CMS extension of transitional health plans could ding ACA market

The CMS has once again allowed insurers and states to renew so-called transitional health plans that pre-dated Affordable Care Act coverage requirements and that don't have to comply with those rules.

State officials have the option to end these "grandmothered" plans in the individual and small-group markets. But about three dozen states have allowed them to continue, even though experts say moving transitional plan enrollees into the ACA-regulated market likely would bring down premiums.

Earlier this month, the CMS issued a bulletin extending these "grandmothered" plans for current members of the plans for one year, with all such policies ending Dec. 31, 2019. This is the fourth such extension.

Nationally, it's estimated there are nearly 1 million Americans in transitional plans in the individual and small-group markets, though experts say that market is shrinking. As enrollees in transitional plans age, they become more costly and less attractive to insurers. Some insurers have signaled they will discontinue those plans.

The Obama administration first extended the transitional plans in 2014 because President Barack Obama had famously promised that people could keep their plans if they liked them. Some insurers and policy experts said that move undermined the ACA market. The administration renewed the extension in 2016.

The Trump administration again extended transitional plans early last year.

Experts say people in transitional plans are almost certainly healthier than the population in ACA-regulated plans because insurers offering transitional plans base premiums on health status. Enrollees in transitional plans who get sick and face higher experience-rated premiums can switch to ACA plans, which are not allowed to consider health status.

The thinking goes that if they haven't switched, it's probably because they are healthy and are getting a better deal in the transitional plans.

States are likely to accept the extension because state officials around the country fear the political consequences of forcing people to shift into higher-priced ACA plans, which could lead some to drop coverage.

"They may think the ACA premium is too high and sit it out," Wes Trexler, chief of product review for the Idaho Department of Insurance, said in a February interview.

But state officials also acknowledge that extending grandmothered plans will have a negative impact on premiums for ACA-compliant plans sold on and off the insurance exchanges.

"If you move some portion of transitional policies over to ACA plans, I suspect it would improve the ACA risk pool," said Trexler, whose state nevertheless is expected to keep transitional plans.

The extension could exacerbate problems in the ACA market especially when combined with other Trump administration policy changes, including expanding short-term health plans and allowing businesses and individuals to band together in lightly regulated association health plans. Both those moves also are expected to pull healthier people out of the ACA market.

"Anything that undermines the ACA-compliant risk pool is bad for premiums in the ACA market," said Katherine Hempstead, a health insurance expert at the Robert Wood Johnson Foundation. "Every exit ramp makes that market more expensive and less competitive than it otherwise would be."