Requiring individual and small group plans to offer “actuarially equivalent” benefits packages may not be enough to prevent adverse selection in the U.S. health insurance market in 2014, Karl Ideman says.
Ideman, president of Pool Administrators Inc., Glastonbury, Conn., wrote to the Exchanges Subgroup at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., about subgroup efforts to prevent adverse selection once a new health insurance exchange system comes to life.
Many Republicans and some Democrats are trying to block implementation of part or all of the Patient Protection and Affordable Care Act (PPACA).
If the act takes effect in 2014 as written, the act will create a system of health insurance exchanges that will distribute individual and small group health insurance. Federal law and states are supposed to set minimum quality standards for plans sold through the exchanges and require the plans to offer a “minimum essential benefits package.”
Other PPACA provisions will require carriers to sell individual and small group coverage on a guaranteed issue, mostly community-rated basis starting 2014.
Carriers will be able to charge older insureds more, but they will not be able to base rates or application decisions on an applicant’s health status.
Many health policy experts worry that differences between the exchange sales climate and the non-exchange sales climate, or subtle differences between the plans sold on and off the exchanges, will lead to older, sicker applicants flocking to one type of plan or another.
Ideman’s company, Pool Administrators, Inc. (PAI), has been helping states run risk pools
and small group health insurance pools for about 20 years.
The company has many years of experience with efforts to work in a guaranteed-issue environment, Ideman writes in his comment letter.
Exchanges Subgroup members and staffers recently posted a draft paper suggesting that there should be a “level playing” field for participants inside and outside the exchanges.
“Facilitation of a level playing field between participants in and out of the exchanges is critical,” Ideman says. “To that end, we would like to take this statement further by stating that is our belief that the individual and small employer ‘essential benefits packages’ should be identical in all respects. Substantially similar benefits with actuarial equivalence should not be considered adequate.”
On-exchange plans and off-exchange plans also should apply acquisition costs and administrative expenses using the same percentages of premium unless the underlying nature of the costs and expenses is different, Ideman says.
“We would also like to emphasize that plans both inside and outside the exchange should be made to comply with the same state-based regulations, including those that prohibit marketing practices and benefit designs that discourage high-risk enrollees, as well as those that incentivize quality improvement and the maintenance of comparable commission and other compensation structures,” Ideman says.
Regulators need to work with the U.S. Labor Department to apply consistent regulations and interpretations to self-insured plans, Ideman says.
“It may also make sense that a separate entity govern the reinsurance and risk-adjustment mechanisms, and also that it would be used to facilitate the respective departments’ oversight efforts,” Ideman says.
Administrative costs could be held down if states use current reinsurance and risk-pooling mechanisms, including existing reinsurance systems and plans of operation and audit procedures, Ideman says.