Beware the Latest Loophole

As significant an impact as the Affordable Care Act will have on the U.S. health insurance market, there remain a number of ways health insurance carriers and other stakeholders may avoid or delay the law’s reforms.

Some were explicitly built into the ACA, such as allowing health plans in existence before the law was passed to be “grandfathered,” exempt from most of the ACA’s market reforms so long as they don’t make significant changes to their coverage. Others arise because of gaps or loopholes in the law. As my colleagues and I have discussed on CHIRblog, policy experts are concerned that more small employers will self-fund their employees’ health coverage to bypass a number of reforms that are limited to the fully-insured, including the 2014 rating rules and essential health benefit package requirements. Other health coverage options, including health care sharing ministries and self-funded student health plans, are not subject to any of the ACA’s market reforms and may also become more common. (Indeed, rather than attempting to limit this possibility, HHS has opened the door for such movement by proposing earlier this year that coverage through health care sharing ministries or self-funded student health plans may, respectively, exempt a person from the individual responsibility requirement or satisfy the requirement.)

An additional loophole gaining attention in the states would allow health insurance carriers to delay compliance with the ACA’s 2014 market reforms by a year. As the Arkansas Insurance Department described in a recent bulletin, carriers may amend their current policies to end by December 30, 2013 and begin subsequent plan or policy years on December 31st. Because the ACA specifies that the 2014 reforms are effective for plan or policy years beginning on or after January 1, 2014, carriers would not need to come into compliance with the new rules until the end of 2014. (While Arkansas’ bulletin specifically addresses the individual market, small group plans that are set to renew in January 2014 could presumably do the same thing.)

While this option may be tempting to carriers who are scrambling to get plans ready and approved for the new year, it would be detrimental to consumers and potentially the market as a whole. Consumers who remain on such plans would miss out on a number of important protections, such as prohibitions on pre-existing condition exclusions, the essential health benefit package, and adjusted community rating rules. They also would not be able to access premium tax credits or cost-sharing subsidies available on the exchanges (Arkansas’ bulletin at least requires carriers to disclose this fact in writing to policyholders). Moreover, carriers could choose which plans to take advantage of this loophole with based on the risk profile of enrollees – potentially resulting in adverse selection against the rest of the market, including exchanges. Consumer behavior could also result in risk segmentation: healthier consumers may find financial incentives to stay in such plans an extra year, older or sicker consumers as well as those low-income consumers may find more affordable and comprehensive coverage in plans subject to the 2014 reforms. This is particularly concerning given that the single risk pool requirements, like the other 2014 market reforms, go into effect for plan or policy years beginning on or after January 1, 2014.

Oregon released a bulletin in late February that would limit this problem by requiring all non-grandfathered individual health plans to “reflect 2013 ACA market reforms no later than April 1, 2014.”  This date aligns with the tail end of the initial, extended open enrollment period, ensuring individuals can enroll in new coverage that complies with the ACA’s requirements for the remainder of 2014.

We will be on the lookout to see if more states or the federal government will follow Arkansas’ route and formally acknowledge and sanction this loophole or, instead, follow Oregon’s lead and attempt to close or limit it. We will also be watching whether insurers choose to take advantage of this option – and, come December, whether consumers understand their options and choose to stay in or leave any such plans. Check CHIRblog regularly to stay on top of any developments.

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The opinions expressed here are solely those of the individual blog post authors and do not represent the views of Georgetown University, the Center on Health Insurance Reforms, any organization that the author is affiliated with, or the opinions of any other author who publishes on this blog.