Vision for Iowa’s exchange taking shape

Iowa is poised to take its first big step toward implementation of health reform.

Andrew Cannon photo
Andrew Cannon

Iowa has made many small steps toward health reform implementation; it is now poised to take its first big step.

The Senate State Government Committee is looking at Senate Study Bill 1063, which would establish Iowa’s health benefits exchange. Under the health reform law, an exchange is a regulated marketplace in which individuals and small businsses can compare and purchase health insurance plans.

The Affordable Care Act allows states considerable latitude in how to administer their exchanges — from how it is governed and financed to who or what administers it. States could even operate multiple exchanges within their state or create a regional exchange with a neighboring state. In December, an Iowa Fiscal Partnership brief detailed many of the choices for Iowa in creating its exchange.

Unlike the two existing exchanges — the Utah Health Exchange and the Massachusetts Health Connector, which are housed within an existing state agency and in a newly created agency, respectively — SSB 1063 would create a non-governmental non-profit organization to administer Iowa’s exchange. Seven voting board members would be appointed by the governor with Senate confirmation, with the Commissioner of Insurance and the Director of Human Services acting as non-voting board members.

Decisions such as exchange governance — and many, many more decisions — have to be weighed against the requirements of the Affordable Care Act, existing state law, the interests of the public and the goals of policymakers. Further, the experiences of other states with exchanges, though limited, and likely outcomes based on sensible economic projections should be taken into account.

In light of those criteria, features of SSB 1063 include:

  • Board composition — board members are to include “representatives of consumers and small employers”; strong conflict of interest prohibitions for brokers, insurers, and similar organizations.
  • Enrollment procedures — relevant agencies could share information to easily enroll Medicaid-eligible people.
  • Carriers that offer high-quality plans in the exchange would be required to offer identical plans outside the exchange at the same rates.
  • Data collection — the exchange would have the authority to collect data from insurers on quality and cost to help consumers make informed comparisons.
  • Consumers would have access to information about their deductible, co-insurance, network, etc., in easy-to-understand language.
  • Attempts to minimize adverse selection, the phenomenon of sick people using the exchange and healthy people remaining outside the exchange — by charging uniform fees to health plans in and out of the exchange; these fees would finance the exchange’s operations.
  • Independence of exchange — Funding streams would be independent of the legislative process.

However, SSB 1063 has some omissions that raise concerns:

  • Board composition — while those who might benefit financially from the insurance side would be prohibited from sitting on the board, the legislation would not prohibit doctors, hospitals, representatives of hospital associations, and other providers from sitting on the board.
  • Enrollment procedures — presumptive eligibility would further streamline these procedures.
  • Risk pooling — it appears that the individual and small businesses would be separate risk pools. Combining them would reduce risks for insurers and possibly keep prices down.
  • Attempts to minimize adverse selection — does not require insurers operating in the state to make any offerings in the exchange, nor does it address the potential for insurers to pay brokers higher commissions on plans sold outside the exchange.

While hardly a perfect bill, SSB 1063 is an effort to start Iowans down the road toward better access to quality and affordable health insurance.

Posted by Andrew Cannon, Research Associate

Unfunded Mandates? Not Quite, Governor

What is clear is that the mandates in the Affordable Care Act are not “unfunded.” Though Iowa will be required to cover a small portion of the costs of the Medicaid expansion, this hardly qualifies as “shackl[ing] Iowa taxpayers.”

Andrew Cannon photo
Andrew Cannon

This week, Governor Branstad signed Iowa on to a multistate lawsuit challenging health care reform. In his statement announcing that Iowa would join the suit, Governor Branstad said the health reform law would “shackle Iowa taxpayers for billions in unfunded mandates.”

You may be wondering what “unfunded mandates” he’s referring to. So am I.

He might be talking about the individual responsibility requirement, since that is the provision that is being challenged in the lawsuit. Section 1501 of the Affordable Care Act requires all individuals to maintain health insurance coverage or face a tax penalty (with exemptions for those with religious oppositions or with financial difficulties).

But the individual mandate is not “unfunded;” indeed, it is largely funded by the federal government. Individuals and families earning up to 400 percent of the federal poverty level  ($88,200 for a family of four) are eligible for premium assistance. The vast majority of Iowa’s uninsured, approaching 300,000 Iowans, will be covered by the Affordable Care Act’s expansion of Medicaid. After the Medicaid expansion, the majority of the remaining Iowans will be eligible for the health insurance premium tax credits. Only about 27,400 Iowans earned more than 400 percent of the FPL ($88,200 for a family of four) and were uninsured, on average, from 2008 to 2010.

On the other hand, Governor Branstad could have been referring to the expansion of Medicaid as an “unfunded mandate.” As noted above, the Affordable Care Act vastly expands the Medicaid program, allowing all individuals with income below 133 percent of FPL ($29,326 for a family of four) to enroll. Medicaid is jointly financed by the states and the federal government, with the feds picking up the lion’s share of the tab. In normal times, the federal government pays for around 63 percent of the Medicaid program in Iowa; in recent years, that has been increased to around 71 percent, thanks to the federal Recovery Act.

But unlike traditional Medicaid, which comprises a large portion of the state’s budget, the Medicaid expansion will be almost entirely funded by the federal government. In other words, no unfunded mandate here, either. During the first three years, (2014-2016) the costs of expansion will be fully covered by the federal government. In subsequent years, the federal government’s share of the expansion costs will decrease, but not by much. In 2020 and beyond, Iowa will only be paying for 10 percent of the cost of the Medicaid expansion.

The fate of the lawsuit (and thus reform) is unclear, at this point, though experts and administration officials alike are confident that health reform will survive the legal challenges. Given the diverse rulings to date, the challenge will likely be resolved by the Supreme Court.

What is clear, however, is that the mandates in the Affordable Care Act are not “unfunded.” Though Iowa will be required to cover a small portion of the costs of the Medicaid expansion, this hardly qualifies as “shackl[ing] Iowa taxpayers.”

Posted by Andrew Cannon, Research Associate

Reform should halt large rate increases

Health reform — the Affordable Care Act — attempts to make the market more affordable for individuals by allowing them to pool their risk together in a regulated marketplace called an exchange.

Andrew Cannon, research associate
Andrew Cannon

If Blue Shield of California gets its way, some of its individual market customers will see rate hikes as high as 59 percent.

You read that right: 59 percent. At the same time, we learned that health expenditures increased by their lowest rate in 2009.

So what gives?

We won’t know for sure until the state performs an actuarial review of the company’s request, but it seems that the problem in California is the same problem faced by customers of Anthem Blue Cross of California and Iowa’s Wellmark last year: The individual market doesn’t work.

Unlike employer-provided plans, which are purchased on the group market, the risk of medical cost in plans sold on the individual market is borne completely by the individual. Within a workplace, the risk that someone will fall ill is countered by the likelihood that other enrollees in the plan will stay healthy. Similarly, plans on the individual market are often subject to aggressive medical underwriting — or calculation of future medical costs based on medical history; plans in the group market are usually underwritten only on the age and sex of plan enrollees.

Health reform — the Affordable Care Act (ACA) — attempts to make this market more affordable for individuals by allowing individuals to pool their risk together in a regulated marketplace called an exchange. In addition to allowing individuals to pool their risk with other individuals, starting in 2014, the exchange will also tightly regulate how insurers deal with their customers.

Under the ACA, insurers will no longer be able to exclude pre-existing conditions, deny coverage, or base their premiums on anything other than age, sex, region the customer lives in, and smoking status. Further, individuals with income up to 400 percent of the federal poverty level ($88,200 for a family of four) will be eligible for assistance with their insurance premiums, on a sliding scale.

Though those affected by Blue Shield’s outrageous rate increase request won’t benefit from these reforms in the short term, the rate increase request illustrates the need for a robust exchange that provides attractive insurance options for individuals and small businesses and also provides a workable market for insurers to operate in.

Posted by Andrew Cannon, Research Associate