CBPP’s Sarah Lueck has put out a paper detailing how the weak regulations surrounding the state-based exchanges could allow insurers to potentially game the system and undermine the effectiveness of reform. The fear is that insurers will lure younger and healthier people into less regulated policies outside of the exchange structure. This would result in the same kind of “death spirals” that occurred “in the small-business health insurance purchasing alliances of the 1990s. If healthy people tend to buy low-cost insurance outside of the exchanges, the increasing proportion of sick people in the exchanges could force rates up and induce carriers to withdraw from them.”
Now, the law does create incentives for people to purchase coverage within the exchanges (i.e. premium credits are only valid in the exchanges) but it’s up to the states to ensure that healthier applicants are not going elsewhere. Lueck explains what states can do:
- States can ensure that the rules for markets outside the exchange and rules for the exchange are consistent.
- States can simply apply the same standards that HHS sets for qualified health plans offered in an exchange to plans offered in competing markets outside the exchange.
- States should also ensure that rules that affect plan pricing are the same inside and outside the exchange so individuals and small businesses looking for coverage will not pay more to enroll through an exchange.
- It will also be important for states to ensure that insurers do not pay insurance-broker commissions in ways that provide incentives for brokers to steer healthier, lower-cost enrollees into plans offered outside the exchanges, such as by furnishing higher fees or bonuses to brokers who direct healthy individuals in that way.
- At the very least, states (including those using a selective or competitive process to pick plans for an exchange) can require insurers outside the exchange to offer products in at least the Silver and Gold coverage levels, as they must do inside the exchange.
- In addition, states should bar insurers from offering only Bronze plans or only catastrophic plans (as defined by the Affordable Care Act) outside of the exchange.
Naturally, some states — like California — will adopt these changes, and many others won’t. The paper foresees a patchwork system akin to Medicaid where states have different quality, eligibility, and program sizes. The federal government can certainly improve the risk adjustment mechanisms or create incentives for states to adopt some of these rules, but at the end of the day, the success of the exchanges, like much else in the law, will rest with the states and their ability to fend off the insurance lobbyists.