Will The Federal Government’s Efforts To Keep Child-Only Policies Backfire?

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Earlier last week I wondered how the federal government could prevent insurers from ending child-only policies, speculating that it can do relatively little to assuage issuers’ fears about sicker children flooding the market. Today, Politico’s Pulse informs me that aside from writing yet another strongly-worded letter, HHS is saying that insurers could increase rates for sicker applicants:

HHS also issued new regulatory guidance that could make it easier for insurers to sell the policies. The agency said insurers could raise rates based on health condition — though doing so will be illegal beginning in 2014; issue different rates for child-only policies and dependent children; impose a surcharge for dropping coverage and subsequently reapplying; and instituting rules to preventing “dumping” the policies. The moves are likely to drive premiums up, if insurers choose to start selling the policies again.

Sebelius also said she welcomes state laws that would force insurance companies to cover these children if the company offers similar coverage to adults. Insurers won’t have to cover all adults regardless of pre-existing conditions until 2014 under the health reform law.

The agency has already said insurers could establish an open enrollment period — say, of approximately a month — in which insurers could sell policies and still legally close access the rest of the year. HHS said Friday that it would consider a uniform open enrollment period “only if it would result in issuers selling new child-only policies.

State regulatory efforts are particularly the kind of oversight that insurers themselves are promoting. “The McCarran-Ferguson Act entrusted states with the responsibility for the comprehensive regulation of the business of insurance,” Ignagni wrote in 2009. “States have met this responsibility by regulating health insurance in every area.” Consequently, they should welcome New Hampshire’s announcement that “insurers who sell in the individual market can’t insure adults and not children” and California’s effort to keep insurers that cancel child-only plans out of the exchanges for a period of 5 years.

That second state proposal also brings up an important question: under the Affordable Care Act, states can exclude certain insurers from the exchanges if they demonstrate a pattern or practice of excessive or unjustified premium increases. Since the government is now suggesting that insurers should raise premiums rather than cancel their child-only policies, will it have to exclude that increase when calculating their pattern of premium increases? If so, that that sets a fairly significant precedent.