In Praise of the Affordable Care Act – Insurance Reforms
|June 18, 2012||Posted by Lucien Wulsin under Blog||
There have been widely reported, continuous attacks on the Affordable Care Act (ACA), but relatively little review of its important progress. This series will summarize some of that progress here in California and the issues still in contention. Today’s report looks at insurance reforms.
- Children. The ACA requires insurers to guarantee issue coverage to all children regardless of pre-existing conditions during open enrollment and other designated events. California’s legislature passed this reform – AB 2244 (Feuer) in 2010. It provides: 1) open enrollment periods annually for children in their birth month or within 63 days of designated events causing a loss of coverage, such as a loss of employment based coverage, public coverage or divorce, 2) carrier’s ability to price coverage at 200% of the standard rate for children with pre-existing conditions during open enrollment and designated events, and 3) plans’ ability to price at higher rates (e.g. one plan is pricing at 350% of the standard rate) and add a 20% surcharge for those applying outside the annual enrollment or designated events periods. It is unclear how many California children are benefiting from these provisions.
- Underwriting reforms. The ACA requires guaranteed issue and renewal and no pre-existing condition exclusions in the individual and small employer markets. The California legislature is considering SB 961 (Hernandez) and AB 1461 (Monning) to adopt the ACA reforms for the individual market. The draft legislation does not include any variation for smoking (this omission is opposed by the California Association of Health Plans) and permits the state’s regulators to designate the age rating bands. The legislature is also considering AB 1083 (Monning) that would adopt the federal guaranteed issue and renewal rules for the small employer market (1-50, then in 2016 1-100 employees). The draft legislation does not include any variation for smoking and does not include the 30% wellness incentive permitted under federal law. California already requires (since 1993) guaranteed issue and renewal for small employers of two or more;  it permits age rating without a rate band and premium variations of plus or minus 10% based on health status – two provisions that will change effective January 1, 2014.
- MLR’s (Medical Loss Ratios). The ACA requires insurers to spend at least 80% of individual and small employer premiums on health care to their subscribers; for large and mid-sized employers, 85% must be spent on health care. California Department of Insurance has implemented this by emergency regulation. Nationwide, the savings are projected at $1.3 billion for 2011, the first year for which this provision is in effect. Californians are expected to receive a reduction in their premiums of $127 in August 2012 due to this provision.
- Rate review. The ACA funds states that wish to conduct prior approval rate review of health plans’ proposed premium increases. The California legislature is still debating AB 52 (Feuer) to authorize state regulators to conduct rate review of premium increases.
 To benefit, a child would need to be uninsured or losing coverage, have a pre-existing condition, enroll during annual open enrollment or within 63 days of designated events and have parents with adequate incomes to afford the higher rates. Children with access to Medi-Cal, Healthy Families, AIM, MRMIP and COBRA coverage would be able to secure better coverage at a more affordable price than through this policy.
 Federal law allows carriers to add up to 50% to the price of the premium for smokers. California already has one of the lowest rates of smoking in the country.
 Federal law sets a rate band of 3:1; California’s existing law for small employers has no rate band and specifies that age rating be the same within age groups (e.g. 20-13, 30-40, 60-65). This produces large increases when an individual changes age and begins their next decade (at ten and five year intervals); it may be preferable to increase premiums more gradually on an individual’s annual birth month.
 Federal law allows employers to reduce an employee’s share of premiums by up to 30% if they enroll in an employer approved program to reduce their risk profile (e.g. stop smoking, or lose weight or improve control of diabetes or high blood pressure).
 Health plans and the California Chamber of Commerce are seeking the flexibility to rate on the basis of tobacco use and add the wellness incentives; in addition, they contend the legislation impairs the ability of subscribers to retain their grandfathered health plans.
 AB 1672 (Margolin) of 1992. The existing legislation does not apply to the self-employed who must purchase in the unregulated individual market where they are subject to exclusions based on their health status.
 California Code of Regulations Title 10 §2222.12
 The rebates are projected at $541 million for large employers, $377 million for small employers and $426 million for individual subscribers. This is the national average; there are as yet no California specific estimates because the Department of Managed Health Care does not report this information to the National Association of Insurance Commissioners. See Kaiser Family Foundation, Insurer Rebates under the Medical Loss Ratio April 2012 at http://www.kff.org/healthreform/8305.cfm. United Health’s rebates to 4,400 small California firms totaled $3.5 million. Chase, D. Small Business Majority Blog, (June 5, 2012) http://www.smallbusinessmajority.org/blog. Blue Shield of California pledged $180 million in rebates to its subscribers for the year 2010. http://www.ama-assn.org/amednews/2011/06/20/bisb0620.htm
 The bill is currently on the Senate floor. The supporters contend that the plans are increasing premiums at a far faster rate than warranted by the underlying rise in health costs. The opponents contend this would be a waste of resources as their premiums rise due to cost shifting for the increased numbers of uninsured and Medi-Cal patients, the spread of medical technology and other factors beyond health plans’ control. See Senate Floor analysis of AB 52 (Feuer) http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0051-0100/ab_52_cfa_20110829_095936_sen_floor.html