Health Insurance: New Rules, Higher Costs, Less Coverage

You might have thought that all the news this week was about Syria and the FBI. You would be wrong. While everyone else was focused on those lovely distractions, CMS was busy issuing new rules for health insurance. The net effect is hard to predict. But broadly speaking, you can expect to see higher costs for good coverage, many plans with less coverage, and more people opting out.

Leaner Plans

The Affordable Care Act did a lot to set a minimum standard for health insurance. Plans could not exclude pre-existing conditions. Many people living with obesity and other chronic diseases got coverage they could not get before. Benefit caps could not bankrupt you if you got really sick. Insurers could not skimp on essential things like maternity care. People could not dodge the mandate to carry health insurance by buying skimpy plans outside of an ACA marketplace.

This week’s rules from CMS change much of that. States have flexibility to set looser standards for health plans. Plans have more options for skimping on care. More people can dodge the mandate and buy “skinny” plans that will leave them high and dry if they get sick.

As a result, the cost for full health benefits will go up because of something called adverse selection. People who are already sick will gravitate toward complete coverage, driving costs up. People who don’t yet need healthcare will drift into skinny plans.

Higher Costs

Another part of these rules will serve to drive higher costs. It deals with something called the medical loss ratio. It’s a measure of how much a health plan can spend on overhead instead of medical benefits. Under the new rules, states can grant more exceptions to the requirement that health plans spend at least 80% of their revenue on actual healthcare services – not overheads.

The rules also open the door to bigger premium increases without scrutiny. It used to be that increases of more than 10% would be subject to review. Now that threshold is 15%

More People Opting Out

One of the key factors keeping health plans affordable is the requirement for everyone to have it. Without that, healthy people skip it and only sick people sign up. Costs go sky high.

Because of the big tax bill passed late last year, the penalty for not buying insurance gets phased out next year. But these new regs open up more ways to dodge the mandate now. It gives more people exemptions from having to buy insurance by accepting more reasons for opting out.

A Slow Death for the ACA?

Republicans tried to repeal the ACA last summer, but voters revolted. This week, in the midst of other distractions, CMS unveiled some clever ways to unravel it. If it works, you can expect more actions like this to bring a slow death for the ACA.

Click here, here, and here to read more.

Need Insurance? Photograph © Dean Hochman / flickr

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April 13, 2018