The Affordable Care Act’s (ACA’s) Marketplaces allow individuals and families to select and purchase health insurance, with premium subsidies available to qualified individuals to make coverage more affordable. Health insurance premiums vary considerably in different areas of the country, due to the price of medical care and other factors.
For those qualifying for subsidies, their premium contribution is based on a percent of income, so no matter where a given person with a given income lives, he or she should pay the same amount for health insurance. However, for some individuals, this is not the case. We find that the way the subsidy is calculated can end up causing some individuals to pay more, based solely on where they live.
The premium subsidy is calculated as the difference between the maximum amount a person should pay for health insurance, according to the household income, and the premium for the second-lowest cost silver plan (SLCSP) in the person’s geographic area. If individuals want to buy a more expensive plan, they have to pay the additional premium cost.
But there is a glitch: some residents do not have access to the SLCSP sold in their geographic area, called a rating area. The default was for states to define ratings areas by designating each metropolitan statistical area (MSA) within a state into its own rating area, and then grouping the leftover counties into an additional rating area. States could also develop their own definition of a rating area, for example, using each county as its own rating area (Florida) or grouping together contiguous counties (Georgia). CCIIO has a complete list. Using data from CMS, we examined the prevalence of the problem in accessing the SLCSP.
Understanding The Problem
In most cases, insurance companies can offer insurance products in areas as small as the county level. According to the 2016 Guidance for Issuers from CMS:
The Marketplace must ensure that each service area of a QHP [Qualified Health Plan] covers a minimum geographic area that is at least the entire geographic area of a county, or a group of counties defined by the Marketplace, unless the Marketplace determines that serving a smaller geographic area is necessary, nondiscriminatory, and in the best interest of the qualified individuals and employers (see 45 C.F.R. 155.1055(a)).
An insurer may not offer plans in all counties in the rating area. This geographic variation in insurance offerings has always been the case, even prior to the ACA. But the premium subsidies are calculated using the premium for the SLCSP in a person’s rating area. So if a person lives in a county where the SLCSP isn’t available, then they automatically have to pay the difference between their plan choice and the SLCSP, and often, the lowest-priced silver available plan is more expensive than the SLCSP. Bronze plans are always available for lower premiums than the silver plans, but the tradeoff for consumers is higher out-of-pocket costs. There are also cost-sharing reduction plans, but only silver plans are eligible for cost-sharing reduction assistance.
Figure 1 shows the counties of Georgia’s Rating Area 10, for example. The SLCSP is only offered in Dawson County in this rating area. The next lowest silver plan premiums are shown for the other counties. The insurers Kaiser, Humana, and Aetna are only offering plans in part of the rating area, while Blue Cross Blue Shield, UnitedHealthcare, and Alliant Health Plans are offering plans in the full rating area.
Figure 1: Map of Georgia’s Rating Area 10, with Marketplace Silver Plans and Annual Premiums, 40-year-old individual, 2016 (Subsidy Plan = $3,762)
Note: Kaiser, Humana, and Aetna are offering plans only in some counties in Rating Area 10. Blue Cross Blue Shield (BCBS), UnitedHealthcare, and Alliant Health Plans are offering plans in the full rating area. Source: Qualified Health Plan Files, Federally Facilitated Marketplaces, 2016.
According to ACA rules, a 40-year-old single man making 200 percent of the federal poverty level (FPL) ($23,540 annually) who picks the SLCSP would have to pay $1,509 annually for Marketplace insurance, representing 6.41 percent of his income (the subsidies are calculated using the 2015 FPL until the 2016 FPL becomes available).
In Dawson County, this is exactly what happens. However, in Towns County, the cheapest silver plan would require $1,803 in annual payments, representing 7.7 percent of income. That’s an additional $294 per year in premiums. While an additional $24.50 a month might not sound like a significant cost, it represents more than 1 percent of the individual’s income. More detailed calculations are available in our report.
The Scope Of The Problem
This problem is widespread. Across the 38 states using the federal enrollment platform, more than half have insurers that offer plans only in selected counties within rating areas. Twenty states have rating areas where the SLCSP is not offered in the whole rating area for 2016 plans. Affected counties have lower populations, on average, than non-affected counties, according to our analysis.
The impact of these higher premiums is regressive when residents of the county only have access to silver plans that are more expensive than the SLCSP. The extra premium amount represents a greater share of income for lower income households. As a result, the impact of these higher premiums leads to a proportionately greater increase in premium payments for those with the lowest incomes. In all cases, the bronze plans are available, and in some cases, the cheapest silver plan for a rating area is available, but the tradeoff for consumers is often greater out-of-pocket costs.
Identifying Possible Solutions
There are several possible solutions. One seemingly simple solution could be to require insurers to offer their plans in all counties within a rating area. However, this solution could be problematic if the rating area is very large; doing so would potentially place a rather onerous requirement on insurers if they do not already have provider networks in certain areas. This solution would have worrying implications for competition in the Marketplaces, if insurers chose to leave the Marketplaces rather than offer plans in a wider geographic area.
Another alternative would be to reexamine how rating areas have been determined. Rating areas that are geographically diverse and cover many different health care markets might be particularly susceptible to having limited access to the SLCSP. But there also benefits to a geographically diverse rating area — pooling rural counties with urban ones may lower premiums for the rural counties.
Without requiring more of the insurers, the subsidy could be pegged to the second-lowest or lowest-cost silver plan available to the individual in the person’s county, or to a silver plan that is available in the full rating area. Costs to the federal government would have to be estimated, because for some areas this would likely increase the amount of the subsidies paid.
Balancing Equity And Competition
Increasing affordability will need to be balanced with maintaining competition in the Marketplaces. Insurers will only offer products in areas where it is profitable to do so. Premiums are often higher in rural areas, in part because of the costs of contracting with providers to serve a large, geographically disperse area. Some providers may have local monopolies in their rural or otherwise remote locations. Higher premiums can lead to decreased demand, especially among the healthy, and therefore reduce the probability that insurers offer plans in these areas.
When insurers are not offering plans across the entire rating area, Marketplace consumers are vulnerable. Changes in the set of insurers participating in the market could change which plan is the SLCSP and thus change whether consumers have access to the SLCSP. In the worst situations, the higher out-of-pocket cost can have a large and regressive impact on consumers participating in the marketplace. Other consumers might forgo purchasing insurance altogether. Enrollment is key to sustaining the long-term success of the Marketplaces — by spreading risk out among a larger pool and making participation in the Marketplaces more attractive to insurers.
At the same time, markets must be structured in a way that is attractive to insurers. This is an ongoing problem for the Marketplaces, where finding a sufficient number of competing insurers has proven difficult in some states. Ultimately, a solution to this problem of limited access to the SLCSP will require balancing the impact on equity for consumers with the impact on competition and maintaining sufficient insurer participation.
from Health Affairs Blog http://ift.tt/1PHGipx
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