ACA Rules Allow People To Game The System, Contributing To Premium Spikes

Consumers are facing the prospect of significant premium increases for health insurance next year, and faulty ACA provisions are at least partly to blame.

For example, people have figured out they can get a year’s worth of medical care while paying just nine months of premiums.  They also can wait to sign up for health insurance after they get sick and get the care they need. And young people are required to pay much more for health coverage than they expect to need in medical services so many just don’t enroll.

The House Energy & Commerce Health Subcommittee held a lively hearing on Friday on “Advancing Patient Solutions for Lower Costs and Better Care,” focusing on these and other problems with the ACA and examining proposing legislation designed to address them.

The ACA is undermining its own goals of providing universal coverage through stable, affordable health insurance.

Provision in the law and regulations the Obama administration has written to implement it are   destabilizing insurance markets.  For health insurance to attract customers, policies must be affordable, and everyone in the pool must pay regular premiums so their insurance coverage is there when they need it.  If people only purchase health insurance when they need expensive care, the pools break down.  It would be like allowing a family to purchase homeowners insurance only when their house is on fire.

Americans are figuring out how to use the ObamaCare rules in their favor, and the result is higher premiums for everyone.

ACA advocates say this doesn’t matter much because most of the people in the ObamaCare exchanges are getting subsidized coverage.  But this ignores the fact that someone is paying—taxpayers and others with health insurance, as witness Doug Holtz-Eakin explained.

During the hearing, witnesses, including me, were asked to examine the:

  • abuse of the grace period for health insurance premium payment
  • a lack of verification of qualifications for special enrollment periods
  • flawed age rating bands
  • waste of taxpayer dollars on failed state exchanges, and
  • the need for a technical correction involving pediatric dental care.

Abuse of the Grace Period
The ACA allows people to stop paying premiums and still obtain medical services for another 90 days. This “grace period” allows someone to stop paying premiums on October 1, for example, and still maintain coverage through the end of the year.

A growing number of people are using this provision to game the system.  The incentives here are basically designed to undermine the concept of real insurance.

  • national consumer survey by McKinsey and Company found that nearly a quarter of consumers stopped paying premiums in 2015, yet most repurchased an exchange plan in 2016, and many repurchased coverage from the same health plan

Insurers must build the cost of non-payment of premiums into their premiums for the following year, increasing costs for those enrollees who follow the rules.

Doctors and hospitals are on the hook to continue treatment, even if the patient has stopped paying insurance premiums and the coverage has stopped.

Rep. Bill Flores (R-TX) is sponsoring legislation to end abuse of this provision of the Affordable Care Act by aligning the grace period for non-payment of premiums before coverage ends with grace periods under state laws.  A 30-day rule would provide a greater incentive for people to keep and maintain coverage—basically the standard in state law before passage of the ACA.

A consumer advocated told The New York Times that the premium increases will be temporary.  “People with pre-existing conditions are now getting treatment,” said Antoinette Kraus, the director of a statewide consumer group, the Pennsylvania Health Access Network, “and it’s more expensive because they were shut out of the market for many years.”

But, she added, “we expect that they’ll eventually become healthier, so we won’t see these huge rate increases every year.”

In fact, the premium increases are likely to get sharper if the gaming continues.

Lack of Special Enrollment Verification
In testimony before the Energy & Commerce health subcommittee in May, AEI Scholar Scott Gottlieb explained that “some of our current cost challenges” come from “not having defined enrollment periods …[to]… help maintain a stable risk pool.”

Special Enrollment Periods are designed to help people obtain and maintain health insurance coverage through important life events, but the evidence shows that many are abusing the rule. They are purchasing health insurance only when they need medical care, without verifying their eligibility under special enrollment, and then are dropping coverage after they receive the medical services they need.  This undermines the concept of insurance, drives up costs, and discourages healthy people from purchasing continuous health coverage.

The actuarial consulting firm Oliver Wyman found:

  • The claim costs in the first three months for people who enrolled during the special enrollment period in 2014 were 24% higher in the first three months than for regular enrollees
  • In 2015, the difference increased to 41% for the first three months of enrollment.Individuals enrolling in one plan through a special enrollment period were more than twice as likely to drop their coverage after a short period of time as those who enroll during the annual open enrollment period.

The administration has taken preliminary steps to tighten eligibility, but much more needs to be done. Rep. Marsha Blackburn (R-TN) is sponsoring legislation to verify eligibility before allowing an individual to enroll in an exchange via special enrollment period rules.
The goal should be not only for people to get covered, but for people to stay covered.  This not only will contribute to stabilizing insurance pools and thereby controlling costs but also to providing incentives for people to maintain continuous coverage so they can benefit from preventive care and coordinated services to help manage their health and medical conditions over time.

Destructive Age Rating
Under the ACA, insurers cannot charge their oldest policyholders more than three times their youngest customers’ rates. But the average 64-year-old consumes six times as much health care, in dollar value, as the average 21-year-old.

One of the top experts on the workings of the ACA is Timothy Jost.  He warned that age rating compression “is going to force younger people to pay more in the individual market as older individuals pay less.”

Forbes opinion editor Avik Roy testified before the same committee on May 11, 2016, and explained why the 3:1 age band rating in the Affordable Care Act is backfiring:  “If every customer remains in the insurance market, this has the net effect of increasing premiums for 21-year-olds by 75 percent, and reducing them for 64-year-olds by 13 percent.

“However, if half of the 21-year-olds recognize this development as a bad deal for them, and drop out of the market, adverse selection ensues, driving up the average health care consumption per policyholder, thereby driving premiums up for everyone, including the 64-year-olds who were supposed to benefit from 3:1 age rating,” he explains.
Before passage of the ACA, 42 states allowed health insurance rates to vary by age by a ratio of 5:1 or more. This 5:1 ratio was based upon vast experiential data that shows utilization of health care services is broadly correlated with age.

Making health insurance too expensive for the healthier young people drives them away, increasing the cost of insurance for everyone who remains. If too few younger healthier people buy insurance, costs will soar, more and more healthy young people will drop out, and the law will fail in its goal of providing stable, affordable health coverage.

Rep. Susan Brooks (R-IN) is the lead sponsor on legislation to address the ACA’s age-rating bands.  Her bill would defer to the states to decide rating bands, starting in January 1, 2018. If a state does not have a law addressing the issue, the 5:1 ratio would prevail.  This is an important step toward the goal of making health insurance more affordable by attracting the larger number of the healthy young people needed to stabilize health insurance pools.

The higher age ratios strike a careful balance: they provide protection to older consumers without making it impractical for younger consumers to purchase insurance.

Failed Health Exchanges
Other problematic provisions of the ACA also were addressed at the hearing, including a focus on the waste of taxpayer dollars by states creating their own health insurance exchanges which were awarded more than $5.5 billion in federal money.

Oregon, which received approximately $305 million to establish its exchange, terminated it entirely, and opted to use the federal exchange instead.
Oregon and several other states have filed lawsuits against the information technology contractors that helped build their exchange web sites – money state officials say they plan to keep if they win. This clearly is an abuse and misuse of federal tax dollars.

The E&C committee released a report, “Misleading Congress: CMS Acting Administrator Offers False Testimony to Congress on State Exchanges,” that documented how CMS Acting Administrator Andy Slavitt gave misleading testimony to Congress on this issue.  He testified under oath that state based exchanges returned more than $200 million in grant funds to the federal government.  However, CMS documents do not support his claim, showing that the federal government has reclaimed only $21.5 million from 17 exchanges.

Rep. Rick Allen (R-GA) would require an audit of a state exchange when it fails and establish a procedure to require states to return any unspent funds to the federal treasury.  It is clear that Congress needs hold states accountable for what is likely to be hundreds of millions of dollars in lost and misspent federal funds on failed state exchanges.

Free-Standing Dental Plans
Finally, Reps. Morgan Griffith (R-VA) and Diana DeGette (D-CO) are sponsoring bi-partisan legislation that would expand consumer choice in pediatric dental coverage.  The Griffith-DeGette bill would establish that the offer of stand-alone pediatric dental coverage for policies offered outside an exchange is treated the same as coverage inside the exchange.

Worthwhile targeted Solutions
In opening the hearing, E&C Health Subcommittee Chair Joe Pitts (R-PA) said: “More government bureaucracy, regulations, and spending never successfully reduce the price of health care. Yet that is exactly the premise of how health insurance is regulated today—with top down mandates that empower Washington and remove control over health care decisions from states, small businesses, families and individuals. This has to be changed if we truly want bottom up solutions that provide better care at lower costs for patients.”

The ACA was designed to provide people with choices of private insurance, with states at the forefront of organizing this new system of coverage. States have had decades of experience in regulating health insurance, but a battery of ACA rules overrides state laws that have been forged by experience to keep insurance pools stable.
The concepts behind the changes examined at the Energy & Commerce Health Subcommittee hearing are sound and would begin the process of undoing some of the damage the ACA has done to the private health insurance market.

Read the article in Forbes


About the author

Grace-Marie Turner is president of the Galen Institute, a public policy research organization that she founded in 1995 to promote an informed debate over free-market ideas for health reform.

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