NAIC wants more state control of PPACA implementation variables

2013 NAIC Leadership Team Commissioners Lindeen, Donelon, Hamm and Consedine (Consedine not a signatory to 2012 CMS letters). Courtesy NAIC 2013 NAIC Leadership Team Commissioners Lindeen, Donelon, Hamm and Consedine (Consedine not a signatory to 2012 CMS letters). Courtesy NAIC

State insurance regulators remain concerned about “rate shock” from the younger and healthier portion of the population leaving the health insurance marketplace and skewering it by taking the penalties in the first years when they are low.

Although there is open enrollment prescribed to discourage adverse selection, the states want more tools and time, and the authority to develop them.

“States need flexibility to develop a regulatory environment that will discourage adverse selection while preserving consumer protections, rather than having the federal government prescribe open enrollment as the tool that states must use,” said a recent letter of top state regulators to the implementers of the Patient Protection and Affordable Care Act (PPACA).

They are also concerned about cookie-cutter rating bands that will end up possibly reducing competition, upsetting the issuer market and allow for cherry picking of service areas. 

States are requesting as much flexibility as possible under the law to address the problem of expected rate shock with the development of tools such as age bands, rate caps, curves and geographic areas.

So wrote the NAIC leadership just before the holidays in a letter to the Centers for Medicare & Medicaid Services (CMS).

The NAIC leadership team, then headed by immediate past president Kevin McCarty of Florida and including NAIC Health Care Committee Chair Sandy Praeger of Kansas, detailed its many concerns of the impact the market reforms will have on premiums as a response to proposed regulations on the Patient Protection and Affordable Act: Health Insurance Market Rules, and Rate Reviews published in the Federal Register Nov. 26, 2012, echoing concerns the health industry has had as well.  

The NAIC recommended, for instance, that CMS provide states with the flexibility to phase in during a transition period of three years the required 3:1 age factor ratio to reduce the rate shock for the younger/healthier segment of the market. With such a transition, younger, healthier individuals will experience more gradual rate increases rather than large one-time rate shocks and will be less likely to drop coverage and further destabilize the market, the NAIC wrote.

The NAIC also told CMS that the designation within a state of no more than seven geographic rating areas, and the definition of rating area by zip code or county–but not both–are potentially detrimental to insurance markets in some states.  

Setting geographic rating areas that are larger than service areas may result in reduced competition or consumer access issues in cases where issuers choose to write business only in the lower cost counties within a geographic rating area. 

States should have the flexibility to align geographic rating areas with service areas to avoid issuer cherry-picking of service areas where costs are lower, the NAIC leadership wrote. 

“Geographic differences in cost structures and provider contracting may not be consistent from issuer to issuer, making consolidation of geographic rating areas difficult for states and creating winners and losers among issuers, potentially reducing competition,” the state regulators stated.

The NAIC is also concerned about the hit some families may take with rate hikes if they have four or more children when one of the children reaches age 21.

The NAIC suggests that the definition of minimum category of family members should be decided on a state by state basis, not by the federal government.

State regulators are also concerned over the amount of data requested of issuers and the administrative burden and cost that is being placed on the states, which are struggling with budgets issues and cuts in some cases.  

In a separate letter on standards related to required minimum coverage packages, the NAIC team reiterated its concern about the data calls and the cost to state insurance departments. 

In that letter, also sent Dec. 19, the NAIC was responding to HHS’ request for comment on whether states should make payments for required benefits not included in Essential Health Benefits (EHB) based on the statewide average cost of the benefit, or based on each issuer’s actual cost to provide the benefit. 

The NAIC opts for a state-driven solution.

“We recommend that states be given flexibility in determining the cost basis to be used. However, if a national standard is required, we recommend that such payments be made based on the average benefit cost for the relevant Geographic Rating Area (GRA). If payments are made based on each issuer’s cost, issuer incentives to contain costs for these benefits may be reduced. 

Payment based on statewide average costs more appropriately aligns incentives and is more administratively simple,” the letter stated.

Health policy watchers are hoping to reduce the risk that PPACA will cause the sickest consumers to flock to certain health plans or certain types of plans, and capsize those plans.

The NAIC and other commenters also discussed ways to help people with serious health problems who now get coverage from state risk pool programs to move into ordinary individual health insurance policies once PPACA underwriting rules take full effect without spiking the plans. 

Under the proposed rule, high risk pools would not be open to new enrollees once the PPACA market rules become effective. However, states need flexibility to modify market rules relative to high risk pools, recognizing their unique role and minimizing the impact on rates during this transition, the NAIC letter stated.

The NAIC—as well as the health insurance (carrier) industry—remains concerned about the limited variation of actuarial value that will be allowed under federal regulations in benefit packages. 

“Requiring issuers to meet specific actuarial value levels with only “de minimis” variation will limit consumer options and require plans to modify cost-sharing requirements every year. We recommend that states be provided more latitude to set cost-sharing options outside (a health insurance exchange) and the cost-sharing variation level within a state-based exchange,” the NAIC leadership group stated in its EHB response letter.

In recent months, many state departments of insurance and state exchange boards have requested formal actuarial and economic forecasts  in their state with the finding that several PPACA provisions, including the EHB and actuarial value requirements, will result in higher premiums, AHIP pointed out in its EHB  and actuarial value response letter to Center for Consumer Information and Insurance Oversight (CCIIO) on Dec. 21.

America's Health Insurance Plans (AHIP) called for flexibility in the calibration of EHB services and the avoidance of certain, expensive state-mandated benefits to the EHB. See: 

CMS included those letters and scores of other comments in a batch of about 170 comment letters posted on the Web Dec. 26, shortly before the EHB package comment deadline. 

To read NAIC responses to proposed PPACA guidance on EHB, rates, market reforms and the multi-state plan rule, see below:

NAIC Comments on Proposed EHB/AV/Accreditation Rule 12/19/12

NAIC Comments on Proposed Market Reform Rule 12/19/12

NAIC Comments on Proposed Rate Review Template 12/19/12

NAIC Comments on Proposed Multi-State Plan Rule 12/19/12

NAIC Comment Letter on OPM's Multi-State Plan Application

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