HSA Benefits Consulting

These subsidies affect about 5 million Americans or 1.6% of the population.  They are among the 19 million who have purchased private policies. But this market has changed drastically over the last four years.

 Background

For many years prior to the ACA or Obamacare, about 10% -12% of the insured were not in an employer plan, but chose to purchase policies through a private market. Applications could be submitted online on any day and were processed in as little as 24 hours. Once you bought a policy, you were protected by law against the carrier raising your rates or terminating your policy based solely on your personal claims.

Rates were very low for the majority of Americans because there were multiple carriers, fewer plan mandates, and the rates were based on risk of claims, including one’s pre-existing conditions at application. It incentivized people to buy a policy while they were healthy. Those who delayed coverage until they were facing a high claim had to pay a higher premium to the carrier or through the state’s high-risk pool. Because of these incentives, in Kansas, for example, only about 2,300 were in the high-risk pool at any given time. States with the fewest mandates and risk rating enjoyed the lowest rates in the nation.

Risk rating is used in all insurance, including life, auto or home. This is not discrimination.

Even so, a few states, including Massachusetts, New Jersey, New York, Maine, and Vermont, decided to eliminate health risk rating, causing people to lose their discounts for a healthy lifestyle. This forced rates to skyrocket in those states.  Lawmakers were justifiably concerned that only the unhealthy would apply for a policy and others would delay purchasing until they were expecting a high claim. Instead of returning to risk rating to keep rates down and avoid this problem, Massachusetts decided to subsidize premiums for those with lower income through a Connector (Exchange) and expand Medicaid (forcing the whole country to pay for its coverage). All but those with low incomes in Massachusetts were left with high premiums.

Obamacare

Since ACA regulations are very similar to the regulations implemented in Massachusetts and the other states mentioned above, they have had a minimal adverse effect in these states, which already had the highest premiums in the nation.

But by inflicting the Massachusetts model on ALL states, coupled with many more regulations and policy features that many people didn’t want, here’s what happened:

• Rates for most people doubled and for young people quadrupled.
• People were required to switch to more expensive plans to meet ACA requirements. (Due to delays in implementing some of the most damaging features of the law, many of those who were already insured with private plans were not aware that their policies’ premiums would double until the 2015 open enrollment when they were forced to comply.)
• Carriers reduced their provider networks and prescription coverage in an attempt to reduce premiums
• Everyone was restricted to buying a policy during an “open enrollment window”.
• People had to wait weeks for their new policies to take effect.
• The law was written to entice the states to create, manage, and fund a state-run exchange, by offering grants and premium subsidies to states that agreed to participate. Otherwise people in those states would need to buy through the federal exchange with no subsidies. The problems with the website are infamous
• 37 states declined. So the administration, through the IRS, decided to expand subsidies to people who bought insurance through the federal exchange, too.

Both sides of the political aisle expect a ruling this summer from SCOTUS in favor of King in the King v Burwell case, which would uphold the wording in the law and declare that the subsidies through the federal exchange are not authorized.

Solutions

How do we help those who would lose their subsidies?

Some, not necessarily in the GOP, have suggested:

• These 37 states should each create a website that links to Healthcare.gov, and call it a state-based exchange to keep the subsidies flowing.
• These states should quickly expand Medicaid to include most of those who will lose their subsidies.
• Congress should quickly pass an amendment to the ACA law that authorizes subsidies in the federal exchange.

All of these costly “solutions” are frankly missing the point. We must look at the root cause of high rates that created a need for these subsidies: Obamacare regulations that were forced on every state.

Many of the people who have subsidized policies were insured before Obamacare. Consider Paige, a working mother in rural Kansas who lost the insurance plan she had purchased for her family of five because of ACA mandates. The price of the new policy was about double the premiums she and her husband were paying before. Unable to afford the increase, Paige was forced to buy a plan on the federal exchange and to put their children on Medicaid. “We work hard and have never had to be on welfare,” she says. “We just want our family’s plan back at the rate we were paying.”

We can help.

First the Federal Part

We begin with three easy steps

1. Pass the Cruz bill to repeal Obamacare and extend the subsidies for 6 months to allow states time for transition.
2. Return regulation of private health insurance back to the states, where it belongs. Let each state decide solutions. Massachusetts will handle it differently than Kansas does.
3. Allow a federal tax deduction for private policies like those individuals on employer plans enjoy.

State Solution Example
My native Kansas

1. We can get those rates back down by returning to risk rating. We can pass a law allowing all those who purchased an Obamacare policy to stay with their current carrier’s plan without risk rating pre-existing conditions. However, any new applicants or those who switch plans would be risk rated by carriers, as was previously allowed under state law.
2. We can allow more affordable plan options. With no Obamacare mandates on the type of features and benefits that a plan must offer and the new Kansas Mandate Lite law, which gives even more flexibility, carriers can create plans that do not include features that people don’t want.
3. We can increase competition. The federal exchange only gave those with subsidies two carrier choices. We would give them access to all carriers in the state. And with no Obamacare administrative restrictions that caused some smaller carriers to exit the market, those carriers can begin to offer plans in Kansas again.
4. Carriers would have the option to continue to offer their ACA-qualified plans, but they would also be able to market their newly designed plans that they file with the state Insurance Commissioner’s office.
5. Carriers may continue to allow dependents to stay on their parents’ plans until age 26. (Although most parents may find that purchasing a separate private policy for their child is more cost effective.)
6. We could use premium taxes that are already being collected to reinstitute the high-risk pool.

Results of This Kansas Solution

1. Everyone in the private market, including those who had a subsidy, will have affordable choices
2. No paying for policy features that you don’t want
3. No fees for not purchasing a plan
4. No fear of a raise in pay causing your share of premium payments to go up
5. Since their rate matches their risk, more young and healthy people will likely purchase a policy keeping rates down for all
6. A federal tax deduction on insurance premiums will further reduce the cost of the policies
7. Filing a tax return will be a lot easier
8. No one has to navigate a government website middle man to make changes to a policy
9. No small open-enrollment window for a private plan. Apply anytime, applications will be processed more quickly, fewer delays in coverage
10. No requirement to re-enroll each year, which gives continuity of care
11. Saves the tax payers and businesses trillions of dollars

In a matter of months we can repair the damage caused by Obamacare to our private marketplace. Businesses can breathe again and enjoy stability that they have not had in the past four years. We are coming to help you, Paige!

Beverly Gossage is a health care policy analyst and 2014 candidate for Kansas Insurance Commissioner. She is a licensed insurance agent in multiple states and the past president of a chapter of the National Association of Health Underwriters.