Policy Explainer: Why unregulated “health plans” are bad for consumers

(03/08/2018) – Last week, IFU members at Farm & Food Lobby Day asked our legislators to stop a pair of harmful bills now working their way through both chambers of the legislature:

Senate File 2329 and House File 2364 would exclusively grant two private entities – the Iowa Farm Bureau Federation and Wellmark Blue Cross Blue Shield – the right to create and market new unregulated “health plans” that would not be covered by the consumer protections of the federal Affordable Care Act (ACA) and would not be governed by the basic rules and oversight of the Iowa Insurance Division.

IFU strongly opposes this harmful legislation, which would grant the Farm Bureau/Wellmark partnership the exclusive right to create a parallel health insurance market with unregulated off-market plans that have:

  • no minimum coverage guarantees for basic health care services such as prescription drug coverage, mental health treatment, emergency treatment and hospitalization, and preventive care;
  • no protections against price or coverage discrimination based on age, gender, or health status;
  • no prohibition on annual or lifetime benefit caps; and
  • no basic oversight by the State of Iowa Insurance Division to protect consumers who purchase the plans.

What about the rising cost of premiums in Iowa’s individual health insurance marketplace?

Iowans who purchase health coverage through the state’s individual health insurance exchange – including self-employed people like farmers – are indeed facing large premium hikes. This is a real problem that the legislature should have been working to address long before now, but this legislation is not the solution.

While a cheap, bare bones “health plan” might seem like an attractive option to a young person with no family and no previously identified health condition, many Iowans rely on the comprehensive coverage guaranteed by the state’s regulated individual health insurance exchange. Particularly for older Iowans, women, and those families dealing with any type of pre-existing condition, the new unregulated off-market “health plans” will only further destabilize the state’s individual insurance exchange, make the risk pool covered by the exchange smaller and less healthy, and raise premiums for comprehensive health coverage to even higher levels.

Prior to the consumer protections put in place by the ACA, health insurers routinely denied coverage for a long list of preexisting conditions, charged much higher premiums based on age and gender, imposed annual and lifetime benefit caps, and excluded coverage for basic care that families rely on such as prescription drugs, mental health treatment, prenatal and maternity care, pediatric care, and more. If younger and healthier policy holders are now lured outside of Iowa’s exchange by cheaper off-market “health plans,” those who have no choice but to remain in the exchange because of age, gender, or health status will face even more market instability and even higher premiums going forward. This effect will be especially costly for those families who need the consumer protections and comprehensive coverage offered by the exchange but who do not qualify for federal subsidies.

What is the solution to the problem of rising premiums in Iowa’s individual health insurance marketplace?

To answer that question, it’s important to understand 2 things about Iowa’s individual health insurance marketplace:

  • It’s already artificially small. Wellmark retained approximately 60 percent of Iowa’s individual policy holders outside of the state’s individual insurance exchange with so-called “grandfathered” policies that were in effect prior to 2014. These grandfathered policy holders were acquired by Wellmark prior to the consumer protections of the ACA and therefore are comprised primarily of younger, healthier, and less costly health consumers. This has made the Iowa exchange smaller, more costly, and less competitive for the insurers who have attempted to serve the remainder of Iowa’s individual market since 2014. The legislature and the Iowa Insurance Division could have worked to end these grandfathered policies, more than doubling the size of the state’s individual insurance exchange and significantly decreasing premiums. Instead, Wellmark has now threatened to end the grandfathered policies on its own in 2019 – just in time to syphon the younger, healthier portion of their policy holders into the new unregulated Farm Bureau/Wellmark “health plans” and segregate older, less healthy policy holders in the already struggling individual exchange.
  • Because the risk pool is so small, Iowa’s individual insurance exchange is easily impacted by a small group of policy holders with high-cost health needs. For example, a single Iowa policy holder has health costs in excess of $1 million per month. That policy holder – who was covered by Wellmark in 2018 – is now the responsibility of Medica, the only insurer that chose to remain in the Iowa’ individual exchange. Other states with aging, rural populations face similar challenges and have opted to create reinsurance programs to help offset the risk of covering this relatively small number of high-cost policy holders. The Iowa legislature so far has not seriously considered this as an option to address rising health insurance premiums. While the legislature is no doubt reluctant to incur the cost of creating a reinsurance program to help stabilize the state’s individual insurance market, the cost of not doing so will ultimately be much higher.

In an ironic twist, the Blue Cross Blue Shield Association, which includes Wellmark of Iowa, has been highly critical of similar proposals at the federal level to permit new unregulated health plans outside of state exchanges. In an open letter to state insurance departments, the Blue Cross Blue Shield Association and its coalition partners criticized these unregulated plans as leading to “higher premiums for consumers, particularly those with pre-existing conditions” and “destabilizing health insurance markets that guarantee access to comprehensive health coverage regardless of health status.” The letter notes that if the deregulated plans are allowed to be sold as an alternative to regular health insurance, they will “attract healthier consumers away from the regular insurance risk pool and endanger people’s access to comprehensive coverage.”

Why should legislators oppose these bills?

  • The legislature should not enact legislation that creates special rules to favor a single actor in the marketplace. This legislation is highly anti-competitive, exclusively benefitting the Farm Bureau/Wellmark partnership and unfairly disadvantaging Medica – a Wellmark competitor and the only insurer that chose to serve Iowa’s individual insurance exchange in 2018. If this action by the legislature drives Medica out of the Iowa marketplace, consumers will face a virtual monopoly controlled by a single market actor and significantly fewer basic protections.
  • Cheaper off-market “health plans” would target younger, healthier policy holders, removing them from the risk pool, further destabilizing Iowa’s individual insurance market, and increasing everyone else’s premiums. Iowa’s individual exchange is struggling with higher premiums because the risk pool is already too small, with too few healthy individuals to balance out the risk of providing coverage for a few high-cost individuals. This legislation would only escalate this problem and further increase premiums for everyone who remains in Iowa’s individual insurance exchange.
  • The cost of offering cheaper off-market “health plans” will ultimately be passed on to older Iowans, women, and people with pre-existing conditions who require the consumer protections and comprehensive coverage offered by the exchange. The new Farm Bureau/Wellmark “health plans” would be allowed to pick and choose the individuals they cover, pick and choose the conditions and services that they cover, impose annual and lifetime benefit caps, and discriminate in both premiums and coverage for older individuals, women, and those with pre-existing conditions. Those groups would still need to rely on the protections of the state’s individual insurance exchange, which would now be even smaller and more expensive than before.
  • An unregulated off-market “health plan” would deny consumers the basic protections offered by the rules and oversight of the Iowa Insurance Division. In addition to eliminating the basic consumer protections contained in the ACA, this legislation also takes the extraordinary step of completing removing the new “health plans” from the basic oversight of the Iowa Insurance Division. Normally, insurance policies sold in Iowa fall under the jurisdiction of the Iowa Insurance Division, which makes sure that the policies are marketed in an honest and transparent way, that consumers know what they’re getting (and what they’re not getting) when they purchase a policy, that companies selling the policies have adequate resources to pay claims, and that consumers have a place to file complaints if they are treated unfairly. None of these protections would exist for the new unregulated “health plans” – and legislators so far have made no provision in the legislation to write even basic consumer protections or guarantees into the law.
  • The legislature and the Iowa Insurance Division have not exhausted their options to address this problem, including working to incorporate Wellmark’s existing grandfathered policies into the state’s individual insurance exchange and establishing a state reinsurance program to help lower costs from several hundred high-cost policy holders. Wellmark’s grandfathered policies would more than double the size of the risk pool being served by the state’s individual exchange and greatly reduce premiums for plans offered on the exchange. A reinsurance program would further mitigate the risk that insurers face when serving a relatively small insurance market that includes a handful of extremely high-cost policy holders. Neither of these options have been considered by the legislature in any meaningful way.

The Iowa legislature has had ample opportunity to proactively address the problem of rising health insurance premiums and lack of competition in the state’s individual exchange. Instead of facilitating a transparent and deliberative public process that might bring real solutions to the table, legislators have waited until the problem has reached a crisis point for many Iowa families – and then allowed two private entities to write legislation that will both undermine Iowa’s individual insurance marketplace and generate exclusive financial benefits for the two entities that wrote the bill.

Iowans deserve better. If the 2018 legislature allows this legislation to become law, the real challenge of providing adequate and affordable health care for hard working Iowa families will only become more costly and more difficult to solve in the years to come.

Iowa Farmers Union
PO Box 1883 Ames, IA 50010-1883