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What Medicaid expansion means for private plans

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States that keep Medicaid eligibility narrow could drive up costs in the private individual health insurance market, according to a work group at the American Academy of Actuaries (AAA).

Rates would rise because narrow Medicaid eligibility rules could force commercial insurers to enroll a wave of low-income consumers with health problems, the work group says.

The Patient Protection and Affordable Care Act (PPACA) calls for states to expand Medicaid eligibility for adults to residents with incomes under 133 percent of the federal poverty level (FPL), from 100 percent or less today. Because Medicaid ignores 5 percent of income when determining eligibility, the change really would increase the eligibility cut-off to 138 percent of FPL, the work group says.

The Supreme Court ruled this summer that the federal government can encourage states to expand Medicaid eligibility to 133 percent of FPL by offering new aid, but that the federal government cannot penalize states for “lack of effort” by taking away existing funding. Some states are trying to hold the Medicaid eligibility cut-off for their adult residents to 100 percent of FPL or less. Officials in those states argue that their states cannot afford to expand Medicaid eligibility at this time.

PPACA will require insurers to sell individual and small group coverage on a guaranteed-issue, mostly community-rated basis starting in 2014. If PPACA takes effect as written and works as drafters expect, individual insurers will not be able to take an applicant’s health status into account when deciding whether to offer coverage or determining the price of the coverage.

PPACA also requires the federal government to provide new health insurance purchase subsidies for consumers with incomes from 133 percent to 400 percent of FPL.

Some health policy specialists are wondering whether the current fight over the “near poor” consumers – the consumers with incomes from 100 percent of 400 percent of FPL – will strand those consumers. Those specialists ask whether the federal government has the legal authority to provide subsidies for the near-poor consumers.

If those near-poor consumers can get federal subsidies, then they probably will apply for private individual health coverage, and it seems likely that they will have higher medical costs than other enrollees, the work group says.

The influx of near-poor enrollees could lead to a 2 percent increase in overall average individual market premiums, and the increase could be bigger in the narrow-eligibility states, the work group says, citing estimates from the Congressional Budget Office.

PPACA is supposed to protect commercial health insurers against big changes in claims costs resulting from PPACA by creating a subsidized reinsurance program, but PPACA reinsurance program funding is fixed, the work group says.

The more high-cost enrollees an insurer gets, the less PPACA reinsurance money a plan will get for each new enrollee covered, the work group says.


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