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California bill mandating standard benefit designs for all managed care plans sold outside exchange marketplace conflicts with existing state law

Earlier this year, California’s health benefit exchange marketplace, Covered California, exercised an option under its enabling legislation to standardize benefit designs for health plans sold on the exchange, consistent with its active purchaser role.

Pending legislation, SB 639, would require plans sold off the exchange marketplace to also employ standard benefit designs. (The measure would apply solely to managed care plans and not insurance products.) SB 639 would do so by adding California Health & Safety Code Section 1367.008 mandating standardized product designs for all managed care plan products at each of the metal tier actuarial value rating levels.  It does so with language barring the sale of any product at each of the metal tier levels “unless it is a standardized product consistent with [Health & Safety Code] Section 1366.6.”

But therein lay a conflict. Section 1366.6(e) requires health care service plans not participating in the exchange “offer at least one standardized product that has been designated by the Exchange,” provided the Exchange exercises its authority to require standardized benefit designs. At least one obviously does not encompass all plans offered outside the exchange marketplace.  (Emphasis added)

SB 639 awaits approval on the floor of the California Senate.

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Health insurer worried that loophole could lead to adverse selection against exchange

A Blue Shield of California executive is urging California lawmakers in an op-ed article in today’s Sacramento Bee to close a loophole sanctioned by federal regulations that could front load the exchange marketplace with high cost individuals and families.  That could leave plans participating in California’s exchange marketplace, Covered California, carrying an inequitable cost burden in the first year of its operation, asserts Janet Widmann, the health insurer’s executive vice president of markets.  It would do so by allowing plans to elect to continue to operate into 2014 under current rules that allow plans to medically underwrite applicants and reject those with potentially costly medical conditions.  Unless the loophole is closed, Widmann warns, all health plan issuers would be tempted to exploit it since they could still medically underwrite and select applicants for plans sold off the exchange marketplace so as to not initially end up with a disproportionate share of high cost insureds. Widmann explains:

Since these loophole policies will enroll only those who are healthy enough to obtain coverage under the current discriminatory system, policies that meet the requirements of the new law will be left to cover a disproportionate number of less healthy people. As a result, premiums for coverage offered through the insurance exchange will be significantly higher. Even insurers that have supported reform and want to see the exchange succeed will be pressured to sell the loophole policies to avoid losing healthy customers to competitors.

Plans sold in the Covered California marketplace would be unable to exploit the loophole under policy adopted by Covered California last week requiring qualified health plans with which it contracts to terminate plans they currently offer that are not compliant with the Affordable Care Act as of December 31, 2013.  The “level playing field” provision is at section 3.04(b) of the Covered California QHP Model Contract:

(b) Contractor agrees that, to the extent not already required to do so by law, effective no later than December 31, 2013, it shall terminate or arrange for the termination of all of its non-grandfathered individual health insurance plan contracts or policies which are not compliant with the applicable provisions of the Affordable Care Act. Contractor agrees to promote ways to offer, market and sell or otherwise transition its current members into plans or policies which meet the applicable Affordable Care Act requirements. This obligation applies to all non-grandfathered individual insurance products in force or for sale by Contractor whether or not the individuals covered by such products are eligible for subsidies in the Exchange. All terminations made pursuant to this section shall be in accord with cancellation and nonrenewal provisions and notice requirements in California Health and Safety Code Section 1365, California Insurance Code Sections 10273.4, 10273.6 and 10713, and relevant state regulations and guidance.

Last week, California enacted two bills, ABX1-2 and SBX1-2, establishing 2014 market rules for the individual and small group markets and conforming state law to Affordable Care Act provisions. The measures did not include a provision that would close the loophole.  Widmann suggests legislation mandating all non-grandfathered health plans (those not in effect when the Affordable Care Act was enacted in March 2010) play under the 2014 market rules barring medical underwriting of applicants.  That would require new special session or urgency legislation that would take effect before the end of 2013.

California could opt to offer Medicaid “bridge plans” on exchange rather than expand Medicaid eligibility

Despite the assumption that California would opt to expand Medicaid eligibility to households with incomes between 100 and 133 percent of federal poverty guidelines as permitted under the Patient Protection and Affordable Care Act, the policy question remains open in the Golden State.  A number of sticking points remain as detailed in this story in today’s Los Angeles Times.  Chief among them is Gov. Jerry Brown’s expectation that since counties would benefit from the expansion through a reduced burden of caring for indigents not currently eligible for Medi-Cal as it’s called in California, they should help Sacramento shoulder the state’s future federal Medicaid cost share.

According to The Times, the Brown administration is also concerned that allowing people to enroll in Medi-Cal online could encourage fraud.  California is rushing to ready an online enrollment system, the California Eligibility, Enrollment and Retention System (CALHEERS), to implement the Affordable Care Act’s mandate that individuals and families be offered enrollment for both government insurance programs like Medi-Cal and private coverage offered through its health benefit exchange thorough a single, streamlined application process.  The unresolved policy question of whether to expand Medi-Cal eligibility poses significant potential to complicate an already complex process to prepare the online system and to provide enrollees what state officials expect to be a customer-friendly “no wrong door” experience.  Problems integrating the state’s legacy Medi-Cal eligibility computer software with CALHEERs have already delayed plans to have it functional by the October 1 pre-enrollment date for 2014 coverage until January 1, 2014.

While the Brown administration’s concerns over expanding eligibility for Medi-Cal have stalled legislation that would do so, the administration is sponsoring pending legislation, SBX1-3, that would authorize commercial Medicaid managed care “bridge plans” per federal guidance issued in December, 2012 for those earning up to 200 percent of federal poverty.  The plans would be available through the state’s exchange marketplace, Covered California.

Since the Affordable Care Act deems households with incomes of at least 100 percent of federal poverty eligible to buy coverage through the exchange marketplace, the bridge plan option provides policymakers an alternative to expanding Medi-Cal eligibility to 133 percent of federal poverty.  Some states that have declined to expand Medicaid eligibility including Tennessee, Arkansas and Oklahoma are negotiating with the federal Center for Medicare and Medicaid Services to obtain waivers to allow their Medicaid eligibles to purchase commercial coverage on their exchanges. Absent a near term political agreement to expand Medi-Cal eligibility, California could soon be among them.

If the trend continues, it could lead to a bifurcated Medicaid system: basic, legacy Medicaid for those households with incomes below 100 percent of federal poverty guidelines and a “super Medicaid” system of federally subsidized coverage for households with incomes above the poverty line that wouldn’t otherwise qualify for Medicaid.  It would also have fiscal implications for the states electing to “expand” Medicaid eligibility via Medicaid bridge plans sold on their health benefit exchange marketplaces since it would reduce their future federal Medicaid cost share burden, shifting subsidization fully to the federal government in the form of advance income tax credits.

California bill aimed at deterring large employers from placing low wage workers on part time status to avoid ACA coverage mandate

California employers with 500 or more workers would be required to pay the state a penalty based on the average cost of coverage provided by large employers for those employees that enroll in Medicaid (Medi-Cal in California) coverage under advancing legislation.

According to an analysis of AB 880 prepared by the Assembly Health Committee, the bill is aimed at deterring large employers with sizable numbers of low wage workers from reducing their hours to less than 30 hours per week in order to avoid the Patient Protection and Affordable Care Act requirement to offer coverage to all workers employed at least 30 hours per week. “The author states this bill is designed to ensure that the largest employers in the state do not evade their responsibilities under the ACA by cutting hours and eliminating benefits so that their employees qualify for Medi-Cal,” the analysis states.  “This shifts costs onto the public and threatens the fiscal solvency of the state.”

As AB 880 moves forward, legislation stating intent to expand California’s Medicaid eligibility under the Affordable Care Act to households earning up to 133 percent of federal poverty level has bogged down over the extent to which counties should share in the cost and the Brown administration’s concern over the long term fiscal impact of the expansion and specifically whether California will remain obligated to honor it if federal cost share funding is cut in the future. Anxiety over Medicaid remains high among the state’s budget writers.  They viewed the state’s Medicaid cost share as a budget buster during years of fiscal shortfalls following the economic downturn that began in 2008.

California measure that would deter self-insurance of medical risk by small employers advances

To insure or self-insure?  That’s the policy question underlying pending California legislation that passed its first committee test this week.  SB 161 is designed to reduce the incentive for small employers to self-insure their workforces for medical costs by making it less feasible for these employers to limit their losses once they reach a certain point.  Supporters of the bill maintain it’s needed to give the state health benefit exchange’s Small Business Health Options Program (SHOP) the opportunity to bring down insurance rates by aggregating small employers’ purchasing power into a single buying mechanism starting in 2014.  Click here for an analysis of the measure prepared by the Senate Health Committee, which passed out the bill May 2.  A similar bill stalled in 2012.

Self-insurance arose as a solution for small employers beleaguered by rising small group insurance premiums over the past decade.  But self-insuring medical risk is a high risk proposition for small employer since unlike large employers, they are unable to spread the risk of a large claim over a sizable group of employees.  That’s why it’s a no go for small employers without “stop loss” coverage to kick in when an individual employee’s or all employees as a group incur losses in a policy year exceeding a set amount.  SB 161 would bar stop loss coverage from protecting a small employer until an individual employee incurred medical bills of $65,000 or those of the entire workforce reach dollar amounts specified in the bill.

Opponents of the bill argue that the market should determine which approach works best for small employers: self-insurance or insurance.  Other issues cause consternation among supporters of the measure.  Only larger small employers are likely to consider self-insurance given the inherent risk that favors size.  That could leave the SHOP with the low end of the small group segment – employers having less than 20 to 30 employees.  This could reduce the SHOP’s market power with health plan issuers since there would potentially be fewer “covered lives” and larger employers to bring to the bargaining table.  (In California, the small group market is employers with 50 or fewer employees.)

Apparently concerned about stop loss coverage’s potential to undermine the SHOP exchange marketplace, the U.S. Department of Health and Human Services issued a proposed rule April 5, 2013 barring entities with relationships to issuers of stop loss insurance, including those who are compensated directly or indirectly by issuers of stop loss insurance, from serving as exchange navigators.

Medicaid beneficiaries likely to get coverage in some state exchange marketplaces

Medicaid beneficiaries appear increasingly likely to participate in health benefit exchanges in at least some states in 2014.  Two Medicaid-eligible populations may end up getting commercial health insurance via the exchanges:  those whose incomes fluctuate above and below Medicaid eligibility levels and those residing in states that have opted not to expand the Medicaid eligibility cutoff to 133 percent of federal poverty guidelines.  Both scenarios require waivers from the Center of Medicare and Medicaid Services (CMS).

The first group would be offered exchange products called Medicaid bridge plans authorized under guidance issued by CMS on December 10, 2012.  This is the so-called “Tennessee Plan” since that state originated the concept and is designed to ensure continuity of medical care of Medicaid beneficiaries so they don’t have to change plans and providers as their incomes rise and fall.

The second population would participate in the exchange marketplace under the so-called “Arkansas Plan” in states that have not chosen to expand Medicaid eligibility to those earning up to 133 percent of federal poverty as authorized by the Patient Protection and Affordable Care Act.

In California, legislation that would expand that state’s Medicaid eligibility has failed to advance for nearly two months amid state fiscal concerns over the long term cost share impact and to what extent counties should participate in the cost share.  Legislation authorizing Medicaid bridge plan products for those earning up to 200 percent of federal poverty, SBX1-3, has passed the Senate and awaits action in the state Assembly.

Changes in the individual market, adverse selection to have largest impact on 2014 premiums, Milliman projects

One month after it produced a projection of factors affecting 2014 premiums in California’s individual health insurance market segment for the Golden State’s health benefits exchange, Covered California, the actuarial consulting firm Milliman has issued a similar study with a national focus.  Like its analysis of the California market, Milliman’s review examined the impact of new coverage requirements under the Patient Protection and Affordable Care Act as well as individuals opting to “buy up” to plans with richer benefits, premium and benefit subsidies and the underlying upward trend in the cost of medical treatment.  It was commissioned by America’s Health Insurance Plans.

Milliman’s national study took into account additional factors including new taxes and fees on health plan issuers and premium stabilization programs including a transitional reinsurance program to protect plans from unexpectedly high care costs.  It concludes “average individual market pre-subsidy premiums are anticipated to increase significantly from what standard rates are today.”  It adds advance tax credit premium subsidies for coverage purchased through state benefit exchanges for those earning 400 percent or lower of the federal poverty level will produce “significant reductions from current premium levels.”

The Milliman study projects that Affordable Care Act changes in the individual risk pool and adverse selection — largely due to the law’s ban on medical underwriting of individuals looking to purchase or upgrade coverage — will have the largest impact on premiums.  Those factors including the potential for younger, healthier individuals to remain in plans issued prior to 2014 and sicker people opting for 2014 plans with more extensive coverage could increase premiums by 20 to 45 percent, according to Milliman.

The study raises a red flag over the law’s restriction on the use of age as a rating factor for older individuals, predicting it will boost premiums for younger people and thus potentially drive adverse selection if they opt to forgo coverage until they need it — notwithstanding the Affordable Care Act’s tax penalties for not having some form of health coverage. “For the individual market risk pool to remain a stable market in 2014 and beyond, it is vital that young and healthy individuals enter and remain in the insurance market in addition to individuals with an immediate need for healthcare services,” the study concludes.

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