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.
California’s individual health insurance marketplace is shaping as a bifurcated one for 2014 and beyond based on household income and whether coverage is purchased through the state’s health benefit exchange marketplace, Covered California, or outside of it.
California households earning 400 percent or less of federal poverty level will be eligible for advance tax credit subsidies that can be applied toward Covered California plan premiums. While those with incomes above this level ($45,960 for singles; $92,200 for a family of four) can purchase unsubsidized coverage thorough state exchanges, health plans appear to be preparing to offer plans outside the exchange aimed at households earning above 400 percent of federal poverty. Without directly referring to the Covered California plans, Charles Bacchi, executive VP of the California Association of Health Plans, said there may be more variation among these plan products than Covered California plans, which are based on standard benefit designs for each of the metal tier plan values (bronze, silver, gold and platinum). Bacchi, who spoke on a panel of speakers at the annual State of Health Care Conference held earlier this week in Sacramento, added there may be “certain advantages” to plans purchased outside of Covered California but didn’t elaborate.
Bacchi’s comments came the same day Covered California Executive Director Peter V. Lee reported at the organization’s board meeting that plan issuers were invited to submit alternative benefit designs and those alternative plans differed significantly from the standard plan designs Covered California adopted in February, 2013. Plan issuers and Covered California continue to negotiate to the terms of the contract that will govern qualified health plans sold in the Covered California marketplace for coverage effective in 2014. The Covered California board has scheduled a special meeting in Sacramento for May 7 to discuss the contract.
A 2011 paper by The Commonwealth Fund warned of the possibility of higher cost individuals concentrating in the exchange market, noting that exchanges could face adverse selection if predominantly high-risk individuals and groups enroll in the exchange while younger, healthier people and groups purchase coverage in the individual or small-group markets outside of it:
This type of market-level adverse selection would primarily stem from the existence of different rules for health plans inside and outside of the exchange. If non-exchange plans are permitted greater flexibility around benefit design and rate setting, those plans could offer lower prices to attract lower-risk individuals.
While the Affordable Care Act consolidates individuals and small employers into a single state risk pool, thus barring plan issuers from segmenting their exchange population risk, adverse selection against the exchange marketplace could reduce plan issuers’ interest in exchange participation despite tax subsidies for individuals and potentially jeopardize the market’s long term viability.