Since the Affordable Care Act (ACA) was passed in 2010, states have embraced the law to varying degrees. Some states served as a model for the ACA’s polices to expand access to affordable and comprehensive coverage, while others refused to implement the law and actively opposed it. As the federal government more recently has pursued policies such as repealing the individual mandate penalty and promoting new insurance products exempt from ACA rules, some states have embraced the opportunity to weaken major components of the law. But some states have stepped up to preserve the ACA’s insurance protections and ensure that their residents can continue to obtain affordable, high quality coverage. One state in the latter category is Washington.
Washington has a long history with health reform. Prior to the ACA’s preexisting condition protections, Washington implemented laws to improve coverage for sick people. When the ACA went into effect, Washington took steps to ensure the law’s success by expanding Medicaid, prohibiting transitional policies that skirt the ACA’s consumer protections, and establishing a state-based marketplace.
And Washington’s efforts were paying off. Despite a rocky roll out of its online exchange, evidence going into 2017 indicated a market heading towards stability, with premium increases well below the national average and robust insurer participation. But the federal policy uncertainty of the last 18 months has negatively impacted markets nationwide, including in Washington. Federal actions to undermine the ACA and Congress’ multiple attempts to repeal the law led insurers across the country to exit or reduce participation in markets and increase premiums. In Washington, officials learned that two counties were at risk of having no plan offerings on the state-based marketplace in plan year 2018. State regulators worked with insurance companies to convince them to participate, ultimately securing coverage options for every county in the state. However, the lack of competition, in addition to federal decisions, such as the elimination of cost-sharing reduction reimbursement for insurers, resulted in an average 36.4% rate increase in Washington’s individual market. Nine counties have only one issuer offering coverage on the state’s marketplace.
For 2019, state insurance markets are once again facing considerable uncertainty. In Washington, while Premera Blue Cross has pledged to offer plans in any county left without a participating insurer in 2019, individual market challenges persist. To counter federal actions, Washington has stepped up with a series of new laws and regulations that may serve as a model for other states hoping to protect consumers and their individual market.
The Washington Playbook
Increasing the Number of Geographic Rating Areas
While insurers’ marketplace participation is not finalized for the 2019 plan year, one of Washington’s preemptive strikes against reduced plan choice and rate hikes is a new rule governing geographic rating areas. The rule (1) increases the total number of geographic rating areas in the state from five to nine and (2) increases insurers’ flexibility to vary premiums among rating areas, if they meet certain conditions. Currently, insurers are allowed to vary premiums by 15 percent between rating areas. Under the new rule, if they sell qualified health plans (QHPs) in every county in at least six rating areas, they can increase variation to 22 percent; if they offer plans in each of the 39 counties in the state, that allowance is increased to 40 percent. What does this accomplish? Giving insurers more rating flexibility allows them to reduce premiums in low-cost areas while pricing more accurately for the risk in higher-cost areas.
Leveraging State Employee Insurance to Increase Access to Quality Coverage
To encourage insurers to offer a range of plans across counties, the state legislature recently passed a bill requiring insurers who win bids for large pools of school or state employees to also offer QHPs on the individual marketplace. Effective in 2020, insurers would be required to market at least one silver and one gold plan in each county where they offer fully insured plans for the statewide school and public employee pools. As a stop-gap measure for 2019, the bill would enable residents who live in bare counties to purchase state-subsidized coverage through Washington’s high-risk pool. However, Premera Blue Cross has pledged to participate in the marketplace in any county that lacks another insurer, so the high-risk pool option is unlikely to be needed.
Protecting Markets from Plans That Don’t Comply with the ACA’s Rules
In February, the Trump administration issued a proposed rule to expand the availability of short-term, limited-duration insurance (short-term plans). If the rule is finalized as written, the expansion of short-term plans could cause a mass exodus of young, healthy consumers from the ACA-compliant individual market. Calling short-term plans a “devastating step towards dismantling the consumer protections we’ve come to rely on,” Washington Insurance Commissioner Mike Kreidler has initiated rulemaking designed to protect consumers and the state’s individual market.
State-Based Solutions to the Loss of Federal Market Stabilization Mechanisms
Since the federal government began relaxing and repealing major provisions of the ACA, Washington State has pursued a range of policies to protect consumers and preserve their coverage options. In addition to those discussed above, the state legislature considered a number of proposals this year that did not pass, but may be revisited in future sessions. One proposal was a state individual mandate to replace the ACA’s. Another proposal by Washington’s insurance commissioner would have created a state reinsurance program to reimburse insurers for high claims and keep premiums more stable.
Takeaways for Other States
Incentivizing Insurers to Offer Marketplace Plans
For better or worse, consumers’ access to coverage through the ACA’s marketplaces depends upon the voluntary participation of insurance companies. Working with insurers is crucial to protect consumers from market exits. States can look to Washington’s strategy of incentivizing insurer participation by leveraging their purchasing power through state and school employee benefit pools as well as their authority to set geographic rating areas and allowable premium variation. These policies expand access to coverage for consumers by addressing insurers’ concerns over the risk they bear by offering plans on the state’s marketplaces, and could be especially suitable for states that face challenges providing coverage to consumers living in rural areas, which are often higher-cost.
However, states that allow greater premium differentials should carefully consider the impact on consumers living in rating areas that will bear the brunt of rate increases, and take steps to mitigate the impact for those consumers. For example, Washington limited single-county rating areas to avoid isolating rural or higher cost counties.
Other Actions to Protect State Markets from Destabilizing Forces
As the primary regulators of insurance, states will need to respond to both the potential growth of alternative coverage products and the loss of federal stabilization mechanisms to protect their individual markets. While Washington’s rule on short-term plans has not been released, states should consider similar actions to protect their market from coverage that skirts the ACA’s rules. Short-term plans should be just that; by limiting the duration of plans to less than three months and prohibiting renewal, as Maryland did recently, states can ensure that short-term products provide temporary coverage rather than acting as an alternative to traditional health insurance.
The void left by the Congress’ recent decision to repeal the individual mandate penalty in 2019 as well as the failure to create a new federal reinsurance program gives states the opportunity to create new state-based programs in their place. They can design provisions such as a coverage requirement or a reinsurance fund to meet the unique needs of their markets and consumers. States also have the opportunity to apply for federal funding to implement certain mechanisms through a Section 1332 State Innovation Waiver, as states including Alaska and Oregon have done.
As the federal government continues to roll back critical components of the ACA, many states are taking seriously their responsibility to protect their markets. In doing so, they will develop policies that address their specific market conditions, but many will be replicable in other states. Policymakers around the country should be watching Washington State closely to see how their market protection efforts unfold.