Insurers, lobbyists and state regulators are weighing in on the federal government's proposed rules for market regulations and rate reviews under the Affordable Care Act, with some worried about the potential for price shocks and market distortions associated with new age rating rules and limitations on geographic price variation.
The National Association of Insurance Commissioners is asking the Centers for Medicare and Medicaid Services to give state governments flexibility with implementing new market rules, and to offer option to phase in the ACA's 3:1 price ratio limitations between young and old consumers, over a period of three years.
Insurance companies and actuaries have been warning of the potential consequences of the age-rating requirments, saying it could leave healthy consumers facing abnormally-high premiums and perhaps going without insurance until they need care, depending in part on the costs of individual mandate fines and Internal Revenue Service enforcement. 21 to 29 year olds buying single coverage without a subsidy could see premium increases of up to 40 percent, according to actuarial researchers from management firm Oliver Wyman.
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NAIC is suggesting a three year timeline, to help offset the severity of the price shocks, with gradual rate increases rather than a one-time spike. Adverse selection, the NAIC says, is pretty much bound to exist in the market: "In a guaranteed issue, no pre-existing condition environment, the reward for waiting to obtain coverage until it is needed or switching coverage...will always exist, even with the tax penalties in federal law."
CMS regulators more or less acknowledge the potential problems as well. Publishing the proposed rules in the Federal Register, the agency also asked for ideas -- for "possible ways to discourage consumers from abusing guaranteed availability rights (for example, by ensuring enrollees cannot use open and special enrollment periods to facilitate such abuses) while ensuring consumers are guaranteed the protections afforded to them under the law."
The NAIC, along with America's Health Insurance Plans and others are essentially asking CMS to delay or defer to the states the implementation of age rating and a number of other rules for risk pooling and data submissions, citing legal complexity and market uncertainty. The NAIC board, comprised of the insurance commissioners of Florida, Louisiana, Montana, North Dakota and Kansas, told CMS: "We agree that using single-year age bands and determining age at renewal makes sense. However, we want to ensure that states can institute different policies if they so desire."
[See also: Proposed regs on essential health benefits, pricing released by HHS]
AHIP and executives from several insurance companies have been predicting some form of unintended chaos from the 3:1 age rating, if young consumers reject high prices and stay out of the market. Jason Altmire, government affairs chief for Florida Blue Cross and former Pennsylvania congressman, said recently that he thinks price shocks could start a "national discussion" about how age-related risks are shared across the insurance market. "People are going to say, 'This isn't what I thought I was signing up for,'" Altmire said.
The NAIC is also offering some alternatives to parts of CMS's proposed market rules for geographic price variation. CMS's proposal for requiring seven geographic rating areas in a state and defining rating areas by either zip code or county could distort state and regional insurance markets that already account for local factors, the NAIC warns. In some states, insurance regulations break counties into two or more areas by 3-digit zip code, as a way to have price variation within the county.
NAIC is encouraging CMS to consider using counties and 3-digit zip codes rather than defining either a single rating area for the state or multiple areas based on metropolitan statistical area. Consolidating current geographic rating areas "will likely result in additional disruption to consumers," the NAIC says, "especially in areas with high-cost, dominant provider and hospital groups."