Facing a May 11, deadline when insurers must submit applications to sell insurance products on the Healthcare.gov federal exchange and a whole lot of sword rattling from the insurance industry, CMS opted for appeasement. HHS released what is known as an "Interim Final Rule with Comment" which is a device designed to fast track adoption of a regulatory change. The change will more clearly define the circumstances under which an individual can purchase insurance on the exchanges outside of the open enrollment period in what is called a Special Enrollment Period (SEP) for a "permanent move."
Under current regulations, individuals that make a "a permanent move" are eligible to use a SEP to gain access to coverage. Insurers have raised concerns that this SEP was subject to abuse. In the Interim Final Rule, CMS notes that use or, rather abuse, of the "permanent move" SEP "has the potential to destabilize the health insurance market by creating an opportunity for adverse selection where persons undertake a permanent move solely for the purpose of gaining health coverage, in which they would otherwise not be qualified to enroll."
Speaking of SEPs in general, UNH CEO Stephen Hemsley was more direct. Speaking to investors on the Q3 2015 earnings call, he said, "In our view, in recent weeks, market performance expectations for exchange products have further deteriorated. We have identified higher levels of individuals coming in [via SEP] and out of the exchange system to use medical services, lower expectation for overall future participation, declining performance in and accelerating failures of the sponsored health cooperatives and out own emerging claims experience, which is worsening as the end of the year nears." At a Credit Suisse investors meeting, also in November, Aetna (AET) CFO made similar comments citing the SEP which enabled people to get into the system long enough to get medical services and then drop coverage, according to reports.
To make the point further, the insurance industry commissioned a report from Oliver Wyman. Authors Carlson and Giesa submitted the following findings:
- SEP enrollment represented 17 percent of total exchange enrollment in 2014 and represented almost 25 percent of active enrollees as of December 31, 2014.
- The per member per month claim costs during 2014 for individuals that enrolled in an SEP were 10 percent higher than those enrolled during the Open Enrollment Period (OEP)
- Per Member Per Month (PMPM) claim costs for SEP enrollees during 2014 were 24 percent higher on average during the first three months of enrollment than for OEP enrollees
- In 2015, the difference in PMPM claims cost increased to 41 percent for the first three months of enrollment
- SEP enrollees are more likely, on average, to lapse coverage. Lapse rates were 3.5 percent for OEP enrollees as compared to 5.0 percent per month for SEP enrollees
This report is based on claims data submitted by 13 different health insurance issuers for January 2014 to June 2015 and paid through October 2015. The submitted data represented $27 billion in premiums and $26 billion in allowed claims.
Since CMS is using this Interim Final Rule to address the SEP triggered by a permanent move, we should assume it was this class of SEP causing the biggest headaches for insurers. CMS acknowledges that the regulatory language for the "permanent move" SEP does not align with the intent of the provision. The original idea was that the SEP would be available to someone who moved out of one insurer's service area into another's and therefore lost coverage. However, when the regulations were written, no qualifying language was included. A permanent move could be one across country, across state or across town.
As a result of the vagueness of the regulations (and no doubt some poor oversight), insurers had run smack into an issue that has plagued educators for years - mobility. Low income populations, particularly those under 200 percent of the federal poverty threshold -the cohort that experienced the largest drop in uninsured rates after passage of the ACA - can be highly mobile, especially in urban areas. Because mobility involves moving from one school to another, the Bush-era education law, No Child Left Behind required the collection and reporting of mobility rates. as a way to evaluate academic performance. Bailey Middle School in Nashville, TN with a population that consists of almost 95 percent free and reduced lunch eligible kids (up to 185 percent of the federal poverty threshold) had a mobility rate of 50 percent in the 2013-14 school year, to use just one of thousand examples.
Insurers, especially those with limited exposure to lower income, highly mobile populations, and regulators assumed that an SEP for a permanent move would apply on a limited basis. In fact, what has happened is that low income marketplace eligible enrollees were taking advantage of their mobility to get covered, if only on a short term basis. This behavior has led to a more unstable insurance market on the exchanges characterized by rising premiums and the withdrawal of UNH and others from a number of exchanges. Facing the expiration in 2017 of a number of ACA-mandated mitigation programs like reinsurance and the much maligned risk corridor program, insurer unrest and threats of a death spiral, the Obama Administration had to act.
Under the new rules, CMS will only permit use of the SEP for a permanent move if the enrollee was covered by another ACA-qualified plan for one day or more in the 60 days prior to the permanent move. Excluded from this change are people who are released from incarceration or who have moved back to the United States from a foreign county. Also excused from the new criteria are people who should have been Medicaid eligible but living in non-expansion states and who then move to another state where they are eligible for coverage on the market places.
CMS is also eliminating the requirement that exchanges provide advanced availability of SEPs by January 1, 2017. Advance availability allows an enrollee to complete the necessary paper work before the triggering event such as a move or release from prison. Instead, CMS will leave it up to the individual state exchanges as to whether or not they wish to build out their IT infrastructure to accommodate this feature. In the meantime, CMS is reviewing SEP enrollment data to see what, if any additional changes must be made to regulations to ensure consumers are not inappropriately accessing coverage during SEPs.
The change is a positive for insurers but will it be enough to stem the tide of departures, bad press for the exchanges, and increased premiums?
We tend to think not. It is our opinion that the dissatisfaction with the SEPs and the marketplaces in general expressed by some insurers is a failure of strategy more than a structure, exacerbated by politics.
Policy makers, insurers and the Congressional Budget Office all forecast that the introduction of the health insurance marketplaces would result in people moving from employer based plans to the state or federal exchanges. In March 2015, the CBO had estimated that employer-based coverage would decline by 6 million people in 2016. In one of the great mysteries of the post-ACA era, that did not happen. A recent Kaiser Family Foundation survey shows that 57 percent of employers offering coverage in 2015 up from 55 percent in 2014.
Exacerbating the resistance of employers to dropping their group plans was the Obama Administration's decision, in the face of substantial fallout from people whose health insurance was cancelled, to allow states to waive the requirements of the ACA with respect to benefit design. This decision left those that were satisfied with their insurance - presumably because they were healthy or happy with their pre-ACA coverage - out of the marketplace.
With the currently insured - either through an employer or via a pre-ACA plan - sidelined, the exchanges have been primarily the insurance market for lower income individuals. Post-ACA, the cohort experiencing the biggest drop in uninsured rates has been people with incomes at 100 to 200 percent of the federal poverty threshold or between $24,000 and $47,000 for a family of four, according to the Kaiser Family Foundation report (Some of this growth is, of course, a result of Medicaid expansion).This population is also one that often moves in and out of Medicaid eligibility. In short, UNH, AET others thought the exchanges would be an extension of the relatively healthy and stable populations they were serving though their employer-centered plans. Instead, the exchanges have become an extension of the Medicaid system.
The plan design for a product geared more to a middle class, healthy working individual is different from that designed for an individual who moves between the exchanges and Medicaid coverage. UNH plans, for example, tend to be more expensive but offer more options through wider networks, This typical design makes such plans ripe for abuse by people churning through the system by taking advantage of the "permanent move" SEP to access the richer benefits and broader networks, if even on a short term basis..
Lost in the outcry about the exchanges has been the comments recently of Molina Healthcare's CEO, Joe Molina during the Q12016 earnings call and which are worth quoting extensively here:
Having addressed the cost drivers in the first quarter results, let me now turn to the future. What do all of the headlines about other insurers exiting the marketplace mean to Molina Healthcare? What is our strategy for the marketplace? Our plan is to stay the course. That is because our strategy and our goals for this product are different from those of many other insurers.
Our objective is to provide an accessible extension of our Medicaid product to individuals whose eligibility for Medicaid fluctuates, and we believe that we are successfully doing so. As a reminder, the segment most likely to purchase an exchange project from Molina healthcare are individuals under 250% of the federal poverty level who receive significant government subsidies. Approximately 90% of our marketplace members receive a government subsidy for co-pays and premiums.
We have never expected our marketplace product to perform better than our Medicaid business, nor operate at significantly better margins over the long term.
Molina's extensive experience with Medicaid appears to have paid off for their exchanged-based plans. Centene (CNC) is similarly situated. Of course, these companies are tiny compared to UNH, AET et al. which may just be the point. The exchanges are not and probably won't be much of an opportunity for big insurers. They do, however present a load of possibilities for the smaller, non-traditional insurers like MOH with the experience and data necessary to support service to the low income populations that currently dominate the health insurance exchanges.