Obama's extension of non-ACA health plans riles insurers

The Obama administration's politically minded decision to allow consumers to stay in health plans that are not compliant with Obamacare standards through 2016 received a cool response from state regulators and insurers. They expressed concern that this latest change could destabilize the fledgling state and federal exchange marketplaces by robbing exchange plans of healthier enrollees.

The change, announced last week, is just the latest intended to make implementation of the federal healthcare overhaul less onerous for consumers and more politically palatable going into the 2014 elections. But it's unclear how many insurers and state regulators will go along. In addition, the administration argues that the number of people who choose to continue in noncompliant plans will dwindle because they can't receive federal premium subsidies and many will find that Obamacare-compliant plans are a better deal.

“There is broad agreement that if more young and healthy individuals choose not to participate in the new marketplaces, it could lead to higher premiums for those consumers that remain in the exchanges,” Karen Ignagni, president and CEO of America's Health Insurance Plans, said in a written statement. “That is why it is crucial that sufficient steps be taken to stabilize the market, and we are currently reviewing the new changes to the premium stabilization programs to assess their impact on affordability for consumers.”

Brian Hamm, president of the National Association of Insurance Commissioners, expressed similar skepticism. “This decision allows different rules for different policies, which threaten to undermine the new marketplace,” said Hamm, North Dakota's insurance commissioner. “Creating two tiers of plans—the compliant and noncompliant—could result in higher premiums overall and market disruptions in 2015 and beyond.”

Under the extension, insurers can continue offering plans that do not meet the healthcare reform law's essential benefits package. They can keep annual and lifetime benefit caps, they can charge women higher rates than men, and they can charge people with pre-existing conditions higher premiums than healthy people.

It's not possible to know at this point how many people or plans will be affected by the change. But it seems likely that it will be a relatively small segment of the individual insurance market. That's in part because only 26 states responded to the administration's previous extension by allowing renewals of noncompliant plans in 2014, according to a survey by the National Association of Insurance Commissioners. Fewer states are expected to approve the new Obama renewal.

In addition, some insurers opted not to extend noncompliant plans. In Oregon, Moda Health Plans and PacificSource Health Plans—which represent about 40% of the individual market in that state—chose to allow renewals only through March 2014.

The new two-year extension won't cause any immediate consternation for insurers, because they will have time to incorporate the change into their premium prices for 2015 exchange plans. Insurers don't need to submit those plans to the federal government until June. “At least you can then build that into your pricing for the next couple of years,” said Hans Leida, a principal and consulting actuary with Milliman. “It's a bigger deal for 2014 because the insurers did not know that was a possibility when they set the rates.”

The two-year extension for noncompliant plans wasn't the only change the administration announced last week. Among others:

The open enrollment period for 2015 will run from Nov. 15 to Feb. 15, one month longer than previously anticipated.

The threshold for the federal government's reinsurance program will be reduced from $60,000 to $45,000 per beneficiary. That program is designed to protect insurers selling products through the exchanges from extremely sick, expensive customers. For 2015, that level will rise to $70,000.

The risk corridor program will be adjusted

on a state-by-state basis. That's designed in part to mitigate losses in states that allow renewals of noncompliant plans. The risk corridor program provides subsidies to insurers that lose significant money on exchange customers and collects premiums from companies that make substantial profits. The program is expected to be budget neutral.

States that want to run their own exchanges for 2015 will have until June 15

to get their plans approved by the CMS. Previously, the deadline was Jan. 1. Currently, 14 states and the District of Columbia are running their own online marketplaces.

Some unions, universities and other groups that self-insure will be exempt

from paying the so-called bellybutton tax—$63 a person this year—to bankroll the reinsurance fund.

Annual cost-sharing limits—

deductibles, copays and coinsurance—will be increased for exchange plans in 2015. For individuals, those limits will rise to $6,600 from the current $6,400 and for families to $13,200 from the current $12,700.

Follow Paul Demko on Twitter: @MHPDemko