Regulators are starting to grapple with ideas about how to keep the new health insurance exchange distribution system from causing big new antiselection problems.

Exchanges Subgroup officials at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., have posted a draft paper on addressing adverse selection concerns on their section of the NAIC’s website.

The federal Protection and Affordable Care Act (PPACA) is supposed to create the health insurance exchange system in 2014.

Republicans are trying to block implementation of the act.

If the health insurance exchange provision and related provisions take effect as written, the exchanges will help individuals, families and small groups buy commercial health coverage using new system of tax credits.

PPACA will require carriers to sell the coverage on a guaranteed-issued basis, without taking health status into account when they are setting prices.

PPACA will require many individuals to pay a tax penalty if they fail to own health coverage, but the cost of the penalty will be much less than the unsubsidized price of the health insurance, and critics say some consumers may simply wait until they know they have big medical bills to start paying for health coverage.

“Therefore, instead of a large number of individuals purchasing and paying for

health insurance to cover the claims of those that incur health care costs, far fewer individuals are paying premiums to cover those same health insurance contingencies, thereby raising the unit cost of health insurance considerably,” the paper drafters say in a background section. “It is imperative to minimize adverse selection in order for health insurance to remain a financially viable product.”

In adddition to restrictions on underwriting flexibility, the drafters say some factors that could lead to antiselection include:

  • The mere fact that an exchange market exists alongside the traditional insurance market.
  • Differences between the provider networks available through exchange and traditional plans.
  • Differences in prices between exchange and traditional products.
  • Differences in producer commissions for exchange and non-exchange products.

The drafters also describer a number of antiselection strategies. They include imposing rules that limit the differences between the plans carriers offer through the exchanges and through traditional channels; offering the right number of options through the exchange system; and merging the small group and individual markets, to avoid letting one subsidize the other.

Efforts to minimize differences in producer compensation for exchange and traditional products may be another option to consider, the drafters suggest.

- Allison Bell

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