Prescription for a Healthy Insurance Market

What does it take to have stable, competitive health insurance markets? I was recently asked this question by the Senate Homeland Security and Governmental Affairs Committee for a hearing on state and federal insurance marketplaces, 2017 insurance premiums, and insurer competition. As the nation’s first health insurance commissioner, serving in Rhode Island (RI) for eight years during the implementation of the Affordable Care Act (ACA), and as head of a Medicaid health plan before that, I have a bit of experience with this issue.

With so much attention on health plan decisions to exit health insurance exchanges and concerns about premium increases, the topic is particularly timely. Here is a summary of the testimony I submitted to the Committee.

The goal of health insurance markets should be to offer a range of reliable, affordable options for consumers. This goal will not be met by accident or by a magic hand of the market. It requires specific conditions which public policies can help bring about:

1. Sufficient market size. Whether offering individual, small group, or large group products, there must be a sufficient number of eligible lives to make it worthwhile for insurers to enter and stay in the market. In smaller state-wide markets, the segmentation of small group and individual risk pools by state officials into separate on-exchange and off-exchange markets—while politically attractive—has hindered this goal. The District of Columbia and Vermont are two jurisdictions that have merged their markets and benefit as a result.
2. A reliable, stable mix of healthy and sick people. When healthy people are allowed to exempt themselves from the risk pool because of weak mandates, grandfathered benefit plans, poor outreach efforts, or enrollment “churning,” the pool of insured is older and sicker and could become more so. This has been the case in many individual markets in the country, and federal action is needed to correct it.
3. Regional nonprofit insurers committed to serving their markets. While national insurers provide important choice options and market competition, regional nonprofits are the backbone of all non-self-insured health insurance markets. Whether they are Medicaid health plans, Blue Cross and Blue Shield plans, or multi-product regional nonprofits, these plans—with their organization and mission—are more reliable partners than national insurers for states and communities in making local markets function.
4. Consistent, enforceable rating rules that reflect public priorities for spreading anticipated cost differences due to age, family size, health status, gender, and other factors. Actuaries know which populations will use more health care. It is up to policymakers to figure out who pays. These rules need to be consistent across markets, and hence national. I think the ACA got these about right. You should not pay more for health insurance because you are sick—and making prices significantly cheaper for younger people will pose an unacceptable extra financial burden on older people. These rules must then be vigorously enforced in health plan pricing.
5. Reliable mechanisms for mitigating adverse selection among insurers. Even with consistent rating factors, sometimes payers—by chance or intent—will attract populations that are systematically healthier or sicker than others, and a mechanism should be developed for sharing these costs. Like similar efforts in Medicare Advantage, the federal risk adjustment program is necessary but refinement is always needed.
6. Comprehensive state level rate review. Some state insurance officials are seeing requests for significant rate increases this year. To evaluate them, they need clear statutory direction that requires them to balance affordability and insurer solvency. With scrutiny, regulators can accomplish three specific ends:
   1. Assess the validity of the insurers’ requests and find the right balance between affordability and insurer solvency. In my role in RI, I had to find this balance repeatedly—determining when and how much rate requests should be cut.
   2. Ensure that insurers are not allocating administrative costs to the individual market that should be carried by the large group and self-insured markets.
   3. Promote a focus on cost reduction, not cost shifting. Document underlying cost drivers in medical services—such as pharmacy, hospital care, physician services—and educate the public and policymakers on the benefits and limits of insurer competition as a way to reduce them and the steps needed to address trends like payment reforms aligned across payers, true system integration, and limited networks.

   We did all of this work during my tenure as health insurance commissioner in RI. As a result, by one accounting, the state has had the lowest rate of increase in commercial premiums in New England in recent years. There has been no rate shock in RI’s exchange market—one carrier is reducing its premiums. Often state insurance regulators do not have comprehensive rate review authority, and frequently they do not use the tools they have. If states will not act, CMS’s Center for Consumer Information and Insurance Oversight could address this, in part, by raising its standard of what constitutes adequate state-level rate review.

7. Small numbers of uninsured because of Medicaid expansion. Reducing the number of uninsured reduces pressure on commercial payments to hospitals to cross-subsidize their compensated care. It makes for a more attractive and stable pool of covered lives in the state, reduces insurance “churn,” adds new insurers into Medicaid managed care (and thus potentially commercial markets as well), and keeps healthy lives in both the Medicaid and commercial risk pools.

Markets that are seeing robust insurer competition and lower rates of premium increase—markets as diverse as California and RI—possess most of these characteristics. Policymakers at the state and federal level need to promote greater adoption of these characteristics and discourage policies that are not supported by evidence, including:

• weakening of individual mandates
• lowering of minimum benefit comprehensiveness and acceptance of raised cost-sharing levels
• interstate insurer competition.

Creating markets with these characteristics requires action at the state and federal level. To the extent states have not taken all the steps available to them, they continue to suffer the consequences. Eight of nine states where consumer choices on the exchange will be most limited in 2017 have rejected Medicaid expansion.

Finally, we should not mistake what is driving the problem of health insurance affordability—it is rising health care costs; the same issue that troubles CMS actuaries and Medicaid directors. The most robust commercial insurance competition cannot hide the fact that, in the US, we spend almost two and half times the international average on health care, as a percent of GDP, and get poorer health outcomes as a result. This is a fundamental challenge for our country—robbing us of more productive investments in education, our infrastructure, and the environment—and policymakers must rise to it.