For the Insurance Lobby, Old Habits Are Hard to Break

Supporters of the Affordable Care Act gather for a rally, organized by the national Save My Care Bus Tour, on the State Capitol steps in Denver, February 7, 2017.

Before the passage of the Affordable Care Act, or ACA, the health insurance industry was like the Wild West, where anything goes. Health insurance companies could discriminate against the old and the ill, keep the sick quarantined in separate pools, and deny coverage for some of the most essential benefits. If insurers did not deny coverage to the old and sick altogether, they restricted their benefits or charged them exorbitant premiums.

During the initial rollout of the ACA, however, the insurance industry partnered with both consumer groups and the Obama administration. Their efforts helped increase enrollment and smoothed a difficult first open enrollment period. Over the next few years, insurers continued to engage with consumer groups and the administration to address issues that arose as implementation continued.

But with the future of the ACA uncertain, it turns out that old habits are hard to break. As opponents of the law move forward with threats to repeal it, the big insurance lobbies have decided to hop on that bandwagon by advocating for policies that will turn back the clock on reform by pushing older and sicker consumers off their health plans. That the ACA’s opponents would work in secret behind closed doors with the insurance lobby to gut the law shows that they are not draining the swamp—rather, they are swimming in it.

Even as private insurers have gained millions of new customers under the ACA, the insurance lobby has been vocal since the 2016 election in calling for changes to the law. The latest documents to emerge following a meeting between Trump administration officials and a large insurance trade association list the insurers’ recommendations for a transition from the ACA “to a competitive private health insurance market.” This description is laughable—because that is precisely the design of the ACA.

Almost everything on the insurers’ wish list will lower their costs and help them attract the young and healthy—but at the expense of vulnerable customers who are older or less healthy. There’s no denying that insurance companies face difficult trade-offs when deciding which services to cover and how to accommodate the health care needs of their customers without breaking the bank. But these trade-offs cross the line when they keep quality, affordable coverage out of reach for those who need it the most.

We now know that the administration was listening. On February 15, 2017, the administration released a proposed rule that includes a number of proposals on the insurers’ wish list.

Below, this column highlights some of the more egregious examples of how the big insurance lobbies are seeking to game the current atmosphere of political uncertainty for their own gain—and how the Trump administration has already started to meet their demands.

Advocating to dump the most vulnerable enrollees and quarantine them in separate high-risk pools

The big insurance lobbies have asked the administration and Congress to provide funding for high-risk pools starting in 2018. High-risk pools are a common GOP proposal and are consistent with the lobbies’ desire to quarantine people who are older or less healthy into separate, more expensive markets that are unsustainable. Insurance works by spreading risk—and therefore costs—across large groups of consumers. High-risk pools take a polar-opposite approach: They isolate sicker people in order to make the “regular” insurance pool cheaper. This does not lower health care costs; it simply shifts those costs into a different risk pool.

Without healthy individuals paying premiums and sharing the risk for health care costs, high-risk pools pay out far more in claims than they can collect in premiums. It would be impossible for insurers to price their premiums at the level needed to cover actual medical expenses, as the premiums would be so high that few, in any, consumers could afford them. The only way to keep high-risk pools solvent is through costly, continuous government subsidies—exactly the opposite of what congressional Republicans claim to want from ACA repeal.

Prior to the ACA, states that ran high-risk pools found it virtually impossible to finance them sustainably while covering significant numbers of people. In 2011, high-risk pools in 35 states covered only about 227,000 people yet had net losses of $1.2 billion that year alone. The ACA included a temporary high-risk pool to provide coverage to individuals with pre-existing conditions before the marketplaces went into effect. In the program’s first two years, just 100,000 individuals used about half of its $5 billion funding. By the program’s final year, the federally supported high-risk pool had net losses of $2 billion.

In their recommendation to provide separate funding for high-risk pools, the big insurance lobbies ignore these problems and fail to acknowledge the significant increased costs when healthy and sick individuals are divided into separate markets. Although they acknowledge that adequate federal funding is essential to this approach, they also posit that, after a transition period, states will take over this funding responsibility. This puts the states at risk of running up severe deficits while trying to cover millions of people with the inadequate funding proposed by Republican leaders in Congress. Last year, for example, House Speaker Paul Ryan’s (R-WI) proposal would have provided only $25 billion over 10 years to cover net losses in these pools. According to the Congressional Budget Office, this amount would be sufficient to cover only 3 million people during that period of time—a fraction of the millions of Americans who have high-cost pre-existing conditions and would need coverage through these pools.

Allowing insurance companies to charge much higher premiums to older individuals

The ACA includes a 3-to-1 age-rating band, which limits what insurance companies can charge a 64-year-old consumer for premiums to three times what they charge a 21-year-old for the same coverage. Before this new requirement went into effect, age rating varied from state to state, though the vast majority of states had 5-to-1 age-rating bands. The ACA’s age-rating reforms shift more risk from older to younger enrollees. These reforms are an important protection for older individuals who are not yet eligible for Medicare. Before the ACA, older adults, on average, had out-of-pocket costs that were two-and-a-half times more than individuals who had coverage through their jobs because premiums for employer-based plans do not vary by age.

The insurance industry has consistently claimed that the ACA’s 3-to-1 age-rating band harms its risk pools, as this shift increases premiums for young people, discouraging young, healthy individuals from buying insurance in the marketplaces. Yet research by the Robert Wood Johnson Foundation and the Urban Institute found that 5-to-1 age bands actually undercharge young adults relative to their expected expenses; the 3-to-1 age band is far more consistent with this group’s costs.

Moreover, a change from 3-to-1 to 5-to-1 age bands would increase yearly premiums for a silver plan for an average 64-year-old by $2,100, while reducing premiums for the same plan for a 21-year-old by $700. While Congress could, in theory, hold older Americans harmless by increasing federal assistance for premiums and cost sharing, that would cost an additional $9.3 billion per year, assuming the rest of the ACA remained in place. It seems wholly implausible that Republicans in Congress—who have vowed to repeal the ACA—would suddenly agree to increase funding for the law by $93 billion over 10 years. Even with this funding, the same study estimated that loosening the age bands to 5-to-1 would still cause about 400,000 older consumers whose income is too high to qualify for financial assistance to drop their coverage because their premiums would become prohibitively expensive.

Requesting ‘flexibility’ that will make it easier for plans to discriminate against older individuals and those with specific medical needs

The ACA includes strong consumer protections to help ensure that everyone has a fair opportunity to get the coverage they need. It prohibits insurers from discriminating against consumers based on factors such as health status or pre-existing conditions, and it includes a number of requirements that stop insurers from designing their plans to appeal only to younger, healthy consumers.

A key part of these consumer protections is the ACA’s requirement that plans include coverage for essential health benefits, or EHBs. Before the ACA, many insurers offered bare-bones plans with large gaps in coverage that left pregnant women, individuals in need of mental and behavioral health care, people with disabilities, and others without coverage for essential health services such as maternity care, habilitative services, prescription drugs, and mental and behavioral health care. Under the ACA, by contrast, plans must now cover these and several other important categories of health care services.

Plans must also cover a certain percentage of a typical year’s worth of overall health care costs, known as the plan’s actuarial value, or AV. The AV is the percentage of average total costs for benefits that the plan will cover in a year. For example, if a plan has an AV of 80 percent, then average consumers—if they use an average amount of health care—can expect to pay out of pocket for about 20 percent of their total health care costs for that year, in addition to their monthly premiums.

Under the ACA, all marketplace plans are categorized by a metal level—bronze, silver, gold, or platinum—that corresponds to AVs of 60 percent, 70 percent, 80 percent, or 90 percent, respectively. The law requires the secretary of health and human services to set guidelines for a “de minimus variation” in determining that value of the plan to account for the difficulty of these actuarial estimates. Current regulations allow an issuer to meet AV requirements as long as they are within 2 percentage points of the metal-level AV. So, for instance, an insurer can meet the AV requirement for a silver-level plan if the AV is between 68 percent and 72 percent.

But within these broad requirements, insurers have considerable latitude. For example, two gold plans can look very different to consumers: One plan might have a $0 deductible but 30 percent coinsurance for hospitalizations, while the second might have a $1,000 deductible but 10 percent coinsurance after the deductible is met for hospitalizations.

These consumer protections are a critical part of the ACA. First, they allow consumers to compare “apples to apples” by helping them compare plans with the same level of coverage but very different benefit designs. Second, they give consumers the peace of mind of knowing that their plan must be responsible, on average, for at least 60 percent of the costs of the benefits it covers.

Even with the EHB and AV requirements, however, insurers can still build elements into their plans that make them far more expensive—and therefore far less feasible—for patients with specific medical needs.

For instance, until the Obama administration prohibited these practices, some plans on the marketplaces engaged in “adverse tiering,” meaning that they required patients to pay thousands of dollars per month in coinsurance for medications necessary to treat life-threatening illnesses such as cancer and HIV/AIDS, far exceeding the costs in a typical employer plan or under Medicare. Others excluded essential medications from their preferred drug lists, forcing patients to navigate multiple obstacles before the medications they needed were covered. The aim of these strategies is clear: Insurers hoped that specific groups of individuals would not be able to afford to enroll in their plans.

In order to help address such practices that target groups of people with specific medical needs, the ACA also contains a robust nondiscrimination provision in addition to the EHB and AV requirements. This provision, Section 1557, prohibits insurers or facilities accepting federal funds from discriminating on the basis of race, color, national origin, age, sex, or disability. Section 1557 has already helped address issues such as adverse tiering for HIV medications, as well as the longstanding history of insurance discrimination against transgender people: Although the American Medical Association and other expert medical associations recognize the medical necessity of gender-affirming care for transgender individuals, before the ACA, most plans still contained blanket exclusions that categorically denied them coverage. Under the ACA, many plans have scrapped these unnecessary and discriminatory exclusions.

Insurance trade organizations have asked the Trump administration to undermine all three of these protections—the Essential Health Benefits standard, actuarial value requirements, and Section 1557. In place of offering high-quality, comprehensive health plans, the insurance lobby wants to change the rules so that it can once again offer bare-bones plans that no longer cover all essential benefits—leaving people who need these services to pay the full costs out of pocket. In addition, if plans with even lower AV were offered, consumers would have even less financial protection for covered services.

Even more troubling, one trade organization has dismissed Section 1557’s protections as another “cost that doesn’t add value.” But on the contrary, Section 1557, like the AV and EHB provisions, helps vulnerable consumers ensure that they are getting the benefits toward which they contribute via premiums and other out-of-pocket costs. Plans that unfairly discriminate against entire classes of individuals based on their medical needs undermine the very purpose of insurance. Assuming that insurers are not just in the business of collecting premiums without treating all their customers fairly, they should have little trouble ensuring that their plans fall within the reasonable scope of the ACA’s nondiscrimination requirements.

The February 15, 2017, proposed rule takes a significant step toward the insurance lobby’s wish for added “flexibility.” If finalized, the rule would allow insurers to meet the law’s AV requirements by offering an AV that is 4 percentage points below the metal tier. This change would allow insurers to offer silver plans that have AVs between 66 percent and 72 percent. Not surprisingly, the proposal does not grant any additional flexibility to provide more generous plans at each metal level.

Although this may appear to be a small, technical change, it will shift costs onto consumers. Insurers will have the flexibility to design plans that may lower premiums, but they will have higher deductibles and out-of-pocket costs than allowed today. Moreover, the value of the marketplace tax credits will fall. The tax credits are linked to the price of the second-lowest silver plan offered in an area. And as insurers lower their premiums, the value of the tax credit will also decline, while the insurance consumers will purchase will have higher deductibles and out-of-pocket costs. This is contrary to the rule’s purported purpose.

Attacking user fees that help Americans shop for and enroll in plans

User fees help both consumers and insurers. Under the ACA, the marketplaces only received federal funding until the end of 2014. To support the marketplaces going forward, the law allows marketplaces to assess fees on participating insurers. The federally facilitated marketplace, HealthCare.gov, is funded by a fee totaling 3.5 percent of the premium as of 2017, while insurers offering plans on hybrid state-federal marketplaces pay a smaller amount.

Insurance companies that offer plans on the marketplaces have gained millions of new customers: People who qualify for financial assistance to pay their premiums must choose from the plans offered on the marketplaces. HealthCare.gov provides a variety of important functions, including enrollment determinations; customer assistance services such as toll-free hotlines and websites; and plan management services, which include plan certification. Because insurers benefit from a smoothly functioning marketplace, it is logical that they should contribute to its support. Insurers offer no specifics about how the federal government should replace this funding to keep alive the marketplaces that have funneled millions of newly insured customers into private insurance plans.

Conclusion

The insurance lobby’s support of the ACA was a mile wide and an inch deep. And their behind-the-scenes demands of the Trump administration and the Republican-controlled Congress have already shown results. This column only highlights one of the most egregious parts of the Trump administration’s proposed rule. Other parts of the rule would make it more difficult to enroll in health plans and allow state policymakers who oppose the law to further undermine other consumer protections. If finalized, the insurance lobby will have gained an important first victory. Instead of fighting to save and improve the law that has brought it millions of new customers, the industry will have helped the Trump administration undermine its protections—all at the expense of Americans who have benefited from the security of having quality, affordable coverage.

Maura Calsyn is the Managing Director of Health Policy at the Center for American Progress. Kellan Baker is a Senior Fellow with the LGBT Research and Communications Project at the Center. Topher Spiro is the Vice President of Health Policy at the Center.