By Kevin Lucia and Sabrina Corlette

Recently the Governor of Tennessee observed that his state was “ground zero” for insurers pulling out of the Affordable Care Act (ACA) marketplaces. In the wake of Humana’s decision to withdraw from the marketplaces for 2018, the residents of 16 counties in that state face the prospect of no insurance company at all from which to buy a subsidized health plan. Reflecting on the situation, Senator Alexander (R-TN) recently stated that “…40,000 Knoxville residents may have an ObamaCare subsidy next year, but it’ll be like holding a bus ticket in a town where no buses run.”

Tennessee is not alone in having a fragile ACA marketplace, but its situation is particularly acute, especially if no other insurer can be persuaded to operate in those counties. Why is Tennessee’s market struggling, when other states with similar demographics, such as Arkansas, have more competition and market stability?

There are multiple reasons why an insurance market thrives in one area but not in another, including local demographics, levels of enrollment, provider concentration, and the relative prices of services. However, state policymakers in Tennessee made a decision about their market that could have contributed to its current crisis.

Tennessee’s Farm Bureau Health Plans: Playing on an uneven field

Before the enactment of the ACA, Tennessee’s individual insurance market was underwritten, meaning that insurers could deny policies to people with pre-existing conditions or charge them significantly higher premiums than healthy people. It also had a thriving association health plan market, dominated by plans sold through the Tennessee Farm Bureau, a membership organization that is open to all residents of Tennessee for a fee.

Under the ACA, insurers in the individual market are no longer allowed to reject applicants based on health status or charge them more, and plans have to cover a minimum set of essential health benefits. These rules were designed to improve people’s access to coverage and are applicable to all individual market insurers in order to ensure fair competition and maintain a level playing field for insurers to set premiums. Since 2014, insurers that have participated in Tennessee’s ACA marketplace, such as Humana, Community Health Alliance, and BlueCross BlueShield have had to comply with all of the ACA’s insurance reforms and consumer protections.

But not the Tennessee Farm Bureau. The state has allowed the organization to continue to market and sell non-ACA compliant plans to individuals outside of the ACA’s marketplace, so long as they can pass the association’s medical underwriting. In other words, in order to buy a “traditional” plan through the Tennessee Farm Bureau, individuals must apply for membership and be screened for high-cost health conditions before they can enroll in coverage. In addition, the Farm Bureau health plans do not have to cover the same comprehensive list of benefits as plans on the ACA marketplaces. Because these medically underwritten Farm Bureau plans are not considered “health insurance” under state law, enrollees must pay the ACA’s individual mandate penalty if they don’t have any other coverage.

By screening out sick people or excluding benefits for pre-existing conditions, the Farm Bureau health plans have premiums that are cheaper than ACA-compliant plans. As a result, they’ve experienced significant growth since the enactment of the ACA, with as many as 73,000 people now enrolled in individual health plans that do not have to meet all of the important consumers protections of the ACA that went in place in 2014.[i] These include 50,000 lives covered under a “grandfathered” plan that existed before the ACA, along with 23,000 lives covered under medically underwritten “traditional” plans issued after the enactment of the ACA. Recent news articles, here and here, suggest that demand for these non-ACA compliant policies is growing.

The Farm Bureau Health Plan is allowed under state law because it is regulated by the state as a “not-for-profit membership services organization” providing services to members of the Farm Bureau. Under a state law passed in 1993, it is not considered a licensed health insurer subject to the Tennessee insurance code or, by extension, the requirements of the ACA. When the ACA was enacted, state policymakers could have, but did not, choose to require the plans sold through the Tennessee Farm Bureau to live by the same rules as other insurers in the state.

Implications for the Stability and Sustainability of the Marketplace Risk Pool

A recent Society of Actuaries report found that, in 2015, the population enrolled in individual market ACA-compliant plans in Tennessee had the worst overall health risk score in the country.[ii] It’s impossible to say for certain whether, by siphoning healthy enrollees away from the ACA’s marketplace, the Tennessee Farm Bureau plans have contributed to the poor risk score of Tennessee’s marketplace and the financial struggles of insurers selling ACA-compliant plans. However, overall enrollment in the Tennessee marketplace is approximately 230,000. If the significant number of lives covered by the Farm Bureau’s non-ACA compliant plans were part of that pool, it may very well improve the overall balance of healthy and sick in the Tennessee individual marketplace.

History demonstrates what happens when one set of insurers are allowed to operate by a different set of rules than other insurers.[iii] For example, in the mid-1990s, Kentucky passed comprehensive health reform including requirements for community rating and standardized benefits in the individual market. However, health plans sold through associations, similar to the Tennessee Farm Bureau, were exempted from these requirements. As a result, there was a mass migration of insurers from the regulated to the association market; healthy individuals shifted to the association coverage and premiums increased for those left behind.

Looking Ahead

Approximately 40,000 Tennessee residents enrolled in individual insurance plans may lose access to coverage entirely in 2018, if no insurer steps in to offer ACA-compliant plans on the marketplace. But as those insurers watch thousands of individuals that have passed medical underwriting take advantage of cheaper Farm Bureau plans off-marketplace, it shouldn’t be any surprise that they are reluctant to participate. Governor Haslam is correct – Tennessee may well be  “ground zero” for insurers pulling out of the ACA’s marketplaces – but some of the blame for that may lie at his own front door. At the very least, considering the struggles of the Tennessee marketplace, evaluating the effects of allowing the continued sale of underwritten, non-ACA compliant policies through the Tennessee Farm Bureau is worth further analysis by policymakers in Tennessee.

[i] Farm Bureau Health Plans currently maintain approximately 1) 25,000 covered lives in off-marketplace ACA-compliant plans; 2) 50,000 covered lives in a grandfathered plan; and 3) 23,000 in off-marketplace, underwritten plans. Email correspondence with the Tennessee Farm Bureau, April 4, 2017.

[ii] Arkansas’ risk score was worse than Tennessee’s, but the report considers the state an “outlier” because its private option Medicaid expansion population is counted in the risk score calculation.

[iii] Kirk A. “Riding the Bull: Experience with Individual Market Reform in Washington, Kentucky, and Massachusetts.” Journal of Health Politics, Policy and Law 25 (1), 2000.