Exchange Stabilization Bills Represent New GOP Approach To ACA

Timothy Jost
January 28, 2017 - Health Affairs

The strategy that Congress and the Trump administration will pursue to repeal and replace the Affordable Care Act continues to evolve. In early January, the favored strategy seemed to be to repeal as much as possible of the ACA through legislation, but to delay the repeal of key provisions, such as the premium tax credits and marketplaces, for two or more years and then begin work on a replacement. In mid-January, this seemed to be giving way to an approach, apparently favored by the Trump administration, under which replacement legislation would be adopted more or less simultaneously with repeal, although it was not clear how this could take place without cooperation from Democrats, which seemed unlikely.

As January draws to a close, it appears that a new strategy is coming to the fore: to adopt piecemeal replacement legislation even as repeal legislation proceeds through reconciliation. On January 27, 2017, House Republicans released four bills meeting this description that will be considered at a House Energy and Commerce Committee hearing on February 2, 2017.

The Hearing is entitled “Patient Relief from Collapsing Health Markets,” intending to amplify a Congressional Republican narrative that maintains that the individual health insurance market was near collapse under the ACA and that only they can rescue it. The past year did see dramatic premium increases and insurer withdrawals in some states. In other states, however, to quote from a letter to Congress from the National Association of Insurance Commissioners, the “individual market is robust with increased enrollment and premiums have stabilized.” There is considerable evidence that the individual market was heading toward stabilization prior to the November election, as evidenced by an S&P market report from December, 2016.

It is a fact, however, that insurers are nervous about the individual market, and that the public is nervous as well about promises to repeal the ACA, which covers 20 million of them. The proposed legislation is primarily an attempt to calm the jitters of nervous insurers, but it also attempts to respond to complaints that Congress is preparing to abandon consumers with preexisting conditions.

Special Enrollment Period Eligibility Verification

The first bill would (for plan years beginning on or after January 1, 2018) prohibit insurers from making coverage effective for new enrollees who enroll during special enrollment periods (SEP) until HHS verified that individual’s eligibility for SEP enrollment. The bill directs HHS to create a SEP eligibility verification process through interim final rulemaking (rulemaking without prior notice and opportunity for public comment). The bill provides that the verification process should be similar to the review and assessment process described in the preface to the 2017 final payment rule, which merely called for the collection of and assessment of documentation to assess eligibility. HHS has already begun a pilot program for verification of eligibility for some SEP applications beginning in June of 2017, but this bill would extend full documentary verification to all SEP applications.

The bill would apparently not allow insurers to verify eligibility themselves, as they have requested, but would rather leave the responsibility with HHS. The bill also does not state clearly whether actual coverage would begin only upon verification or whether it would apply retroactively to the date on which the consumer applied or selected a plan, as the HHS pilot requires. This could be very important for someone in need of immediate care. Though insurers have demanded increased verification, there is a real risk that documentation requirements would discourage healthy people from going through the hassle of enrolling, and might thereby make the risk pool more costly.

The bill would also require the HHS Office of Inspector General to conduct a study to determine how many individuals applied for SEPs in plan year 2016 but were denied enrollment because they did not provide documentation establishing that they were qualified individuals or produced invalid documentation. As any individual resident in a state is a qualified individual except for unlawful aliens and people who are incarcerated, this may be aimed at determining how many people were denied enrollment for not establishing that they were citizens or lawful aliens.

Broadening Permissible Premium Variation By Age

A second bill would increase the ratio by which insurers may vary the rates charged to older enrollees in the individual and small group market to the rates they can charge younger enrollees from the current ratio of three-to-one to a ratio of five-to-one, or to any other ratio established by a state. Insurers have long complained, with some justification, that the three-to-one ratio is not actuarially accurate and that a five-to-one ratio is more so. Most states permitted age rating ratios higher than three-to-one before the ACA, and the issue of age rating was actively debated as the ACA was being drafted.

Insurers argue that changing to a five-to-one ratio would make health insurance more affordable for healthy young people, drawing more of them into the risk pool and thus reducing costs for all. Supporters of the three-to-one ratio have argued that in fact young people are much more likely to have Medicaid coverage or coverage under their parents’ plans or to have generous premium tax credits that offset higher premiums, and that older people are more likely to have high out-of-pocket costs that will exacerbate the effects of higher premiums. Moving from a three-to-one to a five-to-one ratio will increase premiums for older people more than it will reduce them for younger people, but if the result is that insurers remain in the market and hold down premium increases overall, all might in fact be better off.

Tightening Grace Period For Missed Premium Payments

A third bill would, for plan years beginning during 2018, reduce the ACA’s 90-day grace period to catch up on missed payments for individuals who are receiving premium tax credits; the grace period would instead be the period established by state law or, if there is none, to one month. Under current rules, insurers must cover claims for the first 30 days of the grace period, but may then pend claims for the remaining two months and only pay them if the enrollee catches up with missed premiums. Only after 90 days may the insurer terminate coverage for the rest of the year.

Individuals receiving premium tax credits are often living on very tight budgets and some miss payments occasionally because of other financial exigencies. But insurers claim that enrollees have been gaming the grace period, skipping their payments for the last three months of the year and catching up only if they find they actually need health care. HHS stated in the preface to the 2018 payment notice that it had studied these claims and found no evidence to substantiate them. Again, however, the legislation might make it somewhat more likely that insurers will stick with the marketplaces for 2018.

Promise Of Ban On Preexisting Condition Exclusions

The fourth bill is not aimed at insurers, but rather makes a general political statement. It provides that if Congress decides to repeal the ACA and restore prior law, the prior law will be replaced with an absolute ban on preexisting conditions clauses and promise of guaranteed availability in both the employer and individual market. This provision is obviously intended to make a statement that whatever happens, Congress is not going to allow the reinstatement of preexisting conditions or denials of coverage based on health status.

The bill defines preexisting conditions very broadly to include any kind of a limitation or exclusion of benefits based on a condition that was present before the date of enrollment (or the beginning of a waiting period before enrollment), whether or not the condition was diagnosed or treated. Curiously, it provides that genetic information shall not be treated as a preexisting condition if it has not resulted in a diagnosis, which would allow insurers to exclude coverage for genetic conditions that were not diagnosed at the time of enrollment. One wonders if this is a drafting error.

Health insurers may restrict guaranteed availability to open and special enrollment periods, and limit special enrollment periods to events that would qualify for COBRA coverage eligibility—i.e. the death of a covered employee, termination of work or reduction of hours, divorce from a covered employee, Medicare eligibility, the end of coverage for a dependent child, or employer bankruptcy. This odd list of special enrollment periods omits such obvious events as birth, adoption, and marriage, and does not seem well thought out.

The bill does not restrict health status underwriting of premiums, so coverage could in fact be available for people with preexisting conditions, but only at high and unaffordable premiums. Moreover, without the risk adjustment program in effect under the current law, insurers would face significant disincentives to enroll high-cost enrollees and little incentive to do so. Finally, the bill contains a second reserved title on continuous coverage, suggesting that final legislation would only protect individuals who maintained continuous coverage in some way.

In sum, we have here the first set of repeal and replace bills to be considered by a committee of the new Congress and they are not aimed at destroying the ACA, but rather at trying to calm insurers and a nervous public. Some may even pass on a bipartisan basis. This is a very interesting development.

While the first three bills are intended to stabilize insurance markets, however, to accomplish this goal they must be accompanied by a commitment by Congress to fund seven to nine billion dollars in cost-sharing reduction payments owed the insurers, but threatened by House v. Burwell, and ensure payment of all reinsurance funds due insurers. Without these supports, and probably additional reinsurance funding, insurers are unlikely to return for 2018.

Even as Congress is considering legislation to shore up individual insurance markets, the Trump administration took action that could undermine them. On January 26, 2017, the White House ordered all marketplace advertising, media outreach, social media communications, reminder emails, search engine optimization efforts, and other outreach efforts to cease (although the administration apparently allowed the resumption of outreach efforts on January 27 except for paid advertising).

Open enrollment for 2017 ends on January 31. Evidence from prior open enrollment periods shows that enrollment spikes in the final days of the open enrollment period. Increasing enrollment is key to stabilizing the individual insurance market, as the larger the risk pool the more likely it is to be balanced. Until mid-January, enrollment for 2017 was running ahead of 2016 and final enrollment would likely have been up as well had the enrollment push continued until the end.

Moreover, evidence from prior open enrollment periods demonstrates that young people are particularly likely to enroll at the very end. As the legislation being considered by Congress acknowledges, enrolling young people is a key element of stabilizing the marketplaces. It is unfortunate that efforts at one end of Pennsylvania Avenue could undermine initiatives at the other end.