By Heather Mullinix
Requirements of the Affordable Care Act of 2010 continue to be implemented, but one provision on the horizon that has customers, insurance companies and regulators concerned is the formation of state health insurance exchanges where individuals and small businesses can purchase health insurance coverage.
Julie Mix McPeak, commissioner of the Tennessee Department of Commerce and Insurance, and her staff have been preparing for the full implementation of the ACA, including working to determine if Tennessee should create its own health insurance exchange or allow the federal government to develop the plan that will be implemented by Jan. 1, 2014. A deadline is looming with Governor Bill Haslam set to determine if the state will go with a federal exchange program or continue to study a state-developed exchange by Nov. 16. The Tennessee General Assembly would have final approval of a state-run exchange.
"There are a series of things that will significantly change the way that insurance is purchased, offered, rated in the state," McPeak said.
Previously, insurance companies could deny coverage or exclude pre-existing health conditions, or cancel coverage if there were a large claim or a series of large claims.
"That all changes Jan. 14, 2014," McPeak said.
Insurance companies will only be able to rate consumers based on age, geography and tobacco use. Also, companies will be limited to a 3 to 1 ratio between the highest and lowest premiums charged consumers. That's a change from current ratios of 7 to 1 or 8 to 1, in some areas.
"What we're telling insurers is, 'We want you to take on more risk, and you can't underwrite that risk except on some very limited factors,'" McPeak explained. "All of the ratings are compressed, which tends to shift everyone up in the scale.
"We are expecting significant rate hikes particularly in the individual and small group market place. If you are in a large group, you might not see any significant change in terms of what you have in terms of coverage or rates."
McPeak said she is concerned about the effect on small businesses, who might find it cost prohibitive to offer health benefits to employees. However, McPeak said she has not yet seen new policy rating forms and rates. The state will review those prior to being offered to Tennessee consumers, and she expects those to start arriving in her office in March in advance of an October 2013 open enrollment period.
One problem facing Tennessee is the continuing uncertainty regarding health insurance coverage coupled with Tennessee's health problems, including diabetes, obesity and heart disease.
Brian Hale, head of the exchange initiative for the state, said, "We don't want to beat the insurers over the head. We need to figure out how to deliver a high quality product in a way that's affordable."
While the U.S. Supreme Court ruled the individual mandate was allowable under the Constitution, Hale noted Tennessee would not be involved in enforcing that provision. That would be left to the IRS.
In the early years, those penalties are not hefty, but Hale said experience in Massachusetts found many families wanted to have insurance and the penalties didn't drive people to purchase insurance.
McPeak noted, however, that many families may make an economic decision on affordability, choosing to take the penalty over paying health insurance premiums. Those who did choose to purchase coverage could then be those with health issues that would require more care. That situation would result in more uncompensated care in the early years and higher claims in the exchange, driving costs higher.
The high court also ruled the federal government could not force states to expand Medicaid programs. There had been discussion of expanding Medicaid to those at 138 percent of the poverty level, or $15,000 for a household of one or $30,000 for a family of four.
"That's another source of uncertainty for insurers," Hale said. "Are we going to expand our Medicaid program, or not?"
TennCare is the state's Medicaid program. Right now, those at up to 17 percent of the poverty level are eligible for Medicaid, or about 1.2 million Tennesseans.
The federal government would cover 100 percent of the cost of that expansion for the first three years, Hale explained. After that, the reimbursement would decline by one percent each year to a minimum of 90 percent of the cost. However, the state would have to cover the 10 percent not funded.
Also part of the ACA are tax credits to individuals and families to purchase health insurance on the exchange. That would provide assistance for those at up to 400 percent of the poverty level, or $92,200 for a family of four. Hale explained those on the high end would be required to pay up to 9.5 percent of their annual income on health insurance, while those on the lower end of the income range would be required to pay about 2.5 percent. Tax credits of at least $3,000 would supplement consumers' income to purchase insurance.
The average cost of a family health plan in Tennessee is about $14,000 a year. The median household income in the state is $43,400. Hale explained that, under the statute, that family would only have to pay a maximum of 9.5 percent of their income, about $4,100, for family health coverage. The remaining almost $10,000 in premiums would be covered by a tax credit.
"Several hundred thousand Tennesseans who don't have insurance now might be able to get it under that tax credit. But, it's going to be expensive," Hale said.
The tax credit could only be used in an insurance exchange, a marketplace that has plans offering at least minimum health coverage — a level defined by the federal government based on a default Blue Cross/Blue Shield plan which was used by the majority of small group plans.
Hale explained the exchange would operate like two websites. The first would take information regarding income, age, number in household and other information to determine if the individual or family was eligible for Medicaid or other programs. That would take 45 seconds, as opposed to the 45 days currently allowed for determining Medicaid eligibility. If the individual chose to purchase coverage, the next website would allow the consumer to compare plans and costs and decide where to spend the tax credit.
Benefits of a state-controlled insurance exchange includes consistency across the state and the ability to look at the needs of each county in the state.
Cumberland County has long posed difficulties for insurance coverage because residents choose to go to both Knoxville and Nashville for health care services not locally available. The state, when designing TennCare, opted to allow participants to choose if they would go east or west for medical care and ensure adequate provider coverage.
"When we try to come up with a plan about where Cumberland County is placed for service areas, it's really difficult," Hale said. "One of the things we would have to decide for every county in the state is how you define rates and service area. But I question, will the federal government have that much information and, really, that much interest, in Cumberland County?"
Another issue is balanced billing, where a consumer seeks out an in-network facility only to be hit with an out-of-network bill because they saw an emergency room doctor, for example, that was not part of the network. That's a critical issue in rural Tennessee, Hale said, and something that isn't being addressed at the federal level.
Another problem is the risk of insurers leaving the state, further reducing options for consumers. Also, smaller companies may consolidate in order to be more competitive in the new marketplace, also reducing competition.
"That is the issue that keeps me awake at night," McPeak said. "In oder for insurers to stay in the state of Tennessee and continue to write policies, they need to have a viable market outside the exchange."
McPeak, who previously worked in Kentucky and implemented health insurance reforms similar to what is required by the ACA, said all but two companies left Kentucky.
"It was catastrophic for the marketplace that is just now starting to rebound," she said.
Hale said the state had approached insurers working in one part of the state about expanding to other areas, as well as working with out-of-state companies. Companies that have exclusively worked with Medicare have been approached about expanding their business scope. Reimbursements of medical providers would not be dictated by the state. Hale said that would be negotiated by insurers and providers.
The exchange will be funded by those who use it, with a fee included to make the exchange self sustaining. A key component of success is bringing healthy people into the exchange to subsidize the higher risk consumers and, theoretically, lowering costs for all. Hale was concerned the drive to inform people about the exchanges was limited to clinics, doctors offices and hospitals, where people might have existing health problems.
"We have to have a balanced risk pool," Hale said.
He's proposed working with tax preparers to get more people enrolled at a time when they are cash rich, have necessary documentation and are already taking care of a financial transaction on the Internet. There has been little movement on that suggestion at this time, but he hopes to move forward with it in the near future.
Hale and McPeak also fielded questions on how the Affordable Care Act could affect Medicare recipients. One member of the audience asked about a rumor that the premium for Medicare Part B would double in 2014. Hale explained premiums for that coverage would increase about the same amount as it has historically, using the formula established by Congress decades ago, according to the AARP website.
However, Congress could change the formula used to determine that premium, he noted.
McPeak said, "There are taxes that are included in the Affordable Care Act, and it's conceivable to think that there would be changes in funding to Medicaid and Medicare to make sure that we continue to have a solvent system."
Another asked about access to providers under Medicare Advantage, which was limited in Cumberland County. Hale noted the state has no authority to fix issues in Medicare, but added the state wanted to make sure those problems weren't replicated in an insurance exchange.
Another question asked what would happen if the Affordable Care Act were repealed following the Nov. 6 presidential election.
Hale said that was unclear because much would depend on the U.S. Senate, and having 50 members elected in support of a reconciliation process — a method of revisiting a budgetary item. If there are only 49 senators in favor of repeal, it would not be enough to move forward. If elected, Mitt Romney could provide flexibility to the state in implementing provisions and establishing different deadlines for implementation. However, McPeak explained changes in ratings were part of the legislation and would require legislative action to change.
"One of the worst things is that the ratings stay in place and there is no health insurance exchange implemented that will help people pay for premiums," McPeak said, adding the department was working on contingency planning. "Then we're all going to be paying more for insurance premiums."
Hale invited questions, comments and feedback through his email, firstname.lastname@example.org, or by calling (865) 253-8555.
"There is no easy answer," he said.