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How the 'liar plan' hot potato could knock you out

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A push to require written documentation from consumers who apply for special enrollment period (SEP) coverage through Covered California is so controversial that debate about it crowded out most discussions about an agent and broker compensation standards proposal.

Fifteen years ago, some consumers could get mortgage loans with little or no documentation. Mortgage market observers blamed the carelessness that produced those low-documentation “liar loans” for the 2007 mortgage market meltdown.

Up until now, and many state-based exchanges have let consumers apply for SEPs with a similar lack of documentation, by swearing, or attesting, that they meet the requirements for a SEP.

Executives at UnitedHealth Group Inc. (NYSE:UNH) and some other exchange plan issuers say SEP enrollees seem to be sicker than they ought to be, and are more likely to drop their coverage shortly after running up big medical bills. That pattern suggests that some consumers may be waiting until they get sick to pay for coverage, and, in some cases, lying about whether they really qualify for SEPs, the executives say.

The executives have cited the apparent lack of Patient Protection and Affordable Care Act (PPACA) SEP rule enforcement as a reason to be cautious about selling products through the exchange system in 2017.

The U.S. Department of Health and Human Services (HHS) has said it will respond to those concerns by developing tougher SEP eligibility documentation requirements.

See also: Feds may go after some ‘special’ PPACA exchange plan enrollees

The staff of Covered California, a state-based PPACA exchange, has developed its own SEP application documentation proposal, along with a proposal to require exchange plan issuers to offer the same agent and broker compensation arrangements outside of the open enrollment period that they offer during the open enrollment period.

Michael Lujan, president of the California Association of Health Underwriters (CAHU), testified in support of the producer comp proposal at a recent exchange board meeting. Lujan was the only member of the public who mentioned the producer comp proposal, according to a review of the meeting video.

The patient and consumer advocacy group representatives talked at length about the SEP proposal.

For a look at what knocked most discussion about the producer comp proposal out of the conference room, read on.


1. Advocacy groups don’t believe the carriers, or that the current verification process proposal would work. 

Regulators, insurers and Patient Protection and Affordable Care Act (PPACA) exchange program managers developed the SEP system, or limits on when people can buy coverage without showing they have a good reason to need coverage, in an effort to keep the PPACA ban on use of personal health information — other than age and tobacco use — in underwriting from encouraging consumers to wait until they get sick to pay for coverage. The SEP system is one of the last defenses health insurers have against adverse selection.

Beth Capell, a representative from Health Access California, said health insurers may think SEP application fraud is a common problem because they have bad data on how common SEP triggers are.

Health insurer actuaries seem to think that only 10 percent to 12 percent of their enrollees should get their coverage through SEPs, but academic research shows that, if the SEP system was working smoothly, about one-third to one-half of their enrollees should come in through SEPs, Capell said.

Betsy Imholz, a representative from Consumers Union, said the evidence that SEP enrollees are much different from ordinary open enrollment period enrollees, let alone prone to misrepresenting their eligibility for SEPs, is weak.

The carriers are complaining about the SEP applicants failing to provide eligibility documentation, but, meanwhile, all the carriers have to document are the SEP fraud allegations of their own assertions that problems exist, Imholz said.

At this point, Imholz said, the insurers haven’t even given any good numbers showing which types of SEPs seem to have the most problems.

Even if the insurers can show that many SEP enrollees keep their coverage for just a short time, that may be because typical purchasers of individual health coverage use it for six months or less, as something to fill the gaps that appear when they lose other types of coverage, Imholz said.

Doreen Wong of the Asian-Americans Advancing Justice-Los Angeles said the idea of requiring SEP applicants to provide paper documentation for SEP triggers such as loss of a job is impractical.

“We already find it’s very hard to enroll consumers during special enrollment periods,” Wong said.

The Covered California staff has recommended that the exchange plan issuers collect and keep the documentation.

Asian-Americans Advancing Justice says the process to submit the paper documents the issuers already require “doesn’t go very smoothly,” according to Wong. “They lose our documents,” she said.

See also: Non-PPACA plan seller tells all 

2. The insurers say they have plenty of evidence that weak SEP verification is weak.

Representatives from Blue Shield of California, Health Net Inc., the California Association of Health Plans (CAHP) and Kaiser Permanente said that they support the exchange staff SEP eligibility verification proposal, and that they believe SEP abuse is a problem.

Two years ago, advocacy groups resisted calls for SEP eligibility documentation requirements by saying Covered California should not act prematurely, according to Bill Wehrle, who appeared on behalf of Kaiser.

Now, “We do have data,” Wehrle said.

When Kaiser compares its own on-exchange SEP enrollees with off-exchange SEP enrollees, “There’s a dramatic difference in utilization,” Wehrle said.

Peter Lee, the executive director of Covered California, noted that the application period for issuers that want to sell plans through Covered California in 2017 starts March 1, and that SEP verification is a big concern for the issuer actuaries.

“That’s a core audience we’re speaking to right now,” Lee said.

See also: What are ‘special’ PPACA enrollees REALLY like?

(Image: Peter Lee. Covered California board meeting screen capture)

Michael Lujan

3. Some insurers, some of the advocacy group reps, and Lujan said the answer may be adjusting the verification standards in the existing Covered California staff proposal.

Lee, several carrier representatives and Lujan said one step to resolve the conflict may be to find ways on how to use electronic data services and other means to provide documentation of SEP applications while reducing the number of paper documents the applicants have to submit.

The issue is complex, Lujan said.

In the real world, if requirements are too rigid, “a lot of that verification just can’t be delivered,” Lujan said.

(Image: Michael Lujan. Limelight photo)

See also: 

California exchange chief proposes agent comp floor

UnitedHealth to avoid 2016 public exchange plan sales


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