How Will Health Insurance Change Under HHS Market Stabilization Rules?

Regulations Are Intended to Stabilize Insurance Markets

Doctor waiting room

Concerns about the stability of the individual health insurance market (both on and off-exchange) have been swirling for some time. Numerous insurers exited the exchanges or the entire individual market at the end of 2016, and pre-subsidy premiums increased by an average of 25 percent for 2017 (subsidies in the exchanges grew to offset all of most of the premium increases for subsidy-eligible people who buy coverage in the exchange; so to be clear, premiums did not increase by an average of 25 percent for most people who buy their plans in the exchange).

To address market stability concerns, the Department of Health and Human Services proposed a series of reforms in mid-February, a few days after HHS Secretary Tom Price was confirmed by the Senate.

The notice of proposed rule-making is all about market stabilization for the individual and small group markets. In general, small group markets have been fairly stable. But the individual markets in some states were on the brink of collapse by the end of 2016, and Humana announced on February 14 that they would completely exit the individual health insurance market nationwide at the end of 2017 (they currently offer individual plans in 11 states).

On April 13, HHS finalized their market stabilization regulations, mostly as-proposed. Some stake holders have lauded the regulations as a good step towards stabilizing the individual insurance market, but others have said that some of the new rules will actually cause further market destabilization.

It's important to note that as insurers are creating their rates and plans for 2018, they repeatedly note that two of the most important factors that are contributing to market destabilization are lax enforcement of the ACA's individual mandate, and lack of certainty in terms of continued funding for cost-sharing subsidies. Neither of these issues are addressed by the market stabilization regulations, and the Trump Administration's actions have contributed to significant market destabilization in both areas.

How Will the Market Stabilization Rules Impact Your Health Insurance?

People who get their health insurance from a large employer (in most states, that means 50+ employees), Medicaid, or Medicare won't be impacted by the changes that HHS has finalized. The changes mostly apply to the individual market, which is where about 7 percent of the U.S. population, although people who work for small employers could see higher out-of-pocket costs, and possibly lower premiums.

1. For people who buy their own health insurance, open enrollment for 2018 will be shorter than it has been in previous years.

Prior to the market stabilization rule, the 2018 open enrollment period was slated to follow the same schedule that was used for 206 and 2017 (November 1 through January 31). But for 2019 coverage, the plan was to start using a shorter open enrollment period, starting November 1 and ending December 15. HHS has instead opted to switch to the shorter open enrollment period one year early, and begin using it in the fall of 2017 (for coverage effective in 2018), instead of waiting until the fall of 2018.

So people who buy their own health insurance (ie, they don't get it from an employer or from a government program like Medicare or Medicaid) will have a shorter window to select a plan for 2018. It will begin November 1, 2017, and end December 15, 2017.

That means no plan changes after the first of the year, so there will no longer be an opportunity to switch plans in January if your premium change catches you off guard. It will be particularly important to pay close attention to any premium and plan change notifications you receive in October/November from your insurance company or the exchange, and make plan changes before the 15th of December. After that, plan changes and new enrollments will only be possible if you have a qualifying event.

This will not change anything about the current open enrollment windows for employer-sponsored health insurance or Medicare.

2. People who enroll in exchange plans outside of open enrollment will have to provide proof of a qualifying event, and eligibility for special enrollment periods will be restricted in some cases.

The ACA and subsequent regulations allow people with a variety of qualifying events to enroll in coverage through the exchange (and in most cases,   outside of the exchanges as well), regardless of the time of year.

This makes sense, and it's how employer-sponsored insurance works too. If a person quits her job and loses access to an employer-sponsored health insurance policy in June, she can't be expected to wait until January to have new coverage. And if a baby is born in April, it wouldn't make sense to force the family to wait until open enrollment to get coverage for the baby.

So a qualifying event triggers a special enrollment period (SEP), during which the applicant has 60 days to sign up for a new plan. But there has been considerable controversy surrounding SEPs. There are concerns that people might be "gaming" the system by pretending to have a qualifying event when they find themselves in need of medical care, and insurers have noted that average claims costs are higher for people who enroll during SEPs as opposed to people who enroll during open enrollment. 

But on the other side of the coin, consumer advocates have pointed out that very few SEP-eligible people actually enroll in coverage, and requiring proof of a qualifying event might deter healthy enrollees from completing the process. This was evident to some degree in the aftermath of the stepped-up SEP eligibility verification that implemented in 2016.

Among applicants age 55-64, 73 percent submitted proof of a qualifying event. But among applicants aged 18-24, only 55 percent submitted proof of a qualifying event. This results in a pool of insureds with a higher average age, which is correlated with increased health care costs.

The Obama Administration HHS had scheduled a pilot program, starting in the summer of 2017, under which 50 percent of applicants (randomly selected) would have to provide proof of a qualifying event before their application could be completed.

But the new HHS regulation changes that to 100 percent. As of June 2017, all enrollees who sign up outside of open enrollment will have to provide proof of a qualifying event before their application can be processed.

In addition, the new rules reduce access to SEPs in some circumstances: 

  • Marriage will only be considered a qualifying event if at least one partner already had minimum essential coverage (or lived outside the US or in a US territory prior to the marriage).
  • When a person already enrolled in a plan has a baby or adopts a child, the parent is restricted to either adding the child to the existing plan, or enrolling the child alone on any available plan (if, for some reason, the child cannot be added to the plan, the parent can enroll in another plan at the same metal level, along with the child). A person who is uninsured and has a baby or adopts a child is still eligible to enroll, along with the child, in any available plan. But a person who already has coverage is not allowed to use the addition of a dependent as an opportunity to switch his or her existing coverage to a new plan.
  • People who lose coverage for non-payment of premium at some point during the year will have to pay up their past-due premiums before they can re-enroll—during a SEP or regular open enrollment—in a plan from the same insurer (or another insurer under the same parent company). They will generally owe past-due premiums for no more than three months of coverage, since they are not on the hook for premiums once a plan is terminated for non-payment of premium. If people in this situation re-enroll, the insurer is allowed to apply their new premium payments to their past-due balance.

    3. Starting in 2018, there will be more leeway in terms of the percentage of costs that health plans must cover. This could result in slightly lower premiums, but higher deductibles and copays. It could also mean smaller premium subsidies in the exchanges.

    Under the ACA, all new individual and small group health plans must fit into one of four metal levels: bronze, silver, gold, or platinum (catastrophic plans are also available for some enrollees). A plan's metal level is determined by its actuarial value (AV), which is a measure of the percentage of health care costs that the health plan will pay, averaged across an entire standard population. Bronze plans have an AV of 60 percent, silver plans have an AV of 70 percent, gold plans have an AV of 80 percent, and platinum plans have an AV of 90 percent.

    But it would be challenging for health insurance companies to design plans that hit those numbers exactly (pre-ACA, there were no standardized AV requirements, so insurers didn't have to worry about hitting a specific AV target). So health plans are allowed to use an AV range rather than an exact percentage. Currently, the range is +/-2. So a silver plan can have an AV that ranges from 68 to 72 percent (bronze plans have their own de minimus range, currently set at -2/+5). 

    Under the new HHS regulations, starting in 2018, the allowed range is -4/+2, which means a silver plan can have an AV anywhere in the range of 66 to 72 percent (for bronze plans, the allowed range is -4/+5).

    So for the plans they're developing for 2018 coverage, insurance companies are allowed to increase out-of-pocket costs ( deductibles, copays, coinsurance), because they won't have to cover quite as large a percentage of total average costs. That means premiums could decline slightly, but the amount people have to pay when they need health care would increase (note that premium declines are relative to what they would have been absent this change; overall premiums are still going to rise in 2018, probably quite sharply due to the other market uncertainties that exist, including the lack of clarity in terms of whether cost-sharing subsidies will continue to be funded).

    It also means that premium subsidies might be slightly smaller than the would have been without this change, since they're based on the cost of the second-lowest-cost silver plan (the benchmark plan) in each area. If the second-lowest-cost silver plan is one that has an AV of 66 percent, it will be priced lower than other silver plans with AV of 68 percent or higher. And a lower-priced benchmark plan translates to smaller subsidies.

    4. Insurers are allowed to apply new premiums to past-due amounts.

    Under previous rules, if a plan was terminated for non-payment of premiums, the individual could re-enroll in that same plan during open enrollment, or during a special enrollment period, with no adverse effect. Premium billing would start over as of the new effective date, and the insurance company was not allowed to require the person to pay up their past-due premiums from the previous plan.

    The new regulations give insurance companies more leeway to collect past-due premiums if the person chooses to re-enroll in a plan from the same insurer that terminated prior coverage for non-payment of premiums (or insurer that's part of the same controlled group, or parent company). Premiums paid for the new plan can be applied to the past-due premiums from the previous 12 months, and insurers are allowed to refuse to activate the new policy until past-due premiums from the prior year were paid up.

    A person's past-due premiums would generally only be for one to three months of coverage, since past-due premiums do not continue to accrue after a plan has been terminated for non-payment of premiums.

    People can get around this change by enrolling in a plan from a different insurer, but in some states, there's only one insurer offering plans in the exchange. In those states, anyone whose coverage is discontinued for non-payment of premiums is potentially subject to paying back-premiums before being allowed to enroll in a new plan.