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Did Iowa Mess Up Its Individual Health Insurance Market?

The individual health insurance market in most every state is, at best, precarious. Iowa is no exception – a conclusion reached recently by national consultant, Wakely Consulting Group, one of many organizations that I collaborated with in 2012 when analyzing the Iowa population for implementing a state-based health insurance marketplace. Their report, “Analysis of Alternative Policy Decisions in Iowa’s Individual Market,” sheds light on how a concoction of earlier decisions can undermine fragile markets. In short, the individual health market is a tangled mess.

The Affordable Care Act (ACA) established state-based marketplaces that allowed Americans without employer health coverage to purchase health insurance regardless of preexisting conditions. Such sanctioned ACA plans would also provide minimum essential standard-of-benefits.

The premium paid by those qualified to enroll in these plans varies, primarily based on factors of age, tobacco use, family size and geography. Other factors – such as pre-existing conditions, health status, claims history, duration of coverage, gender, occupation, and small employer size and industry – cannot be used to impact insurance premiums. Individuals earning a certain amount of income (100-400 percent of poverty), can receive subsidies to pay for their coverage, while others above this threshold must pay the full premium themselves.

The whole idea of insurance risk is to cover as many insureds as possible, safeguarding that there will be enough ‘good’ risks to help offset those considered to be ‘bad’ risks. When the Iowa marketplace was launched in 2014, Iowa had four insurers competing in the individual marketplace. Today, Medica is the only insurer that sells ACA-compliant health plans in Iowa. To sustain its business in Iowa, Medica had to increase the premiums in 2018 by 50 percent – which did not impact those receiving premium subsidies but slammed those who earn above the subsidy limit.

On top of this, the state’s largest insurance company – Wellmark Blue Cross and Blue Shield – maintained a large block of pre-ACA grandfathered plans (policies in effect before March 2010) and grandmothered health plans (policies written after 2010 enactment but before 2014) within its block of individual health business. The state of Iowa allowed Iowa carriers to maintain both blocks of business outside the sanctioned ACA marketplace.  According to the Wakely report, “Iowa’s ACA individual market in 2015 represented approximately 40 percent of the total non-group market…while the other 60 percent were covered under the two transitional plans.”

From its analysis, Wakely’s conclusion is that had Iowa NOT allowed for grandfathered and grandmothered plans (an option for each state to decide), the enrollment in the ACA-compliant plans would have increased by 55,000-85,000, while the change in premiums would have dropped by 8-18 percent. Had this happened, I’m sure there would have been new ‘winners’ and ‘losers’ on the amount of premiums individuals would be required to pay.

Lessons Learned?

The likely lessons learned from Iowa, according to Wakely and The Commonwealth Fund, is that further segmentation of the individual market between healthy and unhealthy enrollees wreaks havoc for those who do not receive subsidies that offset massive premium growth. Adopting policies to expand the risk pool and maintain a balance between healthy and unhealthy enrollees, using state-level reinsurance programs can be beneficial to state-based marketplaces.

As mentioned in the Commonwealth Fund analysis, “…premiums in the state’s (Iowa) individual market are already among the highest in the country, with an average annual marketplace plan premium in excess of $10,000 in 2018.” The middle-class consumers – entrepreneurs, independent consultants, farmers, and early retirees – who earn too much to quality for subsidies become ‘losers’ in the insurance risk game.

Granted, with the advent of new association health plans and short-term medical plans that can legally shed many ACA requirements and theoretically become more cost competitive, many of the healthier middle-class insureds may qualify for these plans – but what about those with pre-existing conditions?

The policies we generally make in healthcare are too often made from situational circumstances that cause knee-jerk reactions that may appear to be expedient, but ultimately exacerbate an already complex problem.

Scottish writer, Walter Scott, put it quite succinctly:

O, what a tangled web we weave…when first we practice to deceive.

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