Tag Archives: Continuous Coverage Requirement

Pre-ACA Market Practices Provide Lessons for ACA Replacement Approaches

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Pre-ACA Market Practices Provide Lessons for ACA Replacement Approaches

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Significant changes to the Affordable Care Act (ACA) are being considered by lawmakers who have been critical of its general approach to providing coverage and to some of its key provisions. An important area where changes will be considered has to do with how people with health problems would be able to gain and keep access to coverage and how much they may have to pay for it.  People’s health is dynamic. At any given time, an estimated 27% of non-elderly adults have health conditions that would make them ineligible for coverage under traditional non-group underwriting standards that existed prior to the ACA. Over their lifetimes, everyone is at risk of having these periods, some short and some that last for the rest of their lives.

One of the biggest changes that the ACA made to the non-group insurance market was to eliminate consideration by insurers of a person’s health or health history in enrollment and rating decisions.  This assured that people who had or who developed health problems would have the same plan choices and pay the same premiums as others, essentially pooling their expected costs together to determine the premiums that all would pay.

Proposals for replacing the ACA such as Rep. Tom Price’s Empowering Patients First Act and Speaker Paul Ryan’s “A Better Way” policy paper would repeal these insurance market rules, moving back towards pre-ACA standards where insurers generally had more leeway to use individual health in enrollment and rating for non-group coverage.1  Under these proposals, people without pre-existing conditions would generally be able to purchase coverage anytime from private insurers.  For people with health problems, several approaches have been proposed: (1) requiring insurers to accept people transitioning from previous coverage without a gap (“continuously covered”); (2) allowing insurers to charge higher premiums (within limits) to people with pre-existing conditions who have had a gap in coverage; and (3) establishing high-risk pools, which are public programs that provide coverage to people declined by private insurers.

The idea of assuring access to coverage for people with health problems is a popular one, but doing so is a challenge within a market framework where insurers have considerable flexibility over enrollment, rating and benefits.  People with health conditions have much higher expected health costs than people without them (Table 1 illustrates average costs of individuals with and without “deniable” health conditions). Insurers naturally will decline applicants with health issues and will adjust rates for new and existing enrollees to reflect their health when they can.  Assuring access for people with pre-existing conditions with limits on their premiums means that someone has to pay the difference between their premiums and their costs.  For people enrolling in high-risk pools, some ACA replacement proposals provide for federal grants to states, though the amounts may not be sufficient.  For people gaining access through continuous coverage provisions, these costs would likely be paid by pooling their costs with (i.e., charging more to) other enrollees.  Maintaining this pooling is difficult, however, when insurers have significant flexibility over rates and benefits.  Experience from the pre-ACA market shows how insurers were able to use a variety of strategies to charge higher premiums to people with health problems, even when those problems began after the person enrolled in their plan.  These practices can make getting or keeping coverage unaffordable.

The discussion below focuses on some of the issues faced by people with health issues in the pre-ACA non-group insurance market.  These pre-ACA insurance practices highlight some of the challenges in providing access and stable coverage for people and some of the issues that any ACA replacement plan will need to address. Many ACA replacement proposals have not yet been developed in sufficient detail to fully deal with these questions, or in some cases may defer them to the states.

We start by briefly summarizing key differences between the ACA and pre-ACA insurance market rules for non-group coverage that affect access and continuity of coverage.  We then focus on pre-ACA access and continuity issues for three different groups: (1) people transitioning from employer coverage or Medicaid to the non-group market; (2) people with non-group coverage who develop a health problem; and (3) people who are uninsured (are not considered to have continuous coverage) who want to buy non-group coverage.  After that, we discuss how medical underwriting and rating practices can segment a risk pool, initially and over time, and challenges that this poses for assuring continuous coverage.  We end by reviewing some of the policy choices for addressing the challenges that have been raised.

Essential Facts About Health Reform Alternatives: Continuous Coverage Requirement

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http://www.commonwealthfund.org/publications/explainers/2017/apr/continuous-coverage-requirement

How would continuous coverage work?

Proposed alternatives to the Affordable Care Act (ACA) would require Americans to continuously carry health insurance coverage or be penalized with higher premiums. Under the American Health Care Act (AHCA)—the Republican bill introduced in the U.S. House of Representatives and subsequently withdrawn—people whose insurance coverage lapsed for more than 63 days would be charged a 30 percent premium surcharge every month for 12 months when they repurchase coverage. This penalty was intended to encourage people to maintain coverage and ensure the stability of insurance markets.

Health insurers rely on the premiums collected from relatively healthy individuals to cover the higher health care costs incurred by sicker people. Without a sufficient number of healthy enrollees, insurance can become extremely costly. There is even a possibility of markets falling into a “death spiral,” in which premiums rapidly increase as more and more healthy people leave high-cost plans.

Since 2010, the ACA has prohibited insurers from denying coverage or charging more to people with preexisting health conditions. To stabilize insurance markets, the ACA offers tax credits to help people afford their insurance premiums and requires everyone to purchase insurance coverage or else pay a tax penalty. The individual mandate, in combination with tax credits, was intended to draw the relatively healthy into the insurance market to compensate for the influx of people with medical conditions who were now guaranteed the right to purchase coverage.

While the coverage guarantee for preexisting conditions is one of the ACA’s most popular features, the individual mandate has been more controversial. The AHCA would preserve most protections for people with preexisting conditions but discard the individual mandate. In place of the mandate, the bill includes a requirement that individuals continuously carry insurance coverage.

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How does a continuous coverage requirement differ from current policy?

The ACA requires households without health insurance to pay a penalty equal to the higher of 2.5 percent of their adjusted annual income or $695 per adult and $347.50 per minor child, with the maximum set at the average premium for a bronze plan (about $2,676 in 2017). The AHCA would replace this policy with a requirement that everyone carry insurance at all times. Adults without insurance for more than 63 days would have to pay a premium surcharge of 30 percent to their insurance company when buying a plan in the individual market.

How would the continuous coverage requirement affect consumers?

Under the House Republicans’ proposal, many consumers would be required to pay the premium surcharge. According to a 2016 survey, 21 percent of adults between ages 19 and 64, or 40 million people, either had a gap in their health insurance coverage or were uninsured at the time of the survey.1 If the AHCA’s continuous coverage requirement had been in effect in 2016, an estimated 30 million working-age adults would have paid a premium surcharge had they tried to purchase coverage in the individual market—because they were uninsured for longer than three months.2

The cost to consumers would vary depending on age. Because insurers under the AHCA would be allowed to charge higher premiums to older people, this population would also face higher penalties for failing to maintain continuous coverage. For example, a 50-year-old who failed to maintain continuous coverage would be charged a $2,161 surcharge over 12 months—$1,154 more than a 30-year-old.3

Because it is tied to the premium and not to income, the AHCA’s surcharge would also likely be more punitive for people earning less than $100,000 compared to the ACA’s individual mandate penalty, which is limited to either a flat fee or a percentage of income.4 Older adults, who have higher average premiums, and people living in high-cost regions would also pay more under the AHCA. Finally, the ACA penalty applies only to the months in which a person is without coverage; the AHCA premium surcharge applies to the full year.

How would the continuous coverage requirement affect insurance markets?

Some insurers are concerned that a continuous coverage requirement like that included in the AHCA will not be an effective way of stabilizing insurance markets. One CEO of a major insurer participating in the ACA’s individual marketplaces warned that replacing the individual mandate with a continuous coverage requirement could produce much sicker risk pools, triggering premium increases of 30 percent or more.5

In fact, the way the AHCA’s continuous coverage requirement is structured might discourage individuals from purchasing insurance. Because the surcharge is not paid until a person purchases a health plan, it may act as a strong disincentive to enroll.6 The nonpartisan Congressional Budget Office estimates that initially the surcharge would encourage about 1 million people to purchase coverage in 2018. But in most of the following years, the surcharge would deter up to 2 million people annually from purchasing health coverage.7 Those individuals opting out of insurance would tend to be healthy, resulting in worsening risk pools and making health insurance more expensive for everyone else.