (both individual + small group markets).

So why is this such a big deal? Because of the impact on the ACA-compliant policy risk pool, especially in the individual market. Most of those enrolled in pre-ACA indy plans were relatively healthy (they had to be, since carriers were allowed to cherry-pick their enrollees while kicking sick people to the curb), so the grandfathered & grandmothered risk pool tends to be far healthier than the ACA pool. The whole point of pushing people off of these policies in the first place was to mix them in with the ACA pool, which would lower premiums (or at least prevent them from rising as much as they have).

Instead, the ACA risk pool in most states ended up being considerably more expensive than expected, in part because of the carriers which allowed "transitional" plans to remain in place. The most blatant example of this is probably Iowa, where Wellmark held nearly the entire pre-ACA individual market share and continues to this day to keep them separate from the rest of the market, driving up ACA premiums dramatically.

However, I just stumbled across a press release announcing the yet-another-year-extension from March in a different state, Mississippi, which illustrates the problem nicely:

Federal health plans extension good news for Mississippi

JACKSON, Miss. ‐ The Centers for Medicare & Medicaid Services (CMS) announced Monday that they will allow insurance companies to continue to offer certain health plans that would have been phased out on January 1, 2020.

These plans are often referred to as “grandmothered” plans, which do not meet all of the many mandates and restrictions in the Patient Protection and Affordable Care Act (PPACA). The extension ensures access to affordable coverage options through January 1, 2021.

For the past four years, Insurance Commissioner Mike Chaney has requested and received an extension. Commissioner Chaney most recently requested that CMS grant another extension in November 2018, citing the impacts on Mississippi insurance consumers if an extension was not granted.

“Without the extension, over 100,000 Mississippi policyholders could have seen rate increases of over 59 percent,” said Commissioner Chaney. “It would have been detrimental to residents of Mississippi but also to the stability of the state’s health insurance market and the state’s economy.”

Commissioner Chaney wants to offer a special thanks to Senators Roger Wicker and Cindy Hyde‐Smith and their staffs. “I want to emphasize that without their diligence in raising the concerns in Mississippi to CMS, this extension would not have been granted,” said Chaney

Mississippi being Mississippi, of course, this is being touted as good news. It's all a matter of perspective, of course.

100,000 people is a lot for a state of 3 million people, especially given that it's been six years since non-ACA plans were originally supposed to be phased out. I'm assuming that the 100K figure refers to both the individual and small group market. I don't know what the split is, but I'll assume it's around 50/50 for now.

As it happens, Mississippi's on-exchange ACA-compliant enrollment was around 88,000 this year, and even when you include the off-exchange enrollees, the total is only a little over 100,000 people. The average premium for ACA indy plans in Mississippi is $641/month, and is only expected to increase to around $658/mo in 2020.

OK. Again, this is some very rough math, but the 59% increase referred to by MS Insurance Commissioner Chaney suggests that those 50K indy market transitional enrollees are currently paying around $414/month today. I presume the insurance carriers are at least breaking even on them if not making a small profit (remember, transitional plans are still subject to the ACA's 80% MLR rule).

If so, that means if those ~50K were to be shifted onto ACA policies, you'd be increasing the risk pool by roughly 50%...with people currently paying about 63% as much on average as the existing ACA pool. That means the combined average would likely be something like:

  • 1/3 x $414 = $138
  • 2/3 x $658 = $439
  • Combined = $577/mo...or perhaps 12% lower than the actual weighted average is for 2020.

Of course, this is just for illustrative purposes. Even if exactly 50,000 Mississippians are enrolled in grandmothered plans, there's no way of knowing how many of them would actually shift over to ACA-compliant policies if they were eliminated. Some would, no doubt, but others would either enroll in Trump's #ShortAssPlans, or in "Christian Sharing Ministry" plans, or they'd just go without any coverage at all, especially now that there's no longer any financial penalty for doing so, which is part of the bigger problem.

If, on the other hand, the ACA's 400% FPL subsidy eligibility cap were to be eliminated and the formula were to be beefed up to cap premiums at no more than 8.5% of income...whle the benchmark plan standard were to be upgraded from Silver to Gold...I'm pretty sure you'd win over the vast majority of these people, along with the tens of thousands of others in the state who have already bailed on ACA plans due to them not qualifying for tax credits.