By the time individuals become eligible to buy coverage through the Patient Protection and Affordability Act’s (H.R. 3590) American Health Benefit Exchanges on Jan. 1, 2014, the individual market risk pool could undergo a major depopulation particularly among individuals with pre-existing conditions.
According to a Kaiser Family Foundation survey released this week of people with individual coverage aged 18-64 conducted between March 19 and April 2, annual premium increases are averaging about 20 percent. Given that individual rates are already high and remain headed upward in a weak economy, such increases are unsustainable and will likely be seen in retrospect as the tipping point of market failure in the individual health insurance market. Individuals can only trade down so much before premiums for a higher deductible, less generous plan also become unaffordable. Sixty five percent of the Kaiser Family Foundation survey respondents reported they worry their premiums will rise out of reach as do 81 percent of those with medical conditions.
If premium rates for the Act’s Interim High Risk Pool provide even modest relief, it could spark a migration of those with preexisting conditions out of the individual market into the Interim High Risk Pool. The pool took effect this month and is intended to provide coverage for those with preexisting medical conditions who have been uninsured for at least six months until insurers must accept all applicants in 2014. It remains to be seen exactly what members of the pool will be charged for coverage. While the Act requires the pool to set premiums at a “standard rate for a standard population,” those premiums may also end up being unaffordable as I’ve previously speculated.
Nevertheless, individuals with medical conditions may soon be knocking on the pool’s door as this item from the New York Times Prescriptions blog illustrates. In the blog post, Deborah Chollet, a senior fellow at Mathematica Policy Research, suggests a self employed individual with cancer who fears he’ll no longer be able to afford rising premiums may wish to consider the pool as an alternative to dropping his coverage. But under the Act, he’ll have to go medically uninsured for six months in order to qualify for coverage.
There’s another aspect that bears watching. If the premiums charged in the Interim High Risk Pool are significantly lower than those charged by health plans and insurers in the individual market or lag their recently sharp premium hikes, it could produce a so-called “crowd out” effect in which individuals drop coverage for six months in order to qualify for coverage in the Interim High Risk Pool. Many — probably most people over age 45 — would meet the Act’s expansive definition of a pre-existing condition.
Californians see Patient Protection and Affordability Act as first step with additional reforms needed
In the month following its March 23 enactment, California registered voters were supportive of the Patient Protection and Affordability Act (H.R. 3590), results of a Field Poll released this week show. Voters support the law 52 percent to 38 percent, according to the poll that was conducted in April.
What’s striking about the poll numbers is fully one third of the 1,522 registered voters surveyed favor repeal of the landmark legislation. While job losses and peoples’ difficulty obtaining affordable coverage provided popular support for the legislation, at the same time people are looking for immediate relief in a sour economy that isn’t forthcoming since most of the Act’s provisions don’t take effect until 2014. Take for example Amber Hall, an uninsured 41-year-old mother of two who lives near Modesto. Hall told the Sacramento Bee she supports the Act but isn’t sure she’ll will directly benefit from it — most likely because there’s little she can point to that helps her now.
This combined with residual opposition as shown by the high numbers of California voters who want the legislation scrapped could create political problems for the Act and lead to even more reform efforts. In that respect, the Act rather than being a permanent, comprehensive overhaul of how Americans are covered for medical treatment could instead end up serving as a framework or floor for additional reforms. Indeed, 58 percent of those in the Field Poll view the Act as only a first step with more reforms needed.
California and federal policymakers are on convergent paths when it comes to regulation of premium rates charged by health plans and insurers. The California state Assembly this week approved and sent to the upper house legislation that would subject managed care service plans overseen by the Department of Managed Health Care and indemnity insurance policies regulated by the Department of Insurance to a prior approval rate regulation scheme. Such as scheme has been in place in California since 1989 for property/casualty insurers after voters approved a ballot measure instituting it. Helping push the ballot measure over the top by the slimmest margin of voter approval was anger over rising auto insurance rates.
Similarly, increasing health insurance premiums and particularly a big jump in individual policy rates that Anthem Blue Cross had planned effective March 1 (the rate increase has since been withdrawn) are providing impetus to AB 2578 after a nearly identical bill stalled in 2009.
The Patient Protection and Affordability Act (H.R. 3590) also authorizes a prior approval rate regulation scheme. Section 1311(e)(2) of Part II the Act (Premium Considerations) requires “justification for any premium increase prior to implementation of the increase.” That provision would take effect Jan. 1, 2014 as part of the Act’s requirement that states establish American Health Benefit Exchanges — mandatory on line markets through which individuals and small employers (and by 2017, anyone) can compare and shop for health plans.
AB 2578 is likely to end up on Gov. Arnold Schwarzenegger’s desk by September. A rational policy argument could be made that a prior approval scheme makes far better sense for an oligopolistic health insurance market than the much more competitive property/casualty insurance markets. But Schwarzenegger isn’t likely to sign the bill into law. The lame duck Republican governor doesn’t tend to favor market regulation generally and has voiced concern about the “fragility” of California’s individual health insurance market segment — a segment dominated by just five major players. Since rapidly rising medical treatment costs limit their ability to compete on price, they primarily compete on risk selection by limiting coverage to healthier individuals and pass through increased medical costs via rate increases. Schwarzenegger’s veto message will likely assert AB 2578 is not needed given the prior approval scheme contained in H.R. 3590.
If veteran Democratic Governor Jerry Brown is elected governor in November, however, legislation similar to AB 2578 will likely reappear in 2011 and potentially get signed into law effective Jan. 1, 2012. That would give California a two year head start on the feds and provide federal regulators drafting regulations to implement H.R. 3590’s prior rate approval scheme real world experience on how such a scheme actually plays out in the nation’s largest health insurance market.
Mark Smith, president and CEO of the California HealthCare Foundation, concurs with a point recently made on this blog: the enactment of the Patient Protection and Affordability Act while expected to substantially cut the numbers of those without medical insurance or a managed care plan still leaves them at the mercy of a health care system that is growing increasingly unaffordable. That’s truly ironic given that patient affordability is specifcally mentioned in the title of the federal legislation.
Smith lays out several prescriptions that he believes are necessary to hold down medical costs lest they render the Patient Protection and Affordability Act unaffordable by the time most of its provisions take effect in 2014.
Smith’s op-ed in today’s Sacramento Bee can be read here.