A mapping of the new individual market's variation in premium regulation show the evolution of a national market at once attempting to be standardized and amenable to state approaches.
The Affordable Care Act's introduction of guaranteed issue and essential benefits came with restrictions on premium underwriting, limiting variation to age, tobacco use and geography, while also giving states the ability to go even further with community rating, where young and old might pay just about the same rate for a given plan.
According to a new research brief, a lot of states took the opportunity to customize at least some aspect of their premium rating in the individual market. Most states have tried to "minimize market disruption and premium shock," write Georgetown researchers Justin Giovannelli and colleagues in a report for Commonwealth Fund.
Others have tried to go beyond the ACA's baseline for consumer protections with the goal of limiting variation in what health plan members pay -- a challenge for insurers used to traditional underwriting, and also potentially raising the risk of shocking the finances of young, healthy individuals. The Commonwealth Fund brief includes maps of the variations in policy approaches.
Age rating standards in the individual market
In age rating, the ACA set a federal standard with a 3:1 ratio, a sliding scale where the oldest cannot be charged more than three times as much as young adults. Most states are using the federal standard, but five states plus Washington D.C. have set their own.
New York and Vermont kept their pre-ACA community rating prohibiting on age rating, while Massachusetts continued using its 2:1 ratio. Washington D.C., Minnesota and Utah have 3:1 age rating, but in unique curves, Utah having perhaps the most unique with a rating system that accounts for healthcare costs of its state population.
Tobacco rating
The ACA does allow ACA to vary premiums by a ration of 1.5:1, or by more than 50 percent, for individuals who use tobacco, and those individuals have to absorbs with costs without federal subsidies extending to the additional costs.
States have a range of options, though, among them requiring insurers to calculate the surcharge on subsidized premiums, reducing the rating ratio, and narrowing the definition of tobacco use.
As it happens, nine states plus D.C. chose to customize tobacco rating regulations. Six states, including California, New Jersey and New York, plus D.C. prohibit using tobacco rating. Three, Arkansas, Colorado and Kentucky, adopted a ratio below 1.5:1.
Concerns "about whether the surcharge would ultimately increase the number of uninsured and encourage adverse selection against the marketplace" prompted California's legislature to eliminate the rating factor, write Giovannelli and colleagues. In Kentucky, where some 29 percent of adults still smoke, the tobacco surcharge is smaller than the federal default, but still set at 40 percent, "because regulators were concerned that completely phasing out the rating factor might negatively affect the premiums of nonusers."
Geographic rating
Perhaps the rating factor where states have the most autonomy is geography, where an individual lives.
"States have wide discretion to develop geographic rating areas and may also limit the magnitude of the premium variation between their highest- and lowest-cost regions," Giovannelli and colleagues note.
The federal default requires a state to have at least one rating area for each of its metropolitan statistical areas and one additional area combining all non-MSAs. Forty-three states have decided to diverge from federal default classifications. Some, including New Jersey and Vermont, have banned geographic rating altogether, while others, like Florida and South Carolina have kept the county-by-county systems used prior to the ACA.
Most states -- 32 of them -- have rating areas based on counties, most grouping together counties to craft rating areas and only a few having county-by-county rating like Florida. Four states have put together rating regions through tracts of zip codes, while California is using a combination of zip-codes and counties for its 19 rating regions. Seven states are using versions of the MSA/non-MSA system. The other six, meanwhile, have a single statewide rating area.