How Would Health Insurance Change Under the Proposed HHS Regulations?

Regulations Are Intended to Stabilize Insurance Markets

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Concerns about the stability of the individual health insurance market (both on and off-exchange) have been swirling for some time. Numerous insurers exited the exchanges or the entire individual market at the end of 2016, and pre-subsidy premiums increased by an average of 25 percent for 2017 (subsidies in the exchanges grew to offset all of most of the premium increases for subsidy-eligible people who buy coverage in the exchange; so to be clear, premiums did not increase by an average of 25 percent for most people who buy their plans in the exchange).

To address market stability concerns, the Department of Health and Human Services proposed a series of reforms in mid-February, a few days after HHS Secretary Tom Price was confirmed by the Senate.

The notice of proposed rule-making is all about market stabilization for the individual and small group markets. In general, small group markets have been fairly stable. But the individual markets in some states were on the brink of collapse by the end of 2016, and Humana announced on February 14 that they would completely exit the individual health insurance market nationwide at the end of 2017 (they currently offer individual plans in 11 states).

How Will the Proposed Rules Impact Your Health Insurance?

People who get their health insurance from a large employer (in most states, that means 50+ employees), Medicaid, or Medicare won't be impacted by the changes that HHS has proposed. The changes mostly apply to the individual market, which is where about 7 percent of the U.S. population, although people who work for small employers could see higher out-of-pocket costs, and possibly lower premiums.

1. For people who buy their own health insurance, open enrollment for 2018 would be shorter than currently scheduled, and shorter than it has been in previous years.

The current rules call for the 2018 open enrollment period to follow the same schedule that was used for 206 and 2017 (November 1 through January 31).

But for 2019 coverage, the current rules call for a shorter open enrollment period, starting November 1 and ending December 15. HHS has proposed using the shorter window starting in the fall of 2017, instead of waiting until the fall of 2018.

If the proposed rule is finalized, people who buy their own health insurance (ie, they don't get it from an employer or from a government program like Medicare or Medicaid) will have a shorter window to select a plan for 2018. It will begin November 1, 2017, and end December 15, 2017.

That means no plan changes after the first of the year, so there will no longer be an opportunity to switch plans in January if your premium change catches you off guard. It will be particularly important to pay close attention to any premium and plan change notifications you receive in October/November from your insurance company or the exchange, and make plan changes before the 15th of December. After that, plan changes and new enrollments would only be possible if you have a qualifying event.

This would not change anything about the open enrollment windows for employer-sponsored health insurance or Medicare.

2. People who enroll in exchange plans outside of open enrollment will have to provide proof of a qualifying event, and eligibility for special enrollment periods would be restricted in some cases.

The ACA and subsequent regulations allow people with a variety of qualifying events to enroll in coverage through the exchange (and in most cases, outside the exchange as well), regardless of the time of year.

This makes sense, and it's how employer-sponsored insurance works too. If a person quits her job and loses access to an employer-sponsored health insurance policy in June, she can't be expected to wait until January to have new coverage. And if a baby is born in April, it wouldn't make sense to force the family to wait until open enrollment to get coverage for the baby.

So a qualifying event triggers a special enrollment period (SEP), during which the applicant has 60 days to sign up for a new plan.

But there has been considerable controversy surrounding SEPs. There are concerns that people might be "gaming" the system by pretending to have a qualifying event when they find themselves in need of medical care, and insurers have noted that average claims costs are higher for people who enroll during SEPs as opposed to people who enroll during open enrollment. 

But on the other side of the coin, consumer advocates have pointed out that very few SEP-eligible people actually enroll in coverage, and requiring proof of a qualifying event might deter healthy enrollees from completing the process. This was evident to some degree in the aftermath of the stepped-up SEP eligibility verification that implemented in 2016.

Among applicants age 55-64, 73 percent submitted proof of a qualifying event. But among applicants aged 18-24, only  55 percent submitted proof of a qualifying event. This results in a pool of insureds with a higher average age, which is correlated with increased health care costs.

The Obama Administration HHS had scheduled a pilot program, starting in the summer of 2017, under which 50 percent of applicants (randomly selected) would have to provide proof of a qualifying event before their application could be completed.

But the new HHS proposal changes that to 100 percent. If it's finalized, the new rule would mean that as of June 2017, all enrollees who sign up outside of open enrollment will have to provide proof of a qualifying event before their application can be processed.

In addition, the new rules would reduce access to SEPs in some circumstances. Marriage would only be considered a qualifying event if at least one partner already had minimum essential coverage, and people who had lost coverage for non-payment of premium at some point during the year would have to pay up their past-due premiums before they could qualify for a separate loss-of-coverage SEP later in the year.

3. There will be more leeway in terms of the percentage of costs that health plans must cover. This could result in slightly lower premiums, but higher deductibles and copays. It could also mean smaller premium subsidies in the exchanges.

Under the ACA, all new individual and small group health plans must fit into one of four metal levels: bronze, silver, gold, or platinum (catastrophic plans are also available for some enrollees). A plan's metal level is determined by its actuarial value (AV), which is a measure of the percentage of health care costs that the health plan will pay, averaged across an entire standard population. Bronze plans have an AV of 60 percent, silver plans have an AV of 70 percent, gold plans have an AV of 80 percent, and platinum plans have an AV of 90 percent.

But it would be challenging for health insurance companies to design plans that hit those numbers exactly (pre-ACA, there were no standardized AV requirements, so insurers didn't have to worry about hitting a specific AV target). So health plans are allowed to use an AV range rather than an exact percentage. Currently, the range is +/-2. So a silver plan can have an AV that ranges from 68 to 72 percent.

Under the new HHS proposal, the range would be +2/-4, which means a silver plan could have an AV anywhere in the range of 66 to 72 percent.

Insurance companies would thus be able to increase out-of-pocket costs (deductibles, copays, coinsurance), because they wouldn't have to cover quite as large a percentage of total average costs. That means premiums would decline slightly, but the amount people have to pay when they need health care would increase.

It also means that premium subsidies might get slightly smaller, since they're based on the cost of the second-lowest-cost silver plan (the benchmark plan) in each area. If the second-lowest-cost silver plan is one that has an AV of 66 percent, it will be priced lower than other silver plans with AV of 68 percent or higher. And a lower-priced benchmark plan translates to smaller subsidies.

4. Insurers would be able to apply new premiums to past-due amounts.

If a plan is terminated for non-payment of premiums under current rules, the individual can re-enroll in that same plan during open enrollment. Premium billing starts over as of January, and the insurance company is not allowed to require the person to pay up their past-due premiums from the previous year.

The new proposals would give insurance companies more leeway to collect past-due premiums if the person chooses to re-enroll during open enrollment. Premiums paid for the new plan could be applied to the past-due premiums from the previous 12 months, and insurers would be allowed to refuse to activate the new policy until past-due premiums from the prior year were paid up.

People would be able to get around this change by enrolling in a plan from a different insurer, but in some states, there's only one insurer offering plans in the exchange. In those states, anyone whose coverage is discontinued for non-payment of premiums would potentially be subject to paying back-premiums before being allowed to enroll in a new plan.  

The proposed regulations are currently being reviewed by stakeholders all across the country, and the public comment period continues until March 7.

Sources: Average Unsubsidized Individual Market Rate Hikes, 2017. Finalized October 27, 2016.

Department of Health and Human Services, Patient Protection and Affordable Care Act; Market Stabilization. February 15, 2017.

Humana. Humana Continues to Build Upon Proven Strategy Following Termination of Merger with Aetna; Provides 2017 Financial Guidance; Announces Capital Deployment Plans. February 14, 2017.

Kaiser Family Foundation. Health Insurance Coverage of the Total Population, 2015.

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