(AP Photos/Mark Lennihan)

A faint ray of hope might be peeping out of proposed federal health insurance market standards regulations.

Officials at the U.S. Department of Health and Human Services (HHS) do seem to understand that the Patient Protection and Affordable Care Act of 2010 (PPACA) could cause unwanted upheaval in the private health insurance market, according to Steve Zaharuk, a senior vice president at Moody’s Investors Service.

“It is positive that HHS continues to recognize the potential for adverse selection by individuals by including specific provisions to prevent or limit this,” Zaharuk wrote in a commentary released by Moody’s earlier this week.

Zaharuk was responding to a batch of PPACA regulation drafts that HHS and other departments published in the Federal Register Monday.

Zaharuk suggested that one sign of HHS officials’ interest in managing risk might be a proposal to apply open-enrollment rules outside the PPACA exchange system as well as inside the exchange system.

“Establishing a limited time period during which individuals are able to enroll in an insurance plan prevents them from waiting until they are sick to purchase coverage,” Zaharuk said.

PPACA 
PPACA calls  for states to work with HHS to set up a system of “health insurance exchanges,” or Web-based insurance supermarkets, by late 2013. 

Individuals and small groups are supposed to be able to use new tax credits to buy coverage through the exchanges

Many individuals who fail to own a minimum level of health coverage would pay a tax. The tax would start at $95 for individuals in 2014 and rise to $695 by 2016.

Health insurers would face tough new restrictions on underwriting.

Health insurers could not use personal health information when deciding whether to issue coverage.

When pricing coverage, health insurers could still use geographic information and information about an enrollee’s family size.

HHS is thinking about letting a health insurer use wellness program information, such as information about weight or blood pressure, to determine incentive penalties or rewards with a value amounting to about 50 percent of the value of the policy premium. 

But a health insurer could not use information about pre-existing conditions, current health status, claims history, duration of coverage, gender, occupation, or small employer size and industry to set rates, Zaharuk wrote.

A health insurer could charge the oldest enrollees 3 times as much as it charges the youngest enrollees – the ratio limit is now 5 to 1 in many states, Zaharuk said.

Shifting to a 3-to-1 limit could force insurers to charge younger, healthier consumers more, Zaharuk said.

If rates for young consumers rise too much, young consumers could decide to pay the PPACA uninsured tax and do without coverage, leaving insurers with an older, sicker pool of insureds, Zaharuk said.

Risk
Rating analysts, health insurers and others have worried about the possibility that PPACA could lead to big, sudden, dangerous shifts in health claims risk.

PPACA changes could cause the sickest consumers to flock to certain plans within the PPACA exchange system, or to show a strong preference either for exchange-based plans or for non-exchange plans.

Or, PPACA could push up prices for healthy consumers and cause them to flee from the health insurance market altogether.

Because consumers with serious health problems could buy coverage as easily as healthy consumers could, one fear is that consumers might choose to become “free riders” — consumers who do without health coverage most of the time, then pay for coverage when, and only when, they become sick.

To reduce the free rider problem, HHS previously has talked about establishing open-enrollment periods, or limited times when individuals can sign up for coverage, Zaharuk said.

When consumers know they might have to wait for months, or most of a year, after the end of an open-enrollment period to buy coverage, they may be less likely to wait until they know that they have cancer to buy coverage.

Originally, HHS talked about applying the open-enrollment period rules only to exchange coverage, Zaharuk said.

Now, “the new rules propose the same open enrollment period for plans sold outside the exchanges as well,” Zaharuk said. 

HHS officials also have shown a willingness to take risk management into account in a proposal that would let an insurer manage adverse selection risk by imposing minimum employer contribution and employee participation requirements, Zaharuk said.

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