RAND: Fix for Canceled Policies Won’t Send ACA Into ‘Death Spiral’

None of the three plans proposed late last year to allow U.S. residents to keep their existing health coverage under the Affordable Care Act will send the health insurance exchanges into a "death spiral," according to a study released Tuesday by the RAND Corporation, The Hill's "Healthwatch" reports (Easley, "Healthwatch," The Hill, 1/21).

Background on Three Plans

In November 2013, President Obama, Sen. Mary Landrieu (D-La.) and House Energy and Commerce Committee Chair Fred Upton (R-Mich.) proposed their plans following reports that millions of residents nationwide were being notified by their insurers that their existing health policies will be discontinued in 2014 because they do not meet minimum standards under the ACA.

Under Obama's plan, insurers this year would be allowed to continue to sell policies even if they do not meet the ACA's minimum coverage requirements. It also would require insurers that extend such plans to inform consumers that more comprehensive coverage options might be available in the health insurance exchanges and to list the benefits they would be going without if they choose to keep their current policies (California Healthline, 11/14/13).

In December 2013, the Obama administration announced a pair of reprieves for consumers whose health plans were canceled. Under the new relaxed rules, consumers affected by the cancellations will be allowed to:

• Purchase bare-bones catastrophic coverage, which is being discontinued under the ACA; and
• Claim "hardship exemption" status, which will allow them to avoid the law's individual mandate penalty next year if they do not have coverage (California Healthline, 12/20/13)

Unlike Obama's administrative fix, Upton's House-approved proposal (HR 3350) would allow U.S. residents to keep their existing health plans, even if the plans do not meet the ACA's minimum coverage requirements, and allow insurers to offer those policies to new customers.

Meanwhile, Landrieu's bill (S 1642) would allow consumers to keep their plans and require insurers to tell their customers which provisions of their policies do not meet the minimum coverage standards. Unlike Obama's proposal, Landrieu's proposal would make the change mandatory for insurers and would not impose a one-year limit on the change. Landrieu said her bill was necessary despite Obama's plan (California Healthline,11/14/13).

Study Details

In their study, researchers analyzed the potential effects of the three proposals and found that none of them would alter the marketplaces in ways that would make them unworkable.

Overall, the study showed that all three proposals would increase federal spending as a result of higher premiums and federal subsidies, while decreasing the expected enrollment in the exchanges. The researchers noted that the adopted plan -- Obama's administrative fix -- would have the mildest effects.

Specifically, Obama's plan would:

• Increase federal spending by about $600 million;
• Decrease enrollment by 4% or 500,000 people; and
• Raise premiums by only about 1% more than they otherwise would have.

Landrieu's bill would have:

• Increased federal spending by $1.1 billion
• Decreased enrollment by about 8.5%; and
• Raised premiums by about 2.5% (Adams, CQ HealthBeat, 1/21).

Meanwhile, Upton's proposal would have:

• Raised federal spending by about $5 billion;
• Decreased exchange enrollment by 3.2 million people; and
• Increased premiums by about 10% ("Healthwatch," The Hill, 1/21).

The researchers determined that none of the proposals would cause a significant number of people to avoid the exchanges, meaning that the marketplaces still would function without major problems.

They also identified several factors that would ease the unfavorable effects of the proposals, such as:

• The federal subsidies offered through the exchanges;
• Federal programs that provide reinsurance for those with high medical costs and risk corridors that limit insurers' losses for three years; and
• Other "risk adjustment" policies that provide insurers with high numbers of sick enrollees with extra funding (CQ HealthBeat, 1/21).

Comments

Evan Saltzman -- lead author of the study and a project associate at RAND -- said, "Our analysis shows that plans to allow individuals to keep their old policies will not threaten the short-term viability of the new individual insurance marketplaces." He added, "However, the strategies put forward may increase federal spending and increase prices in the new individual marketplaces" (Howell, Washington Times, 1/21).