[Senate Hearing 113-663]
[From the U.S. Government Publishing Office]
S. Hrg. 113-663
A NEW, OPEN MARKETPLACE: THE EFFECT OF
GUARANTEED ISSUE AND NEW RATING RULES
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING AN OPEN MARKETPLACE, FOCUSING ON THE EFFECT OF GUARANTEED
ISSUE AND NEW RATING RULES
__________
APRIL 11, 2013
__________
Printed for the use of the Committee on Health, Education, Labor, and
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
TOM HARKIN, Iowa, Chairman
BARBARA A. MIKULSKI, Maryland
PATTY MURRAY, Washington
BERNARD SANDERS (I), Vermont
ROBERT P. CASEY, JR., Pennsylvania
KAY R. HAGAN, North Carolina
AL FRANKEN, Minnesota
MICHAEL F. BENNET, Colorado
SHELDON WHITEHOUSE, Rhode Island
TAMMY BALDWIN, Wisconsin
CHRISTOPHER S. MURPHY, Connecticut
ELIZABETH WARREN, Massachusetts
LAMAR ALEXANDER, Tennessee
MICHAEL B. ENZI, Wyoming
RICHARD BURR, North Carolina
JOHNNY ISAKSON, Georgia
RAND PAUL, Kentucky
ORRIN G. HATCH, Utah
PAT ROBERTS, Kansas
LISA MURKOWSKI, Alaska
MARK KIRK, Illinois
TIM SCOTT, South Carolina
Pamela J. Smith, Staff Director
Lauren McFerran, Deputy Staff Director and Chief Counsel
David P. Cleary, Republican Staff Director
(ii)
CONTENTS
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STATEMENTS
THURSDAY, APRIL 11, 2013
Page
Committee Members
Harkin, Hon. Tom, Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Alexander, Hon. Lamar, a U.S. Senator from the State of
Tennessee, opening statement................................... 2
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin.. 15
Scott, Hon. Tim, a U.S. Senator from the State of South Carolina. 17
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 19
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas....... 21
Murphy, Hon. Christopher, a U.S. Senator from the State of
Connecticut.................................................... 49
Witness--Panel I
Cohen, Gary, J.D., Director, Center for Consumer Information and
Insurance Oversight, Centers for Medicare and Medicaid
Services, Washington, DC....................................... 4
Prepared statement........................................... 6
Witnesses--Panel II
Counihan, Kevin, CEO of the Connecticut Health Insurance
Marketplace, West Hartford, CT................................. 26
Prepared statement........................................... 28
Corlette, Sabrina, Research Professor and Project Director,
Georgetown Health Policy Institute, Center on Health Insurance
Reform, Washington, DC......................................... 31
Prepared statement........................................... 33
Cook, Stacy, Carroll, IA......................................... 38
Prepared Statement........................................... 40
Carlson, Chris, Principal and Consulting Actuary, Oliver Wyman
Consulting, Milwaukee, WI...................................... 41
Prepared Statement........................................... 43
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Response by Gary Cohen to questions of:
Senator Harkin........................................... 64
Senator Alexander........................................ 64
Senator Sanders.......................................... 66
Senator Whitehouse....................................... 67
Senator Baldwin.......................................... 69
Senator Enzi............................................. 72
Response by Kevin Counihan to questions of:
Senator Alexander........................................ 73
Senator Franken.......................................... 74
(iii)
Response by Sabrina Corlette to questions of:
Senator Alexander........................................ 74
Senator Whitehouse....................................... 75
Response by Chris Carlson to questions of:
Senator Alexander........................................ 76
Senator Enzi............................................. 76
A NEW, OPEN MARKETPLACE: THE EFFECT OF GUARANTEED ISSUE AND NEW RATING
RULES
THURSDAY, APRIL 11, 2013
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:07 a.m. in
room SD-430, Dirksen Senate Office Building, Hon. Tom Harkin,
chairman of the committee, presiding.
Present: Senators Harkin, Alexander, Franken, Whitehouse,
Baldwin, Murphy, Roberts, and Scott.
Opening Statement of Senator Harkin
The Chairman. The Senate Committee on Health, Education,
Labor, and Pensions will come to order.
We meet today for the eighth in a series of hearings in
this committee on the Affordable Care Act.
We have been through a trying political season since we
last met about this law. As everyone here is keenly aware, the
law was a major topic of discussion during the Presidential
campaign, as well as the campaigns of many House and Senate
colleagues. But, hopefully, that political season is over. Our
priority now must be implementing the law as smoothly and
quickly as possible so that all Americans can share in its
benefits.
For the last 3 years, millions of Americans have been
protected, for the first time, against some of the most
notorious and abusive practices of the insurance industry.
Thanks to the health reform, Americans now have the same
protections that every Senator on this dais has had for years.
Before the Affordable Care Act, millions of Americans had
health insurance policies with lifetime limits. The health
reform law permanently eliminated these limits for 105 million
Americans. It phases out annual limits by 2014.
The law requires every insurance plan to cover evidence-
based preventative services that will head-off many illnesses.
Over 105 million Americans have already taken advantage of
these protections.
These preventative services are of particular importance to
women, who can now receive well-woman visits, contraceptive
services, and gestational diabetes screenings without co-pay.
The law guarantees 27 million women access to these vital
services at no charge.
Before the Affordable Care Act, millions of young adults
went without health insurance because their jobs did not offer
it, or because they were ineligible for coverage on their
parents' policy. Now, health reform allows young people--more
than 3.1 million so far--to stay on their parents' policy
through age 26.
This is a record, I think, to be proud of. It is a record
to build on. Even with all of this progress, the best is yet to
come. Starting in 2014, the Act's most fundamental and
significant reforms will become effective.
These reforms will finally deliver on a long overdue
promise to all Americans. The promise that if you work hard,
play by the rules, and pay your fair share, you will never have
to stay awake at night worried that you cannot pay your
family's medical bills.
The primary mechanism for these changes is a new Health
Insurance Marketplace in every State, open for business on
October 1st of this year. Most importantly, the almost 130
million Americans who have a pre-existing condition will, at
long last, have peace of mind. Their health status will never
again be a factor when they apply for insurance.
In addition, the new rules prohibit insurers from denying
coverage or charging more based on gender. No longer will women
be charged more than men simply because they are women. And the
law limits insurers' ability to charge more based purely on
age, making coverage accessible and affordable for folks closer
to my age, but who are not lucky enough to have the same
coverage that I do.
These protections are vital for Carol from Ankeny, IA, who
wrote me this. She said,
``My daughter is 19 years old and was diagnosed with
Type I diabetes 9 years ago. Now I don't have to worry
about her pre-existing condition, and she can stay on
my health care after she graduates from college, giving
her a bridge to finding a job with benefits. In
addition, the lifetime cap won't be an issue.''
I should add, that her daughter will never be charged more
just because of her condition and her gender.
For millions of people across our country, these reforms
are transformational. They are making profound, practical
differences in the lives of ordinary people, and I look forward
to hearing the witnesses' perspectives on them.
I want to thank our Ranking Member, Senator Alexander, for
being here today. I will turn to him for an opening statement.
But I want to request that the record remain open for 10
days from today for statements to be submitted to the record.
With that, I recognize Senator Alexander.
Opening Statement of Senator Alexander
Senator Alexander. Thanks, Mr. Chairman. Thanks for the
hearing.
I look forward to the witnesses. I thank Mr. Cohen. Thank
you for coming, and for the other witnesses.
I welcome this oversight hearing on the new health care
law. It is timely because on January 1st, rhetoric turns into
reality and we will see just exactly what we have.
Here is what we know we have: with few exemptions,
individuals must purchase insurance or pay a tax of $95 to
nearly $700 over time. Unless the business has 50 employees or
fewer, employers must provide a certain type of insurance or
pay a penalty of $2,000 per employee. There are $1 trillion new
taxes as a result of the new health care law; that is according
to the Congressional Budget Office and the Joint Tax Committee.
We are hearing today about new rules for allocating costs,
which means that I may pay less and a young person may pay
more.
More people are covered, as Senator Harkin has correctly
pointed out, and some people will get subsidies to help pay for
their insurance. All of that will become reality after January
1, 2014.
Now, there are some results from this other than the
expanded coverage, and the results include individual costs;
premiums for individual insurance are going up. Costs for
younger Americans are going up, especially to buy insurance.
Costs to employers of providing health care insurance are going
up. Many who are self-
employed, and those who have employer insurance--that is about
half of us, half of Americans--will find they are not able to
keep their current policy. In many cases, they will be thrown
into the marketplace to buy a more expensive policy than they
now have or they will go into Medicaid.
And as employers struggle, there will be more part-time
jobs. We are already hearing many, many stories of employers
who are going to hire people for 30 hours or less, so they are
not subject to the penalty requirements of the health care law,
and there will be fewer jobs.
I have said here in hearings before, the restaurant
companies who have talked to me and said while before the
health care law, their goal was to run their store with 90
employees, now their goal is to run it with 70 because of the
costs of the law.
And then as a former Governor, I am especially sensitive to
States who are struggling with Medicaid. We do not see it from
this end as well, but you certainly see it if you are a
Governor. That is why I said that any Senator who voted for the
health care law ought to be sentenced to serve as Governor for
8 years and actually try to administer it. Medicaid soaks up 26
percent of the Tennessee State budget; that is up from 7
percent at the time I was Governor. And it is soaking up money
that ought to be used to help the University of Tennessee, and
other community colleges, and public institutions in the State.
And then there is one other result, and I have it with me
here today. There are a lot of new regulations. This is a stack
of the regulations that have been issued under the new health
care law to date and it is 7 feet, 3 inches tall and still
rising. And for a big or small business to think about how to
deal with that number of regulations, that kind of complexity,
has to be daunting.
We have many things we agree on in this committee, and I
compliment the chairman for the way we work together, but this
law is not one of them. We have a difference of opinion about
it.
In my view, the law was an historic mistake. The reason was
it focused on the wrong goal. Instead of expanding a health
care delivery system that already costs too much, we should
have worked to have as an overall goal reducing the total cost
of health care and expanding the consumers' role in going step
by step in that direction.
I look forward to the testimony, and I will have some
questions and I look forward to answers. I look forward to this
coming period of time when America finds the rhetoric of the
health care law turns into reality, I think there is going to
be a number of shocked Americans, and it is going to start with
what we call rate shock as the cost of individual insurance
premiums go up.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Alexander. We have a vote
coming up at 11 o'clock. We will do it the best we can.
We have two panels, and we will start first with panel one
and Mr. Gary Cohen, director of the Center for Consumer
Information and Insurance Oversight at the Centers for Medicare
and Medicaid Services.
Mr. Cohen is responsible for implementing many provisions
of the Affordable Care Act including the consumer protections
reforms already in effect, and those that will start in 2014.
His office also works with States to set up Health Insurance
Marketplaces in the States.
Mr. Cohen comes with a distinguished insurance background.
He has led the Center's Division of Insurance Oversight. He
also returned to his home State of California to serve as
general counsel for its Health Insurance Marketplace.
Mr. Cohen served as chief of staff to Congressman John
Garamendi, both here in Congress and when Mr. Garamendi was
Insurance Commissioner of the State of California.
Thank you for joining us this morning sharing your
experience and expertise with the committee. Your statement
will be made a part of the record in its entirety. If you could
sum it up in 5 minutes or so, I would sure appreciate it.
Welcome, Mr. Cohen.
STATEMENT OF GARY COHEN, J.D., DIRECTOR, CENTER FOR CONSUMER
INFORMATION AND INSURANCE OVERSIGHT, CENTERS FOR MEDICARE AND
MEDICAID SERVICES, WASHINGTON, DC
Mr. Cohen. Thank you, Chairman Harkin, Ranking Member
Alexander, members of the committee.
CCIIO is working to transform the Health Insurance Market
to protect consumers, provide new coverage options for them,
and give them the tools and resources they need to make
informed choices about their health insurance.
Most Americans receive health insurance in connection with
their jobs, and for many of those Americans, particularly those
who work for larger employers, this system has worked well. But
for the approximately 10 percent of Americans who do not have
employer-sponsored coverage or do not have coverage through a
Government program such as Medicare, Medicaid, or the
Children's Health Insurance Program, the system has been
broken.
I would like to describe for you a few of the ways the
Affordable Care Act has already made it better and some others
that will transform it beginning in 2014.
First, before the ACA, millions of Americans could not get
health insurance in the individual market at all. If you became
sick or if you had been sick some time in the past, insurers
either would not give you a policy or they would charge so much
that you could not afford it. Today, children cannot be
excluded because of pre-existing conditions, and beginning in
2014, no one can.
In the past, health insurers could place annual or lifetime
limits on the amount of medical care they would pay for. Some
of these limits were so low that if you became seriously ill,
you would soon find you had no insurance at all. Now, most
insurers are prohibited from placing annual or lifetime limits
on coverage for essential benefits such as doctor's visits,
prescription drugs, or hospital stays.
In the past, insurers could drop young adults over the age
of 19 from their parents' insurance plans. Now, most health
plans that have covered children must make coverage available
up to age 26. Today, more than 3.1 million additional young
adults are covered under their parents' plans.
In the past, often because of cost, Americans used
preventive services at about half the recommended rate. We know
that chronic diseases such as heart disease, cancer, and
diabetes often are either preventable or, with early detection,
treatable. Now, most plans must cover certain preventive
services without applying any deductible co-insurance or co-
pay, and nearly 71 million Americans have expanded access to
preventive services at no charge through their private
insurance plans, and 47 million women now have guaranteed
access to additional preventive services without cost sharing.
In the past, when consumers shopped for health insurance,
they had to read a patchwork of confusing disclosures, making
it hard to compare plans and make informed choices. Now, health
insurers and group health plans are required to provide a clear
summary of benefits and coverage in a uniform format and in
plain language.
Americans have been used to seeing their premiums rise
faster than their wages, but for the past 2 years, premiums
have gone up by the lowest amount in decades. Two provisions of
the ACA have contributed to this.
The law requires that insurance companies must justify rate
increases of 10 percent or more, shedding light on arbitrary or
unnecessary costs. The percentage of rate increases above 10
percent has dropped significantly, and Americans saved an
estimated $1 billion in 2011 on their health insurance thanks
to Rate Review.
Rate Review works in conjunction with the 80/20 rule or the
Medical Loss Ratio rule which requires insurance companies to
spend at least 80 percent of premiums on health care and no
more than 20 percent on administrative costs and profits. If
they fail to do so, they must provide rebates to their
consumers. Thanks to this provision of the Affordable Care Act,
15 million Americans received $1.1 billion in rebates from
insurers in 2012.
For some Americans, the cost of health insurance is even
higher than for others. Today, women could be charged more for
individual health insurance policies simply because they are
women. A 22-year-old woman can be charged 50 percent more than
a 22-year-old man, and older Americans can be charged as much
as 5 times the rate for younger Americans.
Beginning in 2014, health insurance companies will no
longer be able to charge women more than men, and they will be
limited in how much more they can charge older Americans than
younger Americans.
The Affordable Care Act will also guarantee that people get
good value from the insurance they buy. Beginning in 2014, most
health plans in the individual and small group markets must
meet a certain actuarial value, which means the percentage that
will be paid by the health plan of the estimated average total
cost of health care. Plans will be assigned a tier-based level
based on their actuarial value. What this means is that you can
choose a plan based on what you expect your health care costs
to be. If you are relatively healthy, you can buy what we call
``The Bronze Plan,'' which will pay a lower amount of your
total costs, but will be less expensive. If you are older and
you expect to have more health costs, you can buy a Silver or a
Gold Plan, which will cost a little bit more, but will cover
more of your expected costs of care. And you will still have
the security, in any case, of knowing that if you become
seriously ill that coverage will be there to pay for the cost
of your care.
Starting October 1, Americans will begin shopping for and
enrolling in a wide variety of high quality health insurance
plans for coverage in 2014. They will be able to use a single,
streamlined application to determine whether they are eligible
for Medicaid, or CHIP, or qualify for premium tax credits and
reduced cost sharing for a qualified health plan purchased on
the Marketplace.
We have been working hard over the past 3 years to improve
the Health Insurance Market for all Americans. We are very
proud of what we have accomplished so far, and we are excited
about the new consumer protections that will be in place
beginning in 2014.
Thank you.
[The prepared statement of Mr. Cohen follows:]
Prepared Statement of Gary Cohen, J.D.
summary
In March 2010, President Obama signed the Affordable Care Act into
law. Over the past 3 years, Americans have benefited from insurance
reforms that have already gone into effect. Today, more than 3.1
million additional young adults under the age of 26 are covered under
their parents' plans. Nearly 71 million Americans now have expanded
access to preventive services at no additional cost through their
private insurance plans, and 27 million women now have guaranteed
access to additional preventive services without cost sharing.
Now, health insurers and group health plans provide a clear summary
of benefits and coverage in a uniform format and in plain language that
is designed to be easily compared across health plans by the millions
of Americans shopping for private health insurance coverage.
Now, insurers must provide clear information so consumers can
understand the insurer's reasons for significant rate increases. Since
the rule on rate increases was implemented, the number of requests for
insurance premium increases of 10 percent or more plummeted from 75
percent to an estimated 14 percent.
Today, in most States, adult consumers with pre-existing conditions
can be denied individual health insurance coverage, can be charged
significantly higher rates based on their conditions, or can have
benefits for pre-existing medical conditions excluded by insurance
companies. In 2014, Americans will no longer need to worry about this.
Non-grandfathered health insurers in the individual and small group
markets will no longer be able to use health status to determine
eligibility, benefits, or premiums.
Before the Affordable Care Act, women could be charged more for
individual insurance policies simply because of their gender. Before
the Affordable Care Act, premium rates charged to older Americans could
be more than five times the rate for younger Americans. In 2014, new
rules will help make health insurance more affordable for more
Americans.
At the same time that insurance prices become more fair, many
individuals will also have new help paying for their health care
coverage through premium tax credits and cost sharing reductions. When
coverage through the Health Insurance Marketplace starts as soon as
January 1, 2014, many middle and low-income Americans will be eligible
for a new kind of tax credit that can be used right away to lower
monthly health plan premiums.
CMS has been working with States and private insurance companies to
ensure the establishment of Health Insurance Marketplaces. When
consumers start to visit the new Marketplaces on October 1, 2013, they
will experience a new way to shop for health coverage. The Marketplaces
will also make it easier than ever before to compare available
qualified health plans based on price, benefits and services, and
quality.
______
Good morning, Chairman Harkin, Ranking Member Alexander, and
members of the committee. Thank you for the opportunity to speak about
our work implementing the Affordable Care Act to put in place strong
consumer protections, provide new coverage options, and give Americans
the additional tools to make informed choices about their health
insurance. Thanks to the consumer protections and insurance market
reforms in the Affordable Care Act, in 2014, millions of people without
insurance will be able to obtain coverage, and millions more will have
the peace of mind that the coverage they have cannot easily be taken
away.
In March 2010, President Obama signed the Affordable Care Act into
law, putting in place comprehensive reforms to improve access to
affordable health insurance for all Americans and protect consumers
from abusive insurance company practices. Over the past 3 years,
Americans have benefited from insurance reforms that have already gone
into effect, such as allowing adult children up to age 26 to stay on
their parents' insurance, eliminating lifetime dollar limits on
essential health benefits, and prohibiting rescissions of insurance
because someone gets sick.
In 2014, these protections will be greatly expanded. Discrimination
by insurance companies against individuals with pre-existing conditions
will generally be banned for Americans of all ages, and consumers will
have better access to comprehensive, affordable coverage. Beginning on
October 1, 2013, Americans may begin shopping for and enrolling in a
wide variety of high-quality health insurance plans for coverage in
2014 through the Health Insurance Marketplaces (also known as
Affordable Insurance Exchanges). Regardless of whether they plan to
purchase their insurance through a Health Insurance Marketplace or are
covered by insurance through their work, in 2014, more Americans will
have access to more affordable health insurance.
what we have already achieved: better access to high quality coverage
The Center for Consumer Information and Insurance Oversight (CCIIO)
at the Centers for Medicare & Medicaid Services (CMS) has implemented
strong consumer protections that hold insurance companies more
accountable, give consumers more coverage options, and improve the
value of that coverage. Today, more than 3.1 million additional young
adults under the age of 26 are covered under their parents' plans.
Nearly 71 million Americans now have expanded access to preventive
services at no additional cost through their private insurance plans,
and 27 million women now have guaranteed access to additional
preventive services without cost sharing.\1\
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\1\ http://aspe.hhs.gov/health/reports/2013/PreventiveServices/
ib_prevention.cfm.
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The Affordable Care Act has also helped provide consumers with more
rights and protections. In the past, health insurers could refuse to
accept anyone because of a pre-existing health condition, or they could
limit benefits for that condition, but the Affordable Care Act will
provide consumers with the security that their coverage will be there
for them when they need it.
Now, non-grandfathered individual health insurance plans and group
health plans and group health insurance plans are prohibited from
denying children coverage based on their pre-existing conditions,
protecting 17.6 million children with pre-
existing conditions from coverage denials. Additionally, insurance
companies cannot drop or rescind people's coverage because they made an
unintentional mistake on their application \2\ and cannot place
lifetime limits on the dollar value of essential health benefits. Group
health plans, group health insurance plans, and non-grandfathered
individual health insurance policies also are restricted in the annual
dollar limits they can place on essential health benefits, depending on
the plan year. We further protected consumers by establishing a set of
uniform standards for external review of individual health plan
decisions restricting an enrollee's access to benefits. Now, consumers
enrolled in non-grandfathered group health plans and group health
insurance coverage and individual health insurance policies can ask for
an independent third party to review decisions made by their plans and
insurance companies to deny preauthorization or payment for a service.
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\2\ For an example see: http://www.healthcare.gov/law/features/
rights/cancellations/index.html.
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In the past, often because of cost, Americans used preventive
services at about half the recommended rate. Yet chronic diseases, such
as heart disease, cancer, and diabetes--which are responsible for 70
percent of deaths among Americans each year and account for 75 percent
of the nation's health spending \3\--often are either preventable or,
with early detection, treatable. Now, all non-grandfathered plans cover
certain preventive services without any cost-sharing for the enrollee
when delivered by in-network providers. This protection will help
Americans gain easier access to services such as blood pressure,
diabetes, and cholesterol tests; many cancer screenings; routine
vaccinations; pre-natal care; and regular wellness visits for infants
and children.
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\3\ CDC Report: Chronic Diseases: The Power to Prevent, the Call to
Control http://www.cdc.gov/chronicdisease/resources/publications/aag/
pdf/chronic.pdf.
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In the past, when consumers shopped for health insurance, they had
to read a patchwork of non-uniform and intricate disclosures about
matters important to consumers, such as what benefits are covered under
what conditions and the cost sharing associated with those benefits.
That structure made the process inefficient, difficult, and time-
consuming. Because of the difficulty in obtaining comparable
information across and within health insurance markets, consumers had
trouble finding and choosing the coverage that best met their health
and financial needs, as well as the needs of their families or their
employees.
Now, health insurers and group health plans provide a clear summary
of benefits and coverage in a uniform format and in plain language that
is designed to be easily compared across health plans by the millions
of Americans shopping for private health insurance coverage. If people
are looking to buy private health insurance, they can compare plans at
www.HealthCare.gov, which provides information about what public and
private health insurance coverage is available to consumers based on
where they live. Starting in October 2013, consumers will also be able
to use www.HealthCare.gov to shop for coverage beginning in 2014 under
qualified health plans and to determine whether they are eligible for
premium tax credits and reduced cost sharing, through the Health
Insurance Marketplace.
Before the Affordable Care Act, Americans watched their premiums
double over the previous decade, oftentimes without explanation or
review. In an effort to slow health care spending growth and give all
Americans more value for their health care dollars, the Affordable Care
Act has brought an unprecedented level of scrutiny and transparency to
health insurance rate increases by requiring an insurance company to
justify a rate increase of 10 percent or more, shedding light on
arbitrary or unnecessary costs.
Now, insurers must provide clear information so consumers can
understand the insurer's reasons for significant rate increases. Since
the rule on rate increases was implemented,\4\ the number of requests
for insurance premium increases of 10 percent or more plummeted from 75
percent to an estimated 14 percent. The average premium increase for
all rates in 2012 was 30 percent below what it was in 2010. Available
data suggests that this slowdown in rate increases is continuing into
2013.\5\ Americans have saved an estimated $1 billion on their health
insurance premiums thanks to rate review. Even when an insurer decides
to increase rates, consumers are seeing lower rate increases than what
the insurers initially requested. More than half of the requests for
rate increases of 10 percent or more ultimately resulted in issuers
imposing a lower rate increase than requested or no rate increase at
all.
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\4\ Health Insurance Rate Review--Final Rule on Rate Increase
Disclosure and Review: http://www.gpo.gov/fdsys/pkg/FR-2011-05-23/pdf/
2011-12631.pdf.
\5\ ASPE Research Brief: Health Insurance Premium Increases in the
Individual Market Since the Passage of the Affordable Care Act http://
aspe.hhs.gov/health/reports/2013/rateIncrease
IndvMkt/rb.cfm.
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Furthermore, the rate review program works in conjunction with the
80/20 rule (or the Medical Loss Ratio rule),\6\ which requires
insurance companies to spend at least 80 percent (85 percent in the
large group market) of premiums on health care, and no more than 20
percent (15 percent in the large group market) on administrative costs
(such as executive salaries and marketing) and profits. if they fail to
do so, they must provide rebates to their customers. Insurers that did
not meet the 80/20 rule in 2011 have provided $1.1 billion in rebates
that benefited about 13 million Americans, at an average of $137 per
family.\7\
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\6\ MLR Final Rule: https:www.federalregister.gov/articles/2012/05/
16/2012-11753/medical-loss-ratio-requirements-under-the-patient-
protection-and-affordable-care-act.
\7\ 45 CFR Part 158: http://www.ecfr.gov/cgi-bin/text-
idx?c=ecfr&SID=5872c7e9a4bcec4584dd
3255841e647a&rgn=div5&view=text&node=45:1.0.1.2.74&idno=45.
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looking forward to 2014
We are proud of the accomplishments of the last 3 years, and we
look forward to the most promising reforms of the Affordable Care Act
that are set to start in 2014. Soon, a variety of consumer protections
will take effect and will end many insurance practices that make health
care coverage too expensive or unavailable for many consumers.
end to pre-existing condition discrimination and limits on care
Today, in most States, adult consumers with pre-existing conditions
can be denied individual health insurance coverage, can be charged
significantly higher rates based on their conditions, or can have
benefits for pre-existing medical conditions excluded by insurance
companies.
Beginning in 2014, new protections will help Americans of all ages
maintain health insurance coverage, regardless of their health status.
As many as 129 million non-elderly Americans have some type of pre-
existing health condition, and up to 25 million of those individuals do
not have health insurance.\8\ Pre-existing health conditions range from
life-threatening illnesses such as cancer, to chronic conditions such
as diabetes, asthma, or heart disease. Because of pre-existing
condition discrimination by health insurers, many individuals with pre-
existing conditions today have limited choices. For example,
individuals may not be able to change jobs, start their own businesses,
or retire because of fear of losing health insurance coverage. People
with pre-existing conditions could also lose coverage if they get
divorced, move, or age out of dependent coverage.
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\8\ ASPE Report: At Risk: Pre-Existing Conditions Could Affect 1 in
2 Americans http://aspe.hhs.gov/health/reports/2012/pre-existing/
index.shtml.
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In 2014, Americans will no longer need to worry about this. Non-
grandfathered health insurers in the individual and small group markets
will no longer be able to use health status to determine eligibility,
benefits, or premiums. With limited exceptions, all non-grandfathered
plans and policies in the individual and group markets will be required
to enroll individuals, regardless of health status, age, gender, or
other factors and will be prohibited from refusing to renew coverage
because an individual or employee becomes sick.
In addition, some people with cancer or other chronic illnesses
today run out of insurance coverage when their health care expenses
reach a dollar limit imposed by their insurance company or group health
plan. Beginning on January 1, 2014, group health plans, group health
insurance plans, and non-grandfathered individual health insurance
policies will be prohibited from imposing annual dollar limits on
essential health benefits. This change will help ensure that Americans
will no longer worry about hitting a prohibitive dollar amount, which
could force a consumer to either pay out-of-pocket for health care
costs above the dollar limit or forgo necessary care.
guaranteed core benefits and comparison shopping
All non-grandfathered plans in the individual and small group
markets will cover essential health benefits,\9\ which include items
and services in 10 statutory benefit categories, such as ambulatory
patient services (including doctors' visits), hospitalization,
prescription drugs, and maternity and newborn care. These benefits must
be equal in scope to a typical employer health plan. To this end, the
essential health benefits will be defined in each State by reference to
a benchmark plan. Soon, consumers will be able to select an insurance
plan with confidence that it will cover key health care services when
they need them.
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\9\ Essential Health Benefits: http://www.gpo.gov/fdsys/pkg/FR-
2012-11-26/html/2012-28362.htm.
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Beginning in 2014, non-grandfathered health plans in the individual
and small group markets also must meet certain actuarial values: 60
percent for a bronze plan, 70 percent for a silver plan, 80 percent for
a gold plan, and 90 percent for a platinum plan. Actuarial value means
the percentage paid by a health plan of the total allowed costs of
benefits. For example, if a plan has an actuarial value of 70 percent,
the average consumer would be responsible for 30 percent of the costs
of the essential health benefits the plan covers. These tiers will
allow consumers to compare plans with similar levels of coverage,
which, along with comparing premiums, provider participation, and other
factors, will help consumers make more informed decisions.
more affordable coverage
Before the Affordable Care Act, health insurance premiums had risen
rapidly, straining the pocketbooks of Americans for more than a decade.
Between 1999 and 2010, the cost of coverage for a family of four rose
138 percent.\10\ These increases have forced families and employers to
spend more money, often for less coverage. Before the Affordable Care
Act, women could be charged more for individual insurance policies
simply because of their gender. A 22-year-old woman could be charged 50
percent more than a 22-year-old man. Many young people and people with
low-incomes often could not afford health insurance, leaving millions
of Americans without coverage. Before the Affordable Care Act, premium
rates charged to older Americans could be more than five times the rate
for younger Americans.
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\10\ Kaiser Family Foundation. Employer Health Benefits 2010 Annual
Survey http://ehbs.kff
.org/pdf/2010/8085.pdf.
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In 2014, new rules will help make health insurance more affordable
for more Americans.\11\ Most health insurance companies will be
prohibited from charging higher premiums to certain enrollees because
of their current or past health problems. Most insurance companies will
no longer be able to charge women more than men based solely on their
gender. Most insurers will be limited in how much more they can charge
older Americans than young Americans, so that insurance becomes more
affordable for most Americans.
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\11\ Health Insurance Market Rules: http://www.gpo.gov/fdsys/pkg/
FR-2013-02-27/pdf/2013-04335.pdf.
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At the same time that insurance prices become more fair, many
individuals will also have new help paying for their health care
coverage through premium tax credits and cost sharing reductions. When
coverage through the Health Insurance Marketplace starts as soon as
January 1, 2014, many middle and low-income Americans will be eligible
for a new kind of tax credit that can be used right away to lower
monthly health plan premiums. The tax credit is sent directly to the
insurance company and applied to the premiums, so consumers pay less
out of their own pockets. The amount of the tax credit for which an
eligible individual qualifies depends on the individual's household
income. Individuals are eligible for premium tax credits if, among
other things, they:
Are not eligible for affordable health insurance coverage
designated as ``minimum essential coverage'' (e.g., government-
sponsored coverage and employer-sponsored coverage);
Meet the requirements to enroll in a qualified health plan
through the Health Insurance Marketplace \12\;
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\12\ These include additional eligibility requirements, e.g.,
applicant is not incarcerated (45 CFR 155.305(a)(2)).
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Are citizens of or lawfully present in the United States;
and
Have modified adjusted gross household incomes between 100
percent and 400 percent of the Federal poverty level (e.g., $23,550 to
$94,200 for a family of four in 2013).
Many people will find that they can now buy more comprehensive
coverage at the same, or often even lower, out-of-pocket cost than they
previously paid. Additionally, young adults and certain other people
for whom coverage would otherwise be unaffordable may enroll in
catastrophic plans, which have lower premiums, protect against high
out-of-pocket costs, and cover recommended preventive services without
cost sharing--providing affordable individual coverage options for
young adults and people for whom coverage would otherwise be
unaffordable.
Additionally, CMS recently finalized a temporary reinsurance
program designed to provide market stability and premium stability for
enrollees in the individual market by reducing the impact of high-cost
enrollees on plans. The temporary risk corridor program will provide
issuers additional protection against inaccurate rate setting. The
permanent risk adjustment program will provide increased payments to
health insurance issuers that attract higher-risk populations. Taken
together, these premium stabilization programs will make coverage more
affordable.
shopping in the health insurance marketplace
CMS has been working with States and private insurance companies to
ensure the establishment of Health Insurance Marketplaces through which
millions of Americans will purchase affordable health care coverage. In
order to build robust and competitive Health Insurance Marketplaces,
CMS is working closely with issuers as they prepare qualified health
plans that will be available to consumers within the Marketplaces. When
consumers start to visit the new Marketplaces on October 1, 2013, they
will experience a new way to shop for health coverage. The Marketplaces
will make it possible for eligible consumers to use a streamlined
application that can be completed online to apply for coverage through
a qualified health plan, to qualify for premium tax credits and reduced
cost sharing, or to apply for coverage through Medicaid or the
Children's Health Insurance Program (CHIP).\13\
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\13\ Application Elements: http://www.cms.gov/Regulations-and-
Guidance/Legislation/Paper
workReductionActof1995/PRA-Listing-Items/CMS-10440.html.
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The Marketplaces will also make it easier than ever before to
compare available qualified health plans based on price, benefits and
services, and quality. By pooling consumers together, reducing
transaction costs, and increasing transparency and competition, the
Health Insurance Marketplaces for individuals and small groups should
be more efficient and competitive than the consumers' current health
insurance choices.
CMS is working to ensure streamlined and secure access to a variety
of information sources that will provide essential support to consumers
as they fill out the streamlined application. Through these streamlined
processes, consumers will be able to fill out the application, receive
information about whether they are eligible for premium tax credits or
cost-sharing reductions or Medicaid coverage, and begin shopping for
qualified health plans, all in real time, in one sitting. Consumers
will then be able to research and compare the available qualified
health plan options in the Marketplace so they can make informed
choices about their coverage. Consumers also can use either the
Marketplace Web site or a toll-free call center to choose health
coverage that best fits their needs. Marketplace Navigators and other
consumer assistance programs will provide information to consumers in a
fair, accurate, and impartial manner. Additionally, where permitted by
the State,\14\ licensed agents and brokers, as well as online brokers,
may help consumers and employers enroll in a qualified health plan
through the Marketplace.
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\14\ Per 45 CFR 155.220.
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CMS and our State partners are working hard to ensure that people
are aware of the new tools that will soon be available to them. On
www.HealthCare.gov, people can learn about the Affordable Care Act,
review health insurance basics, such as understanding what their
coverage costs, and access an interactive checklist to help prepare
them to shop for coverage in the new Marketplaces. CMS also expects
that other Federal agency partners and members of the private sector
will be involved in efforts to reach, engage, and assist potential
enrollees.
conclusion
CMS has worked hard over the past 3 years to improve the health
insurance market for all Americans. We are very proud of what we have
already accomplished and are excited about the new consumer protections
that will help Americans in 2014. More work remains to ensure Americans
have access to high quality, affordable health coverage. We look
forward to continuing our efforts to strengthen health coverage options
with the help of our partners in Congress, State leaders, consumers,
and other stakeholders across the country. Thank you for the
opportunity to discuss the work that CMS has been doing to implement
the Affordable Care Act.
The Chairman. Thank you very much, Mr. Cohen.
We will now start a round of 5 minute questions. I want to
first say thank you for your leadership at CMS on this and for
really moving aggressively to make sure that we can have this
up and going by October the 1st of this year.
Mr. Cohen, I just want to get right to the nub of something
here. I would like to start right off. Discuss the status of
your department's work to reach out to currently uninsured
populations--I am talking about the young and the healthy; and
encourage them to enroll in coverage. We keep hearing about,
well premiums are going up. People say, ``Well, there's going
to be a lot of young, healthy people that might have to pay
more.''
How is this campaign, how are these efforts you are doing
being implemented in States where the federally facilitated
marketplace is operating? What about States like my State of
Iowa where the State and Federal Government are working
together on a partnership-type marketplace?
So focus a little bit of your comments on that, on the
young and the healthy, those that are currently uninsured.
Mr. Cohen. Thank you, Senator. I appreciate the opportunity
to address that.
I think it begins, first, with some pretty extensive market
research we have done to identify the different types of people
that we need to reach and what are the best ways of reaching
them.
Then what you will see, as we move closer to the time when
people actually will be able to take action and sign up to get
coverage beginning this summer, you will see a number of
different types of activities happening ranging from a
traditional media campaign to a social media campaign, again,
geared at the specific types of target groups that we need to
reach.
In addition to that, we just announced the other day a
grant program for the Navigator Program. There will be
community organizations in every State. It will be church
groups. It will be advocacy groups. It will be all kinds of
community-based organizations who already have ties to their
community, and connections with their community, and have been
serving their community. And we really think that is the best
way to find the people and get them informed about what this
law can offer them.
In addition to that, we are working very closely with the
agent and broker community across the country to make sure that
they understand the opportunity that this presents for them to
bring millions of new people into coverage, and to make it
possible for them to do that in a way that will be as simple
and easy as possible.
It is really a multifaceted approach that we are taking.
But specifically, as you point out, Senator, to target the
groups that we need to reach and come up with the messages that
are going to be most resonant with them.
The Chairman. Mr. Cohen, you mentioned this notice that
came out the other day. I read it. I looked at it about grants
to States to set up the Navigators. It is all well and good.
Maybe I wish you hadn't mentioned that because of how you are
paying for that.
This is above your pay grade, but I am sending a message to
those above you through you. Robbing Peter to pay Paul, robbing
the money from the Prevention Fund, the very thing that will
really help to bend the cost curve in the future to keep people
healthy, you mentioned that. To take money out of that to set
up the Navigator system, to me, is illogical; totally illogical
and self-defeating.
So I don't understand why those who implemented this, like
I say, I am not talking at you. I just want to send a message
that we are not going to accept that.
I believe the Navigators need to be funded. I believe that
that needs to be done to help people get into the system,
especially the young and the healthy that we are talking about;
but to rob it from the Prevention Fund? That doesn't go and it
is not going to go.
I just wanted to make that very clear. I agree on the
goals, but not robbing that money from the Prevention Fund.
I think we do have to be clear that young people who are
healthy who say, ``Oh, my gosh. Now I've got to buy
insurance.'' They have to understand that they are part of
society too. They may have an accident. They may be riding a
motorcycle without a helmet someday. They may get an illness.
Who knows when cancer is going to strike or something like
that?
So these so-called free riders that we have had in the past
need to understand that they are part of the health care system
too, and they are going to get older some day, and they are
going to need to have other people in the pool.
As a former insurance salesman myself, a long time ago,
there was one clear principle of insurance: people are better
off the more people in the pool. The more you have in the pool,
the better it is for everyone, whether it is car insurance, or
life insurance, or health insurance. And young people need to
understand that, that they are part of this system too.
With that, I thank you very much, Mr. Cohen. I have used up
all my time.
I recognize Senator Alexander.
Senator Alexander. Thanks, Mr. Chairman.
Mr. Cohen, welcome. I want to use most of my time to talk
with you about the idea of churning. How do we stabilize those
people who may be moving in and out of Exchanges in Medicaid?
But you mentioned benefits; somebody has to pay for those
benefits. I mentioned to the President at our Health Care
Summit in 2010 that the plan would, his plan, would increase
individual insurance rates. He said it wouldn't. But the CBO
said it would, and that has turned out to be right. BlueCross
BlueShield of Tennessee says rates for individual policies are
going up 30 percent, may be in excess of 100 percent.
The American Action Forum says premiums may triple if rates
for older people like me are going to be stabilized, then
younger people--my children or grandchildren--are going to be
paying for it. If they are lower for women, they are going to
be higher for men. Somebody has to be paying for it.
The Society of Actuaries has said that we are going to
experience rate shock because costs are allocated differently
because coverage is expanded because policies are richer. So
there are more benefits, but there are more costs.
Now, let me turn to this subject of churning. I know that
the Administration has had discussions, and been concerned,
about people who might move in and out of the Exchanges and
Medicaid. These would be the people who--maybe two groups of
people, people who make 138 percent of poverty up to 150. These
would be, what you might call, the working poor, lower income
working people, but their income might go down and suddenly
they will go into Medicaid, or they might go back from
Medicaid; so back and forth.
The idea would be: is there some way to stabilize that to
make it easier for those individuals to move back and forth,
especially in those States that choose to expand Medicaid?
I notice that Arkansas has made an interesting proposal to
the Secretary, which she seems to have approved in concept. Do
you think that shows promise?
Mr. Cohen. I think, Senator, that one of the things that
has been very encouraging throughout this process is that we do
see very interesting approaches being taken by different States
to try to solve some of these problems.
We have tried, throughout the implementation of the
Affordable Care Act, to be as flexible as possible and to give
States the ability to try different approaches as long as,
obviously, they are consistent with the law.
I know we have had a lot of discussions with Arkansas about
their proposal for premium assistance. There are some other
States that are interested in that, and I think those
discussions are ongoing. And I know there is an interest in
seeing whether we can reach something that will make sense for
Arkansas and for the other States.
Senator Alexander. If other requirements of the law could
be met, one of the benefits of such a plan could be more
stability for this lower income American who moves from
Medicaid back to outside Medicaid.
Is that not correct?
Mr. Cohen. That is right, as long as, I mean, obviously the
cost equivalency is a significant----
Senator Alexander. And that is part of the waiver decision
that you have----
Mr. Cohen. Correct.
Senator Alexander [continuing]. That the department has to
make. But if that could be met, that would be an objective that
is not inconsistent with the Administration's own objectives,
it seems to me.
Mr. Cohen. That is true.
Senator Alexander. And I know that Governor Haslam of
Tennessee has recently made a proposal, and has been in some
discussions with the department for a similar kind of proposal,
that would affect 175,000 Tennesseans, many of whom might be in
that churning group, who move in and out of Medicaid to the
Exchanges.
Can you give me any status report on how well that proposal
is being received by the department?
Mr. Cohen. I don't have a specific status report, but we
certainly can look into that and get back to you. But I know
there have been quite a number of conversations with Governor
Haslam and the department.
Senator Alexander. Well, it is not so much that you get
back to me as that----
Mr. Cohen. Get back to him.
Senator Alexander [continuing]. Get back to him. I think
that is a good faith proposal by a Governor who, with his
legislature, is trying to come up with a way to make sure these
175,000 Tennesseans, who otherwise would not receive Medicaid
expansion, do so in a way that, first, meets cost
effectiveness. And, second, would meet the admirable goal, I
think, of reducing the amount of churning.
I have heard some estimates that the number of Americans
who might find themselves going back and forth between
Exchanges in Medicaid might be as high as 40 percent.
Does that sound reasonable to you?
Mr. Cohen. I am always hesitant to pass judgment on
estimates, particularly when they are being made by actuaries,
since I am not an actuary. But obviously, we have seen a range
of estimates on a number of subjects and everyone is giving
their best guess and their best prediction. But I would
hesitate to endorse any particular one.
Senator Alexander. But it is a significant number.
Mr. Cohen. It is an issue.
Senator Alexander. It is an issue. And financial literacy
or literacy about how to purchase health care is always a
problem for any of us of any station, but may be especially for
some lower income people. And so, if they had a stable and
secure insurance policy as they move back and forth from one
part of the Government program to another, that might make
their lives simpler, easier, and maybe even less expensive for
the Government.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Alexander.
Now I have Senator Baldwin, and then Senator Scott, Senator
Franken, Senator Roberts.
Senator Baldwin.
Statement of Senator Baldwin
Senator Baldwin. Thank you, Mr. Chairman. I appreciate you
and Ranking Member Alexander for convening this hearing.
In order for our country to thrive, we need a vibrant and
growing middle class. We need an economy that is built to last.
And we need laws that reflect the common belief that if you
work hard and you play by the rules, you should be able to get
ahead.
I was proud to work on and help pass the Affordable Care
Act into law during my time serving in the House of
Representatives because I believe it moves our country forward
in these very regards.
The Affordable Care Act strengthens the economic security
of families and businesses in Wisconsin, and all across the
country by ensuring that quality health insurance coverage will
be there for them.
And prior to passage of the health reform law, I heard from
countless Wisconsin families and businesses about their
struggles under the prior law. Far too many were squeezed
literally out of the middle class because of health insurance
prices that were too high or the inability to get comprehensive
health insurance coverage.
I think about the many families that have seen their
economic security shattered because no insurance company would
insure their child. I think about how many people have been
trapped in a job where they could not look at other
opportunities or advance because of the insurance situation.
How many potential entrepreneurs were dissuaded from
starting a business of their own because they were afraid they
would not be able to find coverage? The Affordable Care Act is
changing all of that.
And with many consumer protections already in place, and
with the new guaranteed issue rule set to go into effect in
just over 8 months, our families and businesses will be more
secure knowing that quality, affordable insurance will be there
regardless of a pre-existing medical condition, or sudden
illness, or accident.
The law also unrigs our health insurance system to provide
everyone with a fair chance and a fair shake. It will no longer
allow health insurance companies to write their own rules about
who is covered and who isn't, or who can be charged
discriminatory premiums. I think about the fact that we now
have 20 women serving in the U.S. Senate, and it is only fair
that myself and our Chairman should be charged similar
premiums. Being a woman is no longer going to be considered a
pre-existing medical condition and it should not be treated as
one.
But as much as I supported the passage of the Affordable
Care Act, it is just as important that we make sure that this
law is fully and faithfully implemented.
Mr. Cohen, I want to thank you for your work in enacting
the laws, consumer protections, and overseeing the creation of
Health Insurance Marketplaces. I have to imagine that your work
has been greatly affected and, perhaps, frustrated by those
States that have taken political, ideological stances against
implementation of the law.
I think about my own State of Wisconsin where there is
participation in the lawsuit, and then turned back early
adopter grants, and then opted out of a State Exchange or a
partnership Exchange, decided not to expand Medicaid.
Can you tell me how your work has been affected by the
various States that have taken these other tracks?
Mr. Cohen. Thank you, Senator. I would be happy to.
I would say, first of all, that our approach to this all
along has been to meet the States where they are, and provide
them with the opportunity to do as much as they are willing and
able to do. And I am heartened, actually.
Recently, I attended a meeting that we held with State
insurance department officials from the States that will have
the Federally Facilitated Marketplace. And when you get down to
that level, they understand two things. They understand, first,
this is the law of the land and the time for debating it is
over. And second, that they want to make this work for the
citizens in their States. So we are working very closely with
insurance departments, departments of health around the country
to help get this law implemented.
We have also begun a significant stakeholder outreach
effort, which is separate and apart from anything that the
State Government might be doing. We started with a national
call that we had a couple of weeks ago with over 3,000 people
on the phone, and we will be doing regional and State-by-State
calls leveraging our presence at the 10 regional offices that
CMS has around the country.
So I am not going to sit here and tell you that it wouldn't
have been easier if everyone had fully embraced this from the
beginning, but I think we have made great progress. We are
seeing now more of both a recognition that this is actually
happening and a desire for it to succeed.
Senator Baldwin. I particularly appreciate the outreach to
stakeholders because, I think, some of that communication has
been frustrated, again, by those who are politically opposing
the implementation.
I guess I would ask you as a last question: what sort of
differences in the Affordable Care Act benefits will be
experienced or seen between States that are forging ahead with
State Exchanges and those who will have to rely on the Federal
Exchanges?
Mr. Cohen. Senator, I really think that it is going to be
of little to no consequence to the average consumer which type
of Exchange they are seeing. The set of benefits does not vary.
I mean, it varies State-by-State, but not depending on who is
operating the Exchange.
And when a consumer goes to a Web site and goes through the
process of filling out the application, finding out if they are
eligible for subsidies, and then choosing a plan, their
experience will really be very much the same regardless of who
is operating the Exchange.
So I am hopeful that while the political rhetoric and
debate may be going on, over here on the ground, people will
really have the opportunity to receive the benefits of this law
everywhere across the country.
Senator Baldwin. Thank you.
The Chairman. Thanks, Senator Baldwin.
Senator Scott.
Statement of Senator Scott
Senator Scott. Thanks, Senator Harkin. I didn't realize you
were an insurance agent as well at one point in your career.
The Chairman. Long time ago.
Senator Scott. Long time ago? Like 5 years? Yes, sir.
The Chairman. You are going to be a big member of this
committee.
[Laughter.]
Senator Scott. Yes, sir, Mr. Chairman. I appreciate that,
sir. Thank you, sir. Thanks, sir.
Mr. Cohen, thank you for being here with us today. I know
that we see ourselves sometimes from a partisan perspective,
and I do not see the ACA from a partisan perspective. I see it
as a perspective of an average person in our country having to
absorb the additional costs that are going to be associated
with the ACA.
What we hear a lot about is the price tag is going down for
the purchase of individual insurance. I am not quite sure that
is accurate because, at some point, the price will be impacted
by the actual cost. And when we look at the actual costs of the
health care bill, it is actually going to have a major impact
on every single taxpaying American in the country; every single
taxpaying American in the country.
There is $800 billion of new taxes and fees in the ACA. It
includes a $123 billion excise tax, 3.8 percent, on high
earners. That is on top of the tax reform that was just
completed at the beginning of the year. We are talking about an
additional $29 billion on medical device taxes. We are talking
about where does the $1.5 billion come for the Federal
Government to help 33 States--33 States, more than half of our
country--will need assistance in setting up these health
Exchanges.
The cost of it will include not actually pricing-in pre-
existing conditions from an actuarial perspective. The cost
will include eliminating agents. There is a cost when you have
the Medical Loss Ratio at 85 percent, or you said 20 percent
for Navigators. The fact of the matter is when you eliminate
the professional that assists people in making their health
care decisions on an individual basis, there is an unintended
consequence and a higher cost of that to the country.
There is an interesting concept that we are taking 10 years
of premium and having 6 years of full benefits. There is an
actual cost of a second decade for the actual expense of the
health care mandate.
The $700 individual penalty, there is a cost associated
with that. Not just simply paying the $700, but what we will
see is what we call, in the insurance business, ``adverse risk
selection.'' Those folks who will pay the $700 penalty, the
fine for not doing something in this country will actually not
buy the insurance because it is cheaper to pay the penalty
whether it is from the $95 or up to the $700. On an individual
basis young, healthy Americans will say, ``I'll wait until I
need the coverage.'' It is just like jumping out of the plane
and needing a parachute, and knowing that you can get it on the
way down. There is a cost associated with a delayed purchase of
health insurance for all Americans.
The $2,000 penalty for employers, there is a cost
associated. Because what it does for employers--having owned a
small business, not for very long, for about 14 or 15 years and
having paid for the health insurance for my employees--there is
a cost associated with the $2,000 penalty which is heading
toward a single payer system, which will add another burden on
to all Americans. In my State, the cost is over 61 percent, as
an average increase, is the estimate for buying health
insurance.
We are going to have fewer people in the pool, not more
people because of adverse risk selection. The NFIB says that we
will lose up to 262,000 employees by 2022. There is a cost
associated with high unemployment.
The lower reimbursement rates, we will have fewer doctors
and fewer providers of health care because of the cost of the
plan. In South Carolina, the Exchange, while the first 3 years
or 100 percent subsidized, it would have cost our State over $5
billion from the year 4 to the year 10.
The Oliver Wyman study shows that in the 10-year period
beginning in 2014, we will see the cost of the average family
for health insurance coverage go up by $6,800. Companies like
Michelin are changing the way that they provide health
insurance, from providing disincentives as well as incentives.
There is a cost associated with this health care plan.
So my question, sir, is how do we factor in not simply the
price that is dropping for the average person who is buying
health insurance according to your statistics? Mine say that
the price is actually going up. Mine also says that because of
adverse selection, we will see the price go up even higher in
the second decade. We are still writing the regulation, so no
one really understands what it is that are in those pages 7
feet, 3 inches tall.
So my question is: how do we factor in not simply the
price, but the cost?
Mr. Cohen. Thank you, Senator.
I would make a couple of points. We are paying that cost
now in uncompensated care. We are paying. Every small business
in America today is paying that cost. They are paying more for
their insurance because there are people who do not have
insurance, and they are showing up at the emergency room, and
they are getting care, but it is not compensated, and the
hospital has to absorb that and pass that along to all of us.
Second, we are paying more than we should be because people
are not getting the kind of care that they should be getting.
If they cannot afford to go to a doctor or to the hospital
until they are really sick, it means they are not getting the
preventive care that they will be getting and are getting now
under the Affordable Care Act. They are not getting treatment.
They are not getting managed care. And so, all of that is more
expensive and we are paying that cost every single day.
So I think that when you look at the system as a whole, it
makes a lot more sense to make sure that people have access to
coverage, can get preventive care, and can get the treatment
that they need because that is going to bring the cost down for
all of us.
Senator Scott. I will just wrap it up with this, Senator
Harkin. Having served on a couple of hospital boards, I have
realized that the reimbursement rates are going down because of
the ACA, not up.
The Chairman. Thanks, Senator Scott.
OK. I am trying to get everyone in before the 11 o'clock
vote.
Senator Franken.
Statement of Senator Franken
Senator Franken. Director Cohen, thank you for your
testimony.
As you discussed, the State Health Insurance Marketplaces
will offer millions of families and small businesses
affordable, comprehensive health insurance for the first time.
That is an extraordinary promise, but we also know that we have
to implement the Marketplaces carefully to avoid unintended
consequences such as punishing States that are ahead of the
game.
And as you know, I have worked closely with your agency to
make sure that States like Minnesota would have an opportunity
to offer a basic health program as we defined it in the health
care law.
Over the past several months, I have spoken with senior
members of HHS and the White House. I have talked to the
President about the importance of helping Minnesota maintain
Minnesota Care, which is the name of our public insurance
program for low-income families, from the very families that
the Ranking Member mentioned from 138 percent of poverty to 200
percent of poverty. We cover them in Minnesota. I have been
talking to you, and to the President, and the Administration
about Minnesota being supported so we can implement the basic
health plan.
After much uncertainty over whether, and when, your agency
would release regulations on the basic health program, I was
very pleased when your agency committed to getting the
regulations out in time for the program to be up and running by
2015, and to working with Minnesota to protect Minnesota Care
as the Marketplace takes shape. And I just want to thank you,
all of you, for your work on this.
Mr. Cohen. Thank you.
Senator Franken. Minnesota has led the country in providing
health insurance to people with pre-existing conditions as
well. Minnesota's State High Risk Pool, called the Minnesota
Comprehensive Health Association, is both the oldest and the
largest in the country with about 25,000 enrollees. The State
has planned to carefully transition this group onto the
Marketplace over 3 years in order to avoid driving up premiums
or disrupting care for those in the high risk pool who are
undergoing treatment.
I was disappointed when HHS in its final rule on the
reinsurance program chose to exclude State high risk pools from
the program. It is essential that Minnesota gets the support it
needs to carefully transition our high risk pool onto the
Marketplace.
How are you planning to support the Minnesota Comprehensive
Health Association to prevent disruptions in care and help its
enrollees transition smoothly to the marketplace?
Mr. Cohen. Thank you, Senator.
We certainly share your interest in making sure that that
happens. And we have a plan set up to make sure that people who
are in State high-risk pools become aware of the opportunities
that will be available to them through the Marketplaces,
obviously, to get coverage without pre-existing conditions. I
would be happy to work with you with respect, specifically, to
the Minnesota situation and see what solutions we can come up
with.
Senator Franken. Thank you. Thank you.
Many have expressed concerns that the health care law's
requirements to strengthen insurance coverage such as no longer
allowing insurance companies to deny coverage for people with
pre-existing conditions will increase premiums in the State
Marketplaces. However, the health care law also includes
requirements that will keep premiums down.
For example, my Medical Loss Ratio provision, which you
referred to in your testimony, requires that insurance
companies spend 80 percent in the small group plans and
individual plans, and 85 percent in large group plans of
premium dollars be spent on actual health care. Not
administrative costs, not profit, not marketing.
Mr. Cohen. Right.
Senator Franken. Not on CEO salaries, but on actual health
care.
We have seen nearly 13 million Americans, 12.8 million
Americans, benefit from rebates because the insurance companies
have to rebate when they don't get there. We have heard that
insurance premiums cost more. Well, if they cost $1 more, they
cost more. But the fact of the matter is that they are costing
less over the last 3 years than they otherwise would have.
Bending the cost curve does not mean that the President
promised to bring premiums down. It means he said he was going
to bring them down relative to what they otherwise would have
been. And is it not true that over the last 3 years, we have
seen premiums for health insurance go down relative to the way
they have been in the last several decades?
Mr. Cohen. That is true.
Senator Franken. Here are some of the statistics. The
average premium increase for all rates in 2012 was 30 percent
below what it was in 2010.
We really have to remember what we are talking about here.
We are talking about bending the cost curve. Nobody was saying,
nobody was saying that the cost of health care per person was
going to go down. What the President was saying is that it will
go down relative to what it otherwise would have been.
Do you have any comment on that?
Mr. Cohen. No, I think that is absolutely right, and I
think that we have seen a real shift in the rate of increase of
premiums as a result of a number of the provisions of the
Affordable Care Act.
Senator Franken. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Franken.
Senator Roberts.
Statement of Senator Roberts
Senator Roberts. Sorry, Mr. Chairman. I was trying to fill
out my form here.
The Chairman. Was that for your Government health
insurance?
[Laughter.]
Senator Roberts. That is to join the Marine Corps, sir. I
have been drafted.
[Laughter.]
I want to thank you for coming back, Mr. Cohen. Thank you
for your previous answers on sub-regulatory guidance, and how
we are to find out much more on how we are to comply with the
Wilt Chamberlain-sized regulations here.
I appreciate your effort to get back to us, more especially
with regard to the comment period that we would like to now
turn to. The CMS Administrator, the new administrator, Marilyn
Tavenner, who we really appreciate in terms of her partnership,
just told me that from now on we are going to try to do the 60-
day comment periods and not go to the sub-regulatory guidance
because it is almost impossible to let the rural health care
delivery system or, for that matter, any health care delivery
system know what is going on.
Immediately after that, she issued an interim final rule,
which we contacted her about, but we hope we can get to the
committed 60-days. And I know you are going to make an effort
to do that.
You mentioned throughout your testimony that the health
reform law will allow for clear information--clear
information--for consumers and make it easier for them when
they purchase a plan. But we also know about the application
that CMS has drafted for folks to apply for coverage. I have it
right here. It is 21 pages.
I have to tell you, I went to a land grant college. I think
I can usually fill out forms. This is equally as challenging,
or more so, than your tax return. And I know that you are going
to have people trying to help the 7 billion people you are
trying to get health insurance for and I think they are going
to be called navigators.
Is that correct?
Mr. Cohen. Yes.
Senator Roberts. OK. And I asked the Secretary, who is a
personal friend, ``How are you going to do this? Are you going
to hire 30,000 more people for IRS?'' She said, ``No, we are
going to have navigators.'' ``What do you mean by navigators?''
``Well, some community organizations could be of help.''
Well, this is, to start off here, it is 21 pages. This is
just to apply. And if you apply, then you fill out 61
additional pages. And I defy anybody on this committee--and
including yourself, any witness--to go through this and do it
with any degree of efficacy, or efficiency, or knowledge that
they have done the right thing.
Why do we ask for so much information? You say,
``Well, we ask about income and other information to
make sure you and your family will get the most
benefits possible. We will keep all the information you
provide private, as required by law.''
And then you go in and say, it is sort of like a friendly
person who is tapping you on the shoulder, ``Tell us about
yourself.'' There are about six or seven things down here. And
then, ``Tell us about your family.'' And then, ``Tell us about
the people who are in your family. Tell us about your spouse,
partner, and children. Tell us about your job and your income.
Tell us where you live for demographic purposes. Tell us if you
come from Alaska or you are a Native American. Tell us,'' and I
could go on, and on, and on.
Then there is a specific, if you get through this and you
have a navigator, and I still don't know where those navigators
are going to come from for a small community. Say it is Dodge
City, KS. That is where I am from. I don't know which community
organizations are going to help people with this, or if you
have a navigator that has been trained to help people go
through this, but I doubt it at this particular time.
But you can go online and by going online, it is supposed
to be very simple. Here is the individual questionnaire and the
outline. Where do I get to what you dial? It is 1-800-XXX,
because it is a draft. I understand that. But I know that when
people, and I am talking about health care providers, try to
access the Web page of the Department of Health and Human
Services, they get into a lot of difficulty.
At any rate, but there is one little item here that I am
trying to find again that I was reading when the Chairman told
me my time was now, and I am almost up on time here.
Basically it says if a person says they do not want to
apply for financial assistance in any of the questions, in
other words they say, ``No, no, no, no thank you.'' The concept
is to fill this out anyway, send it in, and they are going to
capture a couple of responses to assess whether or not it may
be worth their time to apply anyway.
So if a person says, ``I don't want to apply,'' they have
to apply to tell people why they do not want to apply. That
does not seem to me to be very helpful either.
I mention all this because I think we are really getting
into a bramble bush here of regulations that I do not know how
we are going to work through. I think the real answer is to
provide a long enough comment period so people can really grasp
what you are trying to do here, and have a transparent comment
period, then have you folks pay attention to those comments,
and then fix the things that you can.
I know you are under a time line, and you told me last time
that you thought that it was more important for the consumer to
get information as opposed to meet time lines or have an
extended comment period.
Well, if they even get the information, I want to tell you
one thing, they want to comment because with these two things
I've mentioned, I do not know how we implement them; I really
don't. I know that you have a difficult task ahead of you. I am
not trying to be overly critical. I am just worried about all
of this. These two things, probably, what are they, 1-inch
however tall that is.
So there, that is my rant, and I apologize for it, but I
can tell you that out there the providers--you said in
reference to the distinguished Senator from South Carolina that
there is a cost that is now being paid.
The problem is that there is not going to be enough doctors
and nurses to do this. We do not have enough doctors and nurses
to handle this. And right now, there are a lot of doctors that
are not serving Medicare patients because of this. I mean, you
can have the best health care plan in the world, but if you do
not have access to doctors and nurses and health care
providers, I do not know what we do.
The Chairman. Thank you, Senator.
Senator Roberts. I would like for him----
The Chairman. Senator Whitehouse.
Senator Roberts [continuing]. To at least have the
opportunity to respond to all of my----
The Chairman. Well, I don't know. Senator, we have to move
on. I have another Senator. We have a vote coming up here. You
took 1 minute and 50 seconds over the 5 minutes.
Senator Roberts. I understand that. I just feel bad that he
cannot respond and that I have already picked on him.
The Chairman. Senator Whitehouse.
Senator Roberts. Sorry.
The Chairman. I have to try to get through this.
Senator Whitehouse.
Senator Whitehouse. Thank you, Mr. Chairman.
Welcome, Mr. Cohen.
Mr. Cohen. Thank you.
Senator Whitehouse. I represent Rhode Island. Rhode Island,
as I am sure you are aware is a real leader State in trying to
get the insurance Exchange up. We were the first State through
to Level II funding. The Lieutenant Governor, Elizabeth
Roberts, is doing a terrific job of leading this effort and of
bringing our entire community along with it through a very
open, inclusive, and transparent process.
For those of you who remember Senator Chafee's days in the
Senate, his old health care staffer, Christy Ferguson, is now
leading the Insurance Exchange effort appointed by John
Chafee's son, Lincoln Chafee, who is now our Governor. And it
is a very ambitious program.
We don't just want to set up a market. We also want to
enable negotiations so that that market power can be brought
through to the benefit of the consumers. We also want to set
the conditions so that the critical outcomes information, the
critical data that is so necessary as we try to squeeze the
waste and inefficiency out of our colossally wasteful and
inefficient health care system can be accomplished through
this.
My worry is that there is an institutional bias, and an
understandable one, to put all the attention where the bulk of
the States are, and where there are not a lot of States to not
pay as much attention to them.
What I would urge to you as a matter of policy is that you
should put as much attention and resources as you can into the
leadership States, because it is a lot easier to follow when
somebody has forged the path.
This is a problem we saw in Rhode Island with our
information Exchange. I think we are probably the leading State
in the country on a statewide information Exchange that
automatically loads data from different providers, from
laboratories, from MRI facilities, from specialists, all of
that. And the attention is all to the people who are sort of
back in the middle, way behind us, slugging through. I think
stuff goes viral once it is really made to work.
I would urge you when it comes to your organization--I know
you are focusing on the insurance Exchange, so let's focus on
that--I would urge you to put disproportionate effort behind
the folks who are out front because that will pay huge
dividends across the board. Otherwise, you are left fighting a
lot of stuff on your own. It is expensive to fight through a
lot of the administrative issues that come up, and if you are
not really heavily supported, then what you are doing is you
are slowing down the lead dogs. When you slow down the lead
dogs, you slow down the pack. You can pay a lot of attention to
the rest of the pack and they are going to feel good about it,
but the whole operation does not move forward as fast.
So I would ask you to comment on that view of the world,
and hope that my question has some influence on it.
Mr. Cohen. Thank you, Senator, and I appreciate your
comments.
I agree with you completely that it is extremely important
that the States that have chosen to move forward and operate
their own Marketplaces be successful. And if they are, other
States will follow, and they will learn from the experience of
the States that have been out in front, as you say, and they
will see the benefits of taking on this responsibility at the
State level. We have said all along, we believe that is what
provides the best opportunity for the Marketplace that will
serve a State the best.
We do work very closely with each State ranging from Rhode
Island to California and New York who are moving forward to
have the State-based Marketplace. We have teams that work very
closely with the States that are doing that. Obviously, as you
know, we provide the grant funding.
I very much take to heart your advice that we not lose
sight of that. While we, obviously, take on the responsibility
of making sure that there is a Marketplace in every State,
which is our responsibility.
Senator Whitehouse. I am making an even more specific point
and that is that within the group of States that have elected
to go forward and build their own Exchanges, there is a bulge.
There are a few in the lead, there is a bulge in the middle,
and there are a few at the tail.
I get the impression that just because there are more of
them and they make more noise, the bulge soaks up the bulk of
the effort and of the support.
My point to you is: put the support at the front. As I
said, let the lead dogs run faster and the whole pack will move
faster. If you are spending all your effort in the middle, you
are not going to move a lot faster than the lead dog. So
please, think of it in those terms if you would.
Mr. Cohen. Thank you. I will.
Senator Whitehouse. Thank you very much.
The Chairman. I just want to echo that. I think Senator
Whitehouse made a very salient, very good point and that is
where, I think, the emphasis ought to be put on those few that
are really out there in front.
There is a 15-minute vote. We are going to recess for about
20 minutes and we will come back for the second panel.
Again, Mr. Cohen, thank you very much both for your
knowledge, for your shepherding this, and for your great
leadership on getting these Exchanges up and the navigators
going. And I just want you to know that as the chair, I really
appreciate what you are doing.
Mr. Cohen. Thank you. I appreciate your support.
The Chairman. Thank you. And you can stay, if you want, but
you don't have to. We will go to the second panel when we come
back.
Mr. Cohen. Thank you.
[Recess.]
The Chairman. The Committee on Health, Education, Labor and
Pensions will resume as sitting.
We are now moving to panel two. On the second panel, our
first witness will be Kevin Counihan, chief executive officer
of Access Health Connecticut, which we just heard about from
Senator Whitehouse. No, it was not Senator Whitehouse; Senator
Murphy who was supposed to be here but he is in another
committee right now.
Mr. Counihan was appointed to his position in July 2012 by
Governor Malloy. He comes to the job with a wealth of
experience. He previously was president of Choice
Administrators in California, and before that, served as the
chief marketing officer for the Massachusetts Health Insurance
Connector. He has also served as senior vice president for
Tufts Health Plan and VP for Cigna. Thank you very much for
being here, Mr. Counihan.
Next is Professor Sabrina Corlette, a research professor
and project director at Georgetown's Health Policy Institute.
At the Institute, Professor Corlette directs research on health
insurance reform issues including regulation of private health
insurance and the building of insurance Marketplaces.
Prior to joining Georgetown, she directed health policy
programs at the National Partnership for Women and Families,
and right before that, I am happy to note, she worked for this
committee. Welcome back to the HELP Committee on that side of
the table.
Stacy Cook--I want to extend a personal welcome--from
Carroll, IA is here to tell her very moving and important
personal story. I will not steal her thunder by summarizing it.
Stacy is also a volunteer with the American Cancer Society's
Cancer Action Network. Thank you very much, Stacy, for taking
your time off and being here from Iowa.
Mr. Chris Carlson, a principal in the firm of Oliver Wyman
Actuarial Consulting. Mr. Carlson has 18 years of experience in
the health care actuarial field providing consulting services
to health insurers, health care providers, employer, and State
regulators. Before joining Oliver Wyman, Mr. Carlson worked as
an actuary at Blue Cross Blue Shield. Thank you very much, Mr.
Carlson, for being here today.
All of your statements will be made a part of the record in
their entirety. I will start with Mr. Counihan and go down. If
you could just sum up in 5 minutes or so, we would certainly
appreciate it.
Mr. Counihan, welcome. Please proceed.
STATEMENT OF KEVIN COUNIHAN, CEO OF THE CONNECTICUT HEALTH
INSURANCE MARKETPLACE, WEST HARTFORD, CT
Mr. Counihan. Thank you and good morning, Chairman Harkin,
Ranking Member Alexander, and members of the committee. Thank
you for the opportunity to speak about the issues related to
the new market reforms and rating rules under the Affordable
Care Act.
As one of 17 States implementing a State-based Exchange,
these issues are of particular relevance to us. In Connecticut,
our Marketplace is named Access Health CT and we have been
particularly fortunate to have had broad-based support for our
efforts to implement the ACA.
This support has come from issuers, brokers, the advocacy
community, our board of directors, State agencies, the
legislature, our congressional delegation, and others. Further,
we have received outstanding support from CCIIO and CMS, in
particular from Amanda Cowly, Dawn Horner, Sue Sloop, and their
teams. We are also very appreciative of the support of
Commissioner Rod Bremby, from the Connecticut Department of
Social Services and our board chair, Lieutenant Governor Nancy
Wyman.
We view these new marketplaces as free market, pro-
competition means for individuals and small businesses to
access health insurance in a simpler, more transparent way. We
believe the market is the best way to assure price competition
and high value for consumers. I have seen this work effectively
in an earlier role at the Health Connector in Massachusetts.
Access Health CT is committed to serving the needs of
individuals and small businesses in Connecticut by facilitating
access to qualified private health plans and to assist those
eligible with access to premium subsidies and cost sharing
reductions.
Access Health CT is guided by the following objectives:
first, create a user-friendly shopping and enrollment
experience. Two, reduce the level of the uninsured. Three,
reduce racial and ethnic disparities in access to health care.
Four, promote innovation and competition. And five, facilitate
a discussion to create more affordable health insurance
coverage. These are longer term objectives of the Connecticut
Marketplace and reflect the vision of our Board to improve
access to care and to establish more affordable and predictable
costs of health care.
Access Health CT continues to make strong progress in
implementing our Marketplace. We are one of the leading States
in implementation and are in the midst of label and testing
with the Federal Data Services Hub, which verifies consumer
information with Social Security, Homeland Security, IRS, and
other information sources.
Our Board of Directors has made key policy decisions. We
have completed our strategy to outsource all key operational
functions to private sector firms such as for our call center
and for the administration of our Small Business Health Options
Program or SHOP.
We are in the process of implementing our broker training
and oversight program. We believe brokers represent one of the
most effective ways to distribute our products, and educate the
marketplace about the benefits and opportunities of health
reform.
Our Navigator and in-person assister programs are being
built at present, and in conjunction with community-based
nonprofit and philanthropic organizations, and which will
enhance our direct marketing and outreach strategies.
Finally, we have posted our qualified health plans
solicitation for participation by issuers. Our strategy from
the outset has been to work collaboratively with issuers and
all major stakeholders to make participation in our Exchange as
easy and minimally disruptive as possible. While we have much
work to do, we are pleased with our results to date.
The ACA introduces a number of significant reforms to the
health insurance market. These are meaningful consumer
protections to the residents and small businesses in
Connecticut and include: No. 1, no underwriting for health
status. No. 2, no pre-existing condition limitations. No. 3,
title limits for age adjustment. No. 4, no underwriting
adjustment for gender. No. 5, guaranteed renewals for
individuals and small group markets. No. 6, a minimum 80 to 85
percent Medical Loss Ratios. And finally, inclusion of 10
categories of essential health benefits.
Each of these reforms benefits the residents and employees
of small businesses in Connecticut. These reforms also come at
a cost. Fortunately, there are a number of protections in the
ACA which help to ameliorate the impact of these market
adjustments.
These protections include: No. 1, a risk adjustment program
which transfers payments from issuers with lower risk
enrollment to those issuers with higher risk enrollees to
adjust for risk selection. No. 2, a risk quarter program, which
limits issuer underwriting gains or losses. And No. 3, a
reinsurance program which reimburses issuers for higher than
expected utilization.
As a result, much of the uncertainty over the unknown
morbidity of the uninsured and the potential migration of
certain employee segments from employer-sponsored insurance to
the individual market will be dampened. It is critical that
issuers, consumers, small businesses, brokers and others
understand the important roles these programs play.
The implementation of the ACA is complex and makes special
demands on States, issuers, and others. Like other States,
Connecticut has benefited from an exceptionally dedicated staff
who work hard to realize the dignity of health insurance
coverage for all eligible State residents.
The market reforms of the ACA represent important
corrections to enhance access to more affordable coverage. The
rate pressure from the removal of prior underwriting controls
should be mitigated, in part, by new premium stabilization
programs.
The hallmark of health reform has been the concept of
shared responsibility, the sense of shared ownership of a
common value that our Nation benefits from more citizens
realizing the peace of mind of health insurance coverage.
Increasingly, shared responsibility must be accompanied by
shared patience. We must have the patience to recognize that
the implementation of the ACA will take time to be fully
realized. The premium rate adjustments will stabilize, that
enrollment and health plan choices will be enhanced, and that
outreach and communication activities will be more effective.
At Access Health CT, we believe health insurance is a right
of citizenship and not just a privilege of employment. The ACA
represents the best opportunity we have at present to expand
access to health insurance since the introduction of Medicare
in 1965.
We are proud to be a leading State in the implementation of
the ACA, and to provide a more affordable health insurance to
our residents.
Thank you.
[The prepared statement of Mr. Counihan follows:]
Prepared Statement of Kevin Counihan
summary
We view these new marketplaces as free market, pro-competition
means for individuals and small businesses to access health insurance
in a simpler, more transparent way. We believe the market is the best
way to assure price competition and high value for consumers, and I
have seen this work effectively in an earlier role at the Health
Connector in Massachusetts. Access Health Connecticut is committed to
serving the needs of individuals and small businesses in Connecticut by
facilitating access to qualified private health plans and to assist
those eligible with access to premium subsidies and cost sharing
reductions.
Access Health Connecticut is guided by the following objectives:
Create a User-Friendly Shopping and Enrollment Experience
Reduce Level of Uninsured
Reduce Racial and Ethnic Disparities in Access to Health
Care
Promote Innovation and Competition
Facilitate Discussion to Create More Affordable Health
Insurance Coverage
Our Board of Directors has made almost all core policy decisions;
we have completed our strategy to outsource all key operational
functions to private sector firms such as our Call Center and the
administration of our Small Business Health Options Program (SHOP). We
are in the process of implementing our Broker training and oversight
program. Our Navigator and In-Person Assistor programs are being built
in conjunction with community-based non-profit and philanthropic
organizations and which enhance our direct marketing and outreach
strategies. Finally, we have posted our Qualified Health Plan
solicitation for participation by issuers.
The ACA introduces a number of significant reforms to the health
insurance market. These are meaningful consumer protections to the
residents and small businesses in Connecticut. The market reforms of
the ACA represent important corrections to enhance access to more
affordable health insurance and health care. The rate pressure from the
removal of prior underwriting controls should be mitigated in part by
new premium stabilization programs.
The hallmark of health reform has been the concept of shared
responsibility, the sense of shared ownership of a common value that
our Nation benefits from more citizens realizing the peace of mind of
health insurance coverage. Increasingly, shared responsibility must be
accompanied by shared patience. We must have the patience to recognize
the implementation of the ACA will take time to be fully realized, that
premium rate adjustments will stabilize, that enrollment and health
plan choices will be enhanced, and that outreach and communication
activities will continue to be more effective.
______
Good morning, Chairman Harkin, Ranking Member Alexander, and
members of the Senate Health, Education, Labor, and Pensions Committee.
Thank you for the opportunity to speak about the issues related to the
new market reforms and rating rules under the Affordable Care Act. As 1
of 17 States implementing a State-based exchange, this issue is of
particular relevance to us.
In Connecticut, our marketplace is named Access Health CT, and we
have been particularly fortunate to have had broad-based support for
our efforts to implement the ACA. This support has come from issuers,
brokers, the advocacy community, our board of directors, Connecticut
State agencies, the legislature, our congressional delegation, and
others. Further, we have received outstanding support from CCIIO and
CMS, in particular from Amanda Cowley, Dawn Horner, Sue Sloop, and
their teams. We are also very appreciative for the support of
Commissioner Rod Bremby of the Connecticut Department of Social
Services, and our board chair, Lieutenant Governor, Nancy Wyman.
We view these new marketplaces as free market, pro-competition
means for individuals and small businesses to access health insurance
in a simpler, more transparent way. We believe the market is the best
way to assure price competition and high value for consumers, and I
have seen this work effectively in an earlier role at the Health
Connector in Massachusetts. Access Health CT is committed to serving
the needs of individuals and small businesses in Connecticut by
facilitating access to qualified private health plans and to assist
those eligible with access to premium subsidies and cost-sharing
reductions.
guiding objectives
Access Health CT is guided by the following objectives:
Create a User-Friendly Shopping and Enrollment Experience
Reduce Level of Uninsured
Reduce Racial and Ethnic Disparities in Access to Health
Care
Promote Innovation and Competition
Facilitate Discussion to Create More Affordable Health
Insurance Coverage
These are longer term objectives of the Connecticut marketplace and
reflect the vision of our board to improve access to care and to
establish more affordable and predictable cost of health care.
implementation--progress-to-date
Access Health CT continues to make strong progress in implementing
our marketplace. We are one of the leading States in implementation and
are in the midst of Wave 1 testing with the Federal Data Services Hub,
which verifies consumer information through connection to the Social
Security Administration, Department of Homeland Security, the IRS and
other information sources.
Our board of directors has made almost all core policy decisions;
we have completed our strategy to outsource all key operational
functions to private sector firms such as our Call Center and the
administration of our Small Business Health Options Program (SHOP). We
are in the process of implementing our Broker training and oversight
program. We believe brokers represent one of the most effective ways to
distribute our products and educate the marketplace about the benefits
and opportunities of health reform to individuals and small businesses.
Our Navigator and In-Person Assistor programs are being built in
conjunction with community-based non-profit and philanthropic
organizations and which enhance our direct marketing and outreach
strategies.
Finally, we have posted our Qualified Health Plan solicitation for
participation by issuers. Our strategy from the outset has been to work
collaboratively with issuers and all major stakeholders to make
participation in our marketplace as easy and minimally disruptive as
possible. While we have much work to do, we are pleased with our
results to date.
market reforms and cost impact
The ACA introduces a number of significant reforms to the health
insurance market. These are meaningful consumer protections to the
residents and small businesses in Connecticut and include:
No Underwriting for Health Status
No Pre-Existing Condition Limitations
Tighter Limits for Age Adjustment
No Underwriting Adjustment for Gender
Guaranteed Renewals for Individual and Small Group Market
Minimum 80-85 percent Medical Loss Ratios
Inclusion of 10 categories of essential health benefits
Each of these reforms benefits the residents and employees of small
businesses in Connecticut. These reforms also come at a cost.
Fortunately, there are a number of protections in the ACA which help to
ameliorate the impact of these market adjustments. These protections
include:
Risk Adjustment Program which transfers payments from
issuers with lower-risk enrollment to those issuers with higher-risk
enrollees to adjust for risk selection.
Risk Corridor Program which limits issuer underwriting
gains or losses.
Reinsurance Program which reimburses issuers for higher
than expected utilization.
As a result, much of the uncertainty over the unknown morbidity of
the uninsured and the potential migration of certain employee segments
from employer-sponsored insurance to the individual market will be
dampened as a result of these programs. It is critical that issuers,
consumers, small businesses, brokers, policymakers, and other
stakeholders understand the roles these programs play to mitigate
excessive rate increases.
conclusion
The implementation of the ACA is complex and makes special demands
on States, issuers, and others. Like other States, Connecticut has
benefited from an exceptionally dedicated staff who works hard to
realize the dignity of health insurance coverage for all eligible State
residents.
The market reforms of the ACA represent important corrections to
enhance access to more affordable health insurance and health care. The
rate pressure from the removal of prior underwriting controls should be
mitigated in part by new premium stabilization programs.
The hallmark of health reform has been the concept of shared
responsibility, the sense of shared ownership of a common value that
our Nation benefits from more citizens realizing the peace of mind of
health insurance coverage. Increasingly, shared responsibility must be
accompanied by shared patience. We must have the patience to recognize
the implementation of the ACA will take time to be fully realized, that
premium rate adjustments will stabilize, that enrollment and health
plan choices will be enhanced, and that outreach and communication
activities will continue to be more effective.
At Access Health CT, we believe health insurance is a right of
citizenship and not just a privilege of employment. The ACA represents
the best opportunity we have at present to expand access to health
insurance since the introduction of Medicare in 1965. We are proud to
be a leading State in the implementation of the ACA and to providing
more affordable health insurance to our residents.
The Chairman. Thank you very much, Mr. Counihan.
I think that last part of your statement, and I underlined
it when I read it last evening, is really something that we
have to always keep in mind, this shared responsibility
especially when talking about young people and these young free
riders getting them on these policies.
Professor Corlette, please proceed.
STATEMENT OF SABRINA CORLETTE, RESEARCH PROFESSOR AND PROJECT
DIRECTOR, GEORGETOWN HEALTH POLICY INSTITUTE, CENTER ON HEALTH
INSURANCE REFORM, WASHINGTON, DC
Ms. Corlette. Thank you.
Mr. Chairman, Ranking Member Alexander, and members of the
committee, I want to thank you for the leadership of this
committee in drafting key provisions of the ACA, and for the
ongoing oversight that you are conducting. This hearing today
is a timely one as we are now less than 6 months away from
enrollment into health plans that will meet sweeping new
standards for access, affordability, and adequacy.
In my testimony, I am going to focus on how the individual
health insurance market works today for consumers, and how it
will change under the ACA's market reforms.
The ACA has a particular focus on the individual market
because of its well-documented systemic problems which include
a lack of access to coverage, inadequate coverage, unaffordable
coverage, and a lack of transparency and accountability.
Today, 48 million Americans are uninsured and 19 million
have individual health insurance coverage. Those who buy
insurance on their own are self-employed entrepreneurs,
farmers, ranchers, early retirees, part-time workers, and young
people aging off their parents' plans.
What does the Health Insurance Marketplace look like today
for these folks, particularly for someone who might not be in
perfect health?
In today's marketplace, one of the ways that health
insurers manage costs is to make use of aggressive underwriting
to deny coverage to individuals with pre-existing conditions.
People with even minor health issues, such as hay fever, may be
turned down for coverage. And recent studies have found that
these types of underwriting practices are only growing more
aggressive.
Under the ACA's guaranteed issue and renewal provisions
with limited exceptions, health insurers must accept all
applicants regardless of their health condition, health
history, or that of a family member. For many individuals, even
if they are offered a policy, premium surcharges based on their
health can cause them to forgo coverage completely.
Beginning next year, insurers will no longer be able to
charge somebody more because of their health status, the work
that they do, or their gender. And they will be limited in the
amount that they can differentially charge based on age or use
of tobacco products. And through the new health Insurance
Exchanges, low and moderate income individuals will be eligible
for premium tax credits that will help make coverage more
affordable.
As for the adequacy of coverage in this market, in many
States insurers are permitted to permanently exclude from
coverage any health problems that a consumer discloses when
they apply for a policy. Under the ACA, these pre-existing
condition exclusions were prohibited for children in 2010, and
will be for all individuals beginning in January. This means
that people will be able to access the care they need from
their very first day of coverage.
In addition, in today's marketplace, insurers selling
individual insurance often sell stripped down policies that do
not cover benefits such as maternity, prescription drugs, or
mental health. And individual policies often come with high
deductibles, $10,000 or more is not uncommon. In fact,
deductibles in these polices can be as much as three times what
they are in an employer-based plan, and that these policies
have fewer covered services and they cover a smaller share of
the cost. It is not surprising, then, that 57 million Americans
live in families struggling with medical debt and 75 percent of
these families have health insurance.
For the first time, the ACA sets new standards for benefits
and out-of-pocket spending to ensure that insurance coverage
does what it should: provide real financial protection to
individuals and families.
The individual market also suffers from a lack of
transparency. Prior to the ACA, individuals attempting to buy
coverage faced confusing choices with little information about
pricing or what their policy would actually cover and what it
would not.
The ACA ushers in a number of critical changes to improve
consumers' ability to shop for and compare plans, and purchase
one that meets their needs.
Mr. Chairman and members of this committee, the evidence is
pretty clear. This current market does not work for the people
who need it the most. Anyone with just about any health issue
could face difficulty obtaining coverage. What we have today is
a system of haves and have-nots. And remember, even if you
happen to be a ``have,'' like the young and healthy people who
can access this coverage, you still cannot have peace of mind.
It is an unfortunate fact of life that all of us get older,
and most of us will have some sort of health problem at some
point in our lives, yet today's market cannot even provide
people with the most basic obligation of insurance, which is to
help people access health care and protect them financially.
Congress, led by this committee, recognized the fundamental
injustice in our current Health Insurance Marketplace. It
enacted sweeping reforms that will improve access to adequate
and affordable coverage. These changes will involve some
disruption, undoubtedly, particularly for those in the health
insurance industry that have benefited from the inequities of
the current system.
The reform is the right thing to do and I thank this
committee for taking it on.
Thank you.
[The prepared statement of Ms. Corlette follows:]
Prepared Statement of Sabrina Corlette
summary
Access Issues: In today's marketplace, one of the ways health
insurers manage costs is to make use of aggressive underwriting
practices to deny coverage to individuals with pre-existing conditions.
Under the ACA, these denials will no longer be permitted. Under the
ACA's guaranteed issue and renewal provisions, with limited exceptions
health insurers must accept applicants, and continue to renew their
policies, regardless of their health condition, health history, or that
of a family member.
Affordability Issues: Health insurance is an expensive product, and
it is particularly expensive for people trying to buy it on the
individual market. For those in less than perfect health, those
premiums can cause them to forego coverage completely. Beginning
January 1, 2014, insurers will no longer be able to charge someone more
because of their health status, the work they do, or their gender. And
they will be limited in the amount they can differentially charge
because of someone's age or use of tobacco products. Through the new
health insurance exchanges, low- and moderate-income individuals will
be eligible for premium tax credits that will help make coverage more
affordable.
Adequacy Issues: Pre-existing condition exclusions or riders. In
many States, insurers are permitted to permanently exclude from
coverage any health problems that a consumer discloses on their
application for a nongroup policy. Under the ACA, these pre-existing
condition exclusions were prohibited for individuals under the age of
19 in 2010, and will be prohibited for all individuals beginning in
January 2014. This means people will be able to access the care they
need from their first day of coverage.
Lifetime and Annual limits. Prior to enactment of the ACA, it's
estimated that about 102 million people were in plans with a lifetime
limit on benefits and about 20,000 people hit those limits every year.
And 18 million people are in plans with annual limits on their
benefits. Thankfully, the ACA brought in a ban on lifetime limits, and
put immediate restrictions on annual dollar limits (banning them
completely in 2014).
High Out-of-Pocket Costs. Nongroup policies often come with high
deductibles and high cost-sharing. In fact, deductibles can be about
three times what they are in employer-based plans. One study in
California found that nongroup policies pay for just 55 percent of the
expenses for covered services, compared to 83 percent for small group
health plans. For the first time, the ACA sets new standards to ensure
that insurance coverage does what it should: provide real financial
protection to individuals and families.
Transparency and Accountability Issues: Prior to the ACA,
individuals attempting to buy coverage in the nongroup market-faced
confusing choices, with little transparency regarding pricing or what
their policy would actually cover--and what it would not.
The ACA ushers in a number of critical changes to improve
consumers' ability to shop for and compare plans in a manner that
allows them to make informed choices and select a plan that best meets
their needs.
______
Good morning, Mr. Chairman, Ranking Member Alexander, members of
the committee. I am Sabrina Corlette, a research professor and project
director at Georgetown University's Center on Health Insurance Reforms.
I am responsible for directing research and analysis on health
insurance, health insurance markets, and implementation of the Patient
Protection and Affordable Care Act (ACA).
I thank you for the opportunity to testify before you today, for
the leadership of this committee in drafting key provisions of the
Patient Protection and Affordable Care Act (ACA), and for the ongoing
oversight you have conducted to assess its implementation. This hearing
today is a timely one, as we are now slightly less than 6 months away
from open enrollment into health plans that will meet sweeping new
standards for access, affordability, and adequacy.
In my testimony, I will focus on how the nongroup health insurance
market works today for consumers, and how it will change upon
implementation of the ACA's market reforms, some of the most
significant of which go into effect on January 1, 2014. The ACA has a
particular focus on the nongroup market because of its well-documented
systemic problems, which include:
1. Lack of access to coverage because of health status
discrimination.
2. Inadequate coverage.
3. Unaffordable coverage.
4. Lack of transparency and accountability.
Today, approximately 48 million non-elderly Americans are
uninsured, and approximately 19 million non-elderly Americans have
insurance coverage in the nongroup market, meaning they do not have
coverage through their employer or public programs such as Medicare and
Medicaid.\1\ Anyone can find themselves at any time in the position of
being uninsured, or in the nongroup market. Those who buy insurance on
their own can be self-employed entrepreneurs, farmers and ranchers,
early retirees, part-time workers, widows, and young people ``aging
off'' their parents' plans. This market tends to be the option people
turn to as a last resort when they do not have an employer offer or
insurance and are ineligible for public coverage.
---------------------------------------------------------------------------
\1\ U.S. Census Bureau, ``Income, Poverty, and Health Insurance
Coverage in the United States: 2011,'' September 2012.
---------------------------------------------------------------------------
What does the health insurance marketplace today look like for
these individuals and families, particularly those who might be in less
than perfect health?
access issues
In today's marketplace, one of the ways health insurers manage
costs is to make use of aggressive underwriting practices to deny
coverage to individuals with pre-existing conditions.\2\ A seminal
Georgetown study from 2001 found that even people with minor health
conditions, such as hay fever, may be turned down for coverage, and
more recent studies have found that these practices have only increased
over time.\3\ \4\ Health insurers maintain underwriting guidelines that
can list as many as 400 medical conditions as reasons to trigger a
permanent denial of coverage.\5\ At Georgetown, we hear stories every
day of people struggling to access coverage in the nongroup market. For
example, we were recently contacted by a young man who was turned down
for coverage not because of his own health status--he is a healthy 30-
year-old running his own successful consulting business. Rather, he was
turned down because his wife is expecting a baby. Even though her
prenatal care is covered through her own, student health plan, the
insurer turned him down because of the risk that they might have to pay
for care for the newborn.
---------------------------------------------------------------------------
\2\ U.S. House of Representatives, Committee on Energy and
Commerce, ``Memorandum: Coverage Denials for Pre-Existing Conditions in
the Individual Market,'' October 12, 2010.
\3\ Karen Pollitz, ``How Accessible is Individual Health Insurance
for Consumers in Less-than-Perfect Health?'' Kaiser Family Foundation,
June 2001.
\4\ Supra, n. 2.
\5\ Id.
---------------------------------------------------------------------------
There's also the story of John Craig, a 46-year-old software
consultant in Orem, UT, who plays racquetball twice a week, doesn't
smoke or drink and isn't overweight. When he tried to buy an individual
insurance policy, however, he was denied. The insurance company cited
sinus infections and depression, even though he hadn't experienced
symptoms of either condition for years.\6\
---------------------------------------------------------------------------
\6\ Sarah Lueck, ``Seeking Insurance, Individuals Face Many
Obstacles,'' Wall Street Journal, May 31, 2005.
---------------------------------------------------------------------------
According to a GAO study, average denial rates in the individual
market are 19 percent, but they can vary dramatically market-to-market
and insurer-to-insurer.\7\ For example, GAO found that across six major
health insurers in one State, denial rates ranged from 6 to 40 percent.
---------------------------------------------------------------------------
\7\ General Accounting Office, ``Private Health Insurance: Data on
Application and Coverage Denials,'' March 2011.
---------------------------------------------------------------------------
Unfortunately, access is probably even more difficult for people
with health conditions than these data suggest, because of a common
industry practice known as ``street'' underwriting, in which an
insurance company agent asks a consumer questions about their health
history and steers them away from the plan before they fill out or
submit an application.
Under the ACA, these denials will no longer be permitted. Under the
ACA's guaranteed issue and renewal provisions, with limited exceptions
health insurers must accept applicants, and continue to renew their
policies, regardless of their health condition, health history, or that
of a family member.
The ACA also prohibits the practice of rescissions. Prior to the
enactment of this provision, which went into effect in September 2010,
insurers in many States would investigate individual policyholders who
make claims in their first year of coverage. If the company found
evidence that their health condition was a pre-existing one, and not
fully disclosed during the initial medical underwriting process, the
company could deny the relevant claims, and in some cases cancel or
rescind the coverage.\8\ Thanks in large part to this committee's
leadership, this practice is now illegal, except in a clear case of
fraud by the policyholder. And since this provision was made effective
in 2010, Georgetown research has found that insurers have generally
come into compliance without much incident.\9\
---------------------------------------------------------------------------
\8\ Girion, L., ``Health insurer tied bonuses to dropping sick
policyholders,'' Los Angeles Times, November 9, 2007.
\9\ Katie Keith, Kevin W. Lucia, and Sabrina Corlette,
``Implementing the Affordable Care Act: State Action on Early Market
Reforms,'' The Commonwealth Fund, March 2012; Kevin W. Lucia, Sabrina
Corlette and Katie Keith, ``Monitoring Implementation of the Affordable
Care Act in 10 States: Early Market Reforms,''The Urban Institute,
September 2012.
---------------------------------------------------------------------------
affordability issues
Health insurance is an expensive product, and it is particularly
expensive for people trying to buy it on the individual market. Unlike
those with employer-sponsored coverage or in public programs like
Medicare or Medicaid, people with individual insurance must pay their
full premium.
For those in less than perfect health, those premiums can cause
them to forego coverage completely. One national survey found that 61
percent of people seeking individual coverage but failing to ultimately
buy a policy cited the high cost of premiums as the reason.\10\ Health
insurers manage costs by segmenting their enrollees into different
groups and charging them different prices based on their health status
or other risk factors.\11\ In practice, this means that people can be
charged more because of a pre-existing condition (and even if, like
John Craig, they've been symptom-free for years), because of their age,
gender, family size, geographic location, the work they do, and even
their lifestyle. A Georgetown study of rating practices in unregulated
markets found rate variation of more than ninefold for the same policy
based on age and health status. \12\ People in their early sixties can
be charged as much as six times the premium of people in their early
twenties, based on age alone. I had one gentleman call my office last
year, in his early sixties. He told me he couldn't find a policy for
less than $1,300 per month. Unfortunately, at the time all that I could
tell him was that things would get better in 2014.
---------------------------------------------------------------------------
\10\ Michelle M. Doty, Sara R. Collins, Jennifer L. Nicholson, and
Sheila D. Rustgi, ``Failure to Protect: Why the Individual Insurance
Market is not a Viable Option for Most U.S. Families,'' The
Commonwealth Fund, July 2009.
\11\ Melinda B. Buntin, M. Susan Marquis, and Jill M. Yegian, ``The
Role of the Individual Insurance Market and Prospects for Change,''
Health Affairs, November 2004.
\12\ Supra, n. 3.
---------------------------------------------------------------------------
They will get better. Beginning January 1, 2014, insurers will no
longer be able to charge someone more because of their health status,
the work they do, or their gender. And they will be limited in the
amount they can differentially charge because of someone's age or use
of tobacco products.
Of course, through the new health insurance exchanges, low- and
moderate-income individuals will be eligible for premium tax credits
that will help make coverage more affordable. An Urban Institute
analysis estimates that over 8 million people will take advantage of
the tax credit, with an average per-recipient tax credit of $4,553.\13\
---------------------------------------------------------------------------
\13\ Fredric Blavin, Matthew Buettgens, and Jeremy Roth, ``State
Progress Toward Health Reform Implementation: Slower Moving States Have
Much to Gain,'' the Urban Institute, January 2012.
---------------------------------------------------------------------------
adequacy issues
Currently, the insurance coverage available to individuals buying
on their own falls considerably short of the comprehensive health
coverage that you, as Members of Congress, and I, as a Georgetown
professor, have come to expect. In addition to paying more in premiums,
people buying individual policies face much higher deductibles and
other forms of cost-sharing, limited benefits, and spend a much larger
share of their income on health insurance and health care than those of
us with employer-sponsored coverage.\14\ A recent Commonwealth Fund
survey found that 60 percent of people with health problems found it
very difficult or impossible to find a plan with the coverage they
needed, compared to about \1/3\ of respondents without a health
problem.\15\
---------------------------------------------------------------------------
\14\ Michelle M. Doty, Sara R. Collins, Jennifer L. Nicholson, and
Sheila D. Rustgi, ``Failure to Protect: Why the Individual Insurance
Market is not a Viable Option for Most U.S. Families,'' The
Commonwealth Fund, July 2009.
\15\ Supra n. 10.
---------------------------------------------------------------------------
Indeed, the number of ``underinsured'' individuals has risen
dramatically over the last decade, to an estimated 29 million adults in
2010.\16\ These are people with health insurance, but with high out-of-
pocket health expenses relative to their income. Underinsurance is
particularly prevalent in the nongroup market. In fact, a recent
University of Chicago study found that over half of all nongroup plans
currently in the market do not meet the minimum standards for coverage
set by the ACA.\17\ Coverage in the nongroup market today can be
woefully inadequate for many reasons, including:
---------------------------------------------------------------------------
\16\ Cathy Schoen, Michelle M. Doty, Ruth H. Robertson, and Sara R.
Collins, ``Affordable Care Act Reforms Could Reduce the Number of
Underinsured U.S. Adults by 70 percent,'' Health Affairs, September
2011.
\17\ Jon R. Gabel, Ryan Lore, Roland D. McDevitt, Jeremy D.
Pickreign, Heidi Whitmore, Michael Slover, and Ethan Levy-Forsythe,
``More than Half of Individual Health Plans Offer Coverage that Falls
Short of What Can Be Sold Through Exchanges as of 2014,'' Health
Affairs, June 2012.
Pre-existing condition exclusions or riders. In many States,
insurers are permitted to permanently exclude from coverage any health
problems that a consumer discloses on their application for a nongroup
policy. This is an amendment to the policy contract called an
``elimination rider.'' In addition, once coverage begins, if a consumer
makes claims under the policy, he or she can be investigated to see
whether the health problem was pre-existing. In many States, it's not
necessary for a health condition to have been diagnosed before the
consumer bought the policy for it to be considered ``pre-existing.''
And insurers can look back for up to 5 years into a person's health
care history to determine whether the current condition was pre-
existing. This is sometimes called ``post-claims underwriting.'' For
example, in Alabama, a consumer applying for nongroup coverage might
have a known pre-existing condition permanently excluded from his
policy. In addition, if he makes a claim for health care services
during the first 2 years of his coverage, the health insurer can look
back at his medical history dating back 5 years to look for evidence
that the current health problem existed before he bought the policy. If
such evidence is found, the insurer can refuse to pay for care
associated with the condition.
Under the ACA, these pre-existing condition exclusions were
prohibited for individuals under the age of 19 in 2010, and will be
prohibited for all individuals beginning in January 2014. This means
people will be able to access the care they need from their first day
of coverage.
Limited Benefits. Insurers selling health insurance in the nongroup
market often sell ``stripped down'' policies that do not cover benefits
such as maternity care, prescription drugs, mental health, and
substance abuse treatment services. For example, 20 percent of adults
with individually purchased insurance lack coverage for prescription
medicines, but only 5 percent of those with employer coverage do.\18\
---------------------------------------------------------------------------
\18\ Supra, n. 10.
---------------------------------------------------------------------------
To improve the value of coverage, the ACA sets minimum standards
that insurers must cover. This ``essential health benefits'' package
requirement is designed to ensure that consumers have comprehensive
coverage that meets their health needs and protects them from financial
hardship. The essential health benefits are expected to be included in
the coverage of up to 68 million Americans by 2016 and will include--at
a minimum--10 categories of benefits: ambulatory patient services;
emergency services, hospitalization; maternity and newborn care; mental
health and substance abuse disorder services, including behavioral
health treatment; prescription drugs; rehabilitative and habilitative
services and devices; laboratory services; preventive and wellness
services and chronic disease management; and pediatric services,
including oral and vision care.\19\
---------------------------------------------------------------------------
\19\ Sabrina Corlette, Kevin W. Lucia, and Max Levin,
``Implementing the Affordable Care Act: Choosing an Essential Health
Benefits Plan,'' The Commonwealth Fund, March 2013.
---------------------------------------------------------------------------
Lifetime and Annual limits. Prior to enactment of the ACA, it's
estimated that about 102 million people were in plans with a lifetime
limit on benefits and about 20,000 people hit those limits every year.
And 18 million people are in plans with annual limits on their
benefits. These limits can be a matter of life and death. For example,
Georgetown faculty recently documented the story of Martin Addie, a
gentleman with severe hemophilia.\20\ His body produces less than 1
percent of the clotting factor he needs, so he must administer clotting
factor every other day to prevent bleeding. This costs approximately
$60,000 per month. Prior to the ACA, he had blown through lifetime
limits with three different health plans, causing incredible stress and
worry--and putting his health at significant risk. Thankfully, the ACA
brought in a ban on lifetime limits, and put immediate restrictions on
annual dollar limits (banning them completely in 2014).
---------------------------------------------------------------------------
\20\ JoAnn Volk, ``Martin Addie: ACA Ban on Lifetime Limits has
Ended his Coverage Circus,'' CHIRblog, November 14, 2012.
---------------------------------------------------------------------------
High Out-of-Pocket Costs. Nongroup policies often come with high
deductibles--$10,000 or more is not uncommon--and high cost-sharing. In
fact, deductibles can be about three times what they are in employer-
based plans.\21\ As a result, many have very low actuarial values,
below the minimum standard in the ACA of 60 percent for a ``Bronze''
level plan.\22\ One study in California found that nongroup policies
pay for just 55 percent of the expenses for covered services, compared
to 83 percent for small group health plans.\23\ Thus, these policies
have fewer covered services AND cover a smaller share of the costs
associated with the services they do cover. It is not surprising that
approximately 57 million Americans live in families struggling with
medical debt and 75 percent of those families had health insurance.\24\
---------------------------------------------------------------------------
\21\ Roland McDevitt, Jon Gabel, Ryan Lore, et al., ``Group
Insurance: A Better Deal for Most People than Individual Plans,''
Health Affairs, January 2010.
\22\ Supra, n. 17.
\23\ Jon Gabel, Jeremy Pickreign, Roland McDevitt, et al., ``Trends
in the Golden State: Small-group Premiums Rise Sharply While Actuarial
Values for Individual Coverage Plummet,'' Health Affairs Web Exclusive,
July/August 2007.
\24\ Peter J. Cunningham, ``Tradeoffs Getting Tougher: Problems
Paying Medical Bills Increase for U.S. Families, 2003-2007,'' Center
for Studying Health System Change, Tracking Report No. 21, September
2008.
---------------------------------------------------------------------------
For the first time, the ACA sets new standards to ensure that
insurance coverage does what it should: provide real financial
protection to individuals and families. The law sets coverage tiers,
with Platinum plans being the most generous (enrollees will pay, on
average, 10 percent of the out-of-pocket costs) and Bronze plans being
the least generous, with enrollees paying, on average, 40 percent of
the out-of-pocket costs. In addition, the ACA sets new limits on the
total amount of out-of-pocket spending consumers must incur, based on
their income.
And, for individuals earning up to 250 percent of the Federal
poverty level, the ACA provides cost-sharing subsidies that will reduce
the cost-sharing amounts and annual out-of-pocket limits. These
subsidies have the effect of increasing the overall actuarial value of
coverage, on a sliding scale basis, so that people between 100-150
percent of poverty will be responsible for only 6 percent of their out-
of-pocket costs, rising to 22 percent for people at 250 percent of
poverty.
transparency and accountability issues
Last, transparency and accountability are critical to a well-
functioning insurance marketplace. Shopping for health insurance is a
complex and confusing task for consumers, most of whom do not
understand important components of the products being sold to them or
how it works. As one study noted, most consumers rate reading their
health insurance policy as a less appealing activity than preparing
their income taxes or going to the gym.\25\
---------------------------------------------------------------------------
\25\ ehealth, Inc., ``New Survey Shows Americans Lack Understanding
of Their Health Coverage and Basic Health Insurance Terminology,''
January 3, 2008.
---------------------------------------------------------------------------
Prior to the ACA, individuals attempting to buy coverage in the
nongroup market-faced confusing choices, with little transparency
regarding pricing or what their policy would actually cover--and what
it would not. For example, one woman contacted a colleague of mine when
she was attempting to switch to a higher deductible plan last December.
The insurer told her that they could not quote her a monthly premium
until she actually enrolled in the plan. And when questions arise about
these confusing choices and the lack of transparency, consumers have
few places to go to get unbiased, impartial advice on the plan that
would best suit them and their family.
The ACA ushers in a number of critical changes to improve
consumers' ability to shop for and compare plans in a manner that
allows them to make informed choices and select a plan that best meets
their needs.
One of the most talked about are the State-based health insurance
exchanges (now called ``marketplaces'') that will help consumers make
apples-to-apples comparisons among health plan options, and allow them
to shop with confidence, knowing that all of the participating plans
have met minimum quality standards.
Less talked about, but in polling one of the most popular
provisions of the ACA, are the new ``Summaries of Benefits and
Coverage,'' (SBC) which insurers are now required to provide to
individuals and employees seeking coverage. These standardized, easy to
read summaries of the benefits, cost-sharing, limitations and
exclusions in a plan can help consumers understand their coverage and
make better choices. Recent consumer testing by Consumer Reports has
found that consumers rated the SBC as more helpful than other sources
of plan information, such as employer guides and health insurers'
brochures.\26\
---------------------------------------------------------------------------
\26\ Lynn Quincy, ``Early Experience With a New Consumer Benefit:
The Summary of Benefits and Coverage,'' Consumers Union, February 27,
2013.
---------------------------------------------------------------------------
The ACA also includes new expectations for accountability for
insurers. The law improves State rate review practices, and authorizes
the Federal Government to review unreasonable rate increases if a State
is unwilling or unable to do so. Insurers proposing new premium rate
increases must provide detailed and public justification for those
increases. Insurers must also comply with new medical loss ratio (MLR)
standards, meaning they must spend at least 80 percent of nongroup
premiums on health care and improving heath care quality. If insurers'
MLRs go below 80 percent, they must issue rebate checks to enrollees.
The MLR was in effect for 2011, and in 2012 nearly 12.8 million
Americans received rebates totaling more than $1.1 billion.\27\
---------------------------------------------------------------------------
\27\ Healthcare.gov, ``The 80/20 Rule: Providing Value and Rebates
to Millions of Consumers,'' June 21, 2012.
---------------------------------------------------------------------------
conclusion
The evidence is clear and unequivocal: the current nongroup market
does not work for the people who need it most. Anyone with just about
any health condition could face difficulty obtaining coverage in the
individual market. What we have today is a system of ``haves'' and
``have nots.'' And remember--even if you happen to be a ``have,'' such
as those young and healthy individuals who can access this market--you
cannot have peace of mind. Just because you are young and healthy today
does not mean you will remain so. It is an unfortunate fact of life
that all of us will get older and most of us will have some health
problems at some point in our lives. Yet today's nongroup market can't
even provide people with the most basic obligation of insurance, which
is to protect people from bad, unexpected events. And remember those of
us who are happy with our employer-based coverage cannot be guaranteed
it will last forever. A bad economy--a bad election--and any one of us
could be subject to the nongroup market and all of the risks that come
with that.
Congress, led by this committee, recognized the fundamental
injustice of the current health insurance marketplace. In the ACA it
enacted sweeping reforms that will improve Americans' access to
adequate, more affordable health insurance coverage that allows them to
get the care they need and protect them financially. This kind of
change will be transformative and disruptive, particularly for those
who have benefited from the inequities of the current system. But it is
the right thing to do.
Thank you, Mr. Chairman, Ranking Member Alexander, and members of
the committee, for the opportunity to speak before you today. I look
forward to your questions.
The Chairman. Thank you very much, Professor Corlette and
welcome back, as I said.
And now, we will turn to Stacy Cook from Carroll, IA.
Stacy, welcome. Please proceed.
STATEMENT OF STACY COOK, CARROLL, IA
Ms. Cook. Chairman Harkin, Ranking Member Alexander, and
members of the committee.
Thank you for inviting me to share my story about the
positive impact, I believe, that health insurance reforms that
were included in the Affordable Care Act will have on me.
I am a volunteer for the American Cancer Society Cancer
Action Network, which advocates on behalf of millions of cancer
patients nationwide. It is both an honor and a privilege to
have the opportunity to address the Health, Education, Labor,
and Pensions Committee and have my voice heard.
My name is Stacy Cook and I live in Carroll, IA. I am 36
years old and in December 2004, I was 28 and diagnosed with
breast cancer in my right breast. I was fortunate. At that
time, I had adequate health insurance through my job, so I was
able to receive the care that I needed.
In November 2009, I moved from Iowa to Arizona and in March
2012, I found another lump in my breast. I immediately made an
appointment to get it looked at. I got the call about a week
later that confirmed it was cancer again, except this time, it
was in my other breast.
The Chairman. That's all right. Take your time. It's no
problem. These are not easy.
[Pause.]
Ms. Cook. And I was scheduled to see an oncologist on April
3d, and I went to see the oncologist and he confirmed that I
would need to have chemotherapy. He also told me that I would
need to see a surgeon.
As I was checking out of the oncologist's office, my
oncologist came and told me that the surgeon wanted to see me
right away. I thought to myself, ``Wow, this is happening
fast.'' My aunt was with me, so we went straight over to the
surgeon's office and within a few minutes of examining me, he
told me he was going to do a mastectomy the next morning.
I was overwhelmed. Everything was happening so fast. And I
had my mastectomy the next day. In the midst of all of this, I
was informed that my insurance would not cover any procedures
such as the mastectomies and hysterectomy I would need, would
not cover the chemotherapy treatment I would need, and would
only pay for five doctor visits a year. So not only did I have
all these emotions from being diagnosed and having a
mastectomy, now I had to worry about how I was going to get the
treatment that I needed.
I applied for the Arizona State Health Insurance and was
denied. I searched and searched for any other insurance that
would help me, and I tried the pre-existing condition insurance
plans, but found out that I would have to be without health
insurance coverage for 6 months to be able to qualify, which
would have been after my treatment had been completed.
I was told that in order to be able to have my chemotherapy
treatments, I would need to pay for them up front before they
would administer them. Because of the kindness of friends and
family, I was able to pay for three out of six chemotherapy
treatments that were recommended by my oncologist.
I was only working 28 hours a week and was not able to take
any more hours on because of the effects of my treatment. I got
to where I could not afford my rent or pretty much anything
else, so I made the decision to move back to Iowa.
At 36, I was moving back in with my parents and I felt like
a failure, but I had no other option. After I had moved back to
Iowa, I continued my search to try and identify health
insurance coverage that would allow me access to lifesaving
cancer treatments I needed.
I looked into the Iowa State Health Insurance Plan and
found that because of my breast cancer, I would have qualified
for the program if I had been diagnosed in Iowa. Since I was
diagnosed in Arizona, I was denied health insurance coverage
again. But thanks to the hospital and the town where I live, I
was able to get the rest of the chemotherapy treatments I
needed without having to worry about paying for them up front.
The hospital has a policy of treating patients first and then
worrying about how they will get paid after.
Currently, I am seeing my oncologist every 3 months for
followup visits, and I am also paying out-of-pocket for my
prescription cancer drug Tamoxifen. However, I am now so far in
debt because of my medical bills that I feel I will likely need
to file bankruptcy in 2013. My medical debt is most likely near
$40,000. I now have the peace of mind knowing that in 2014, I
will no longer be denied coverage because of my pre-existing
condition, cancer, and having access to affordable insurance
coverage and quality medical care will give me a better peace
of mind for the future.
My future is much brighter today than before the enactment
of the Affordable Care Act, and for that I am very grateful.
Thank you very much for your time. I will be happy to
answer any questions.
[The prepared statement of Ms. Cook follows:]
Prepared Statement of Stacy Cook
summary
In December 2004, I was 28 and was diagnosed with breast cancer in
my right breast. I was fortunate that, at the time, I had adequate
health insurance through my job, so I was able to receive the care that
I needed.
In November 2009, I moved from Iowa to Arizona. In March 2012, I
found another lump in my breast. I immediately made an appointment to
get it looked at. I got the call about a week later that confirmed it
was cancer again; I had my mastectomy the next day.
In the midst of all of this, I was informed that my insurance
wouldn't cover any procedures such as the mastectomies and hysterectomy
I would need, would not cover the chemotherapy treatment I would need,
and would only pay for five doctor visits a year.
I applied for the Arizona State Health Insurance Program and was
denied. I looked into the Preexisting Condition Insurance Plan but, by
the time I would have been eligible for the program, I would have
completed my treatment.
I was told by the hospital where I was receiving my care that in
order to be able to have my chemotherapy treatments, I would need to
pay for them up front before they would administer them. Because of the
kindness of friends and family, I was able to pay for three of the six
chemotherapy treatments that were recommended by my oncologist.
After I moved back to Iowa, I continued my search to try and
identify health insurance coverage. I looked into the Iowa State Health
Insurance Plan but, since I was diagnosed in Arizona, I was denied
health insurance coverage again.
I am seeing my oncologist every 3 months for followup visits. I am
also paying out-of-pocket for my prescription cancer drug.
Unfortunately, I am now $40,000 in debt because of my medical bills,
and I feel that I will likely need to file bankruptcy 2013.
I now have peace of mind knowing that, in 2014, I will no longer be
denied coverage because of my pre-existing condition--cancer. Having
access to affordable insurance coverage and quality medical care will
give me a better peace of mind for the future. My future is much
brighter today than before the enactment of the Affordable Care Act,
and for that I am very grateful.
______
Chairman Harkin, Ranking Member Alexander, and members of the
committee, thank you for inviting me to share my story about the
positive impact I believe the health insurance reforms that were
included in the Affordable Care Act will have on me. I am a volunteer
with the American Cancer Society Cancer Action Network (ACS CAN) which
advocates on behalf of millions of cancer patients nationwide. It is
both an honor and a privilege to have the opportunity to address the
Health, Education, Labor, and Pensions Committee, and have my voice
heard.
My name is Stacy Cook, and I live in Carroll, IA. I am 36 years
old. In December 2004, I was 28 and was diagnosed with breast cancer in
my right breast. I was fortunate that, at the time, I had adequate
health insurance through my job, so I was able to receive the care that
I needed.
In November 2009, I moved from Iowa to Arizona. In March 2012, I
found another lump in my breast. I immediately made an appointment to
get it looked at. I got the call about a week later that confirmed it
was cancer again; except this time, it was in my other breast. I was
scheduled to see an oncologist on April 3d. I went to see the
oncologist and he confirmed that I would need to have chemotherapy. He
also told me that I would need to see a surgeon. As I was checking out
of the oncologist's office, my oncologist came and told me that the
surgeon wanted to see me right away. I thought to myself, wow this is
happening fast! My aunt was with me so we went straight over to the
surgeon's office. Within a few minutes of examining me, he told me that
he recommended that I have a mastectomy the next morning. I was
overwhelmed--everything was happening so fast. I had my mastectomy the
next day.
In the midst of all of this, I was informed that my insurance
wouldn't cover any procedures such as the mastectomies and hysterectomy
I would need, would not cover the chemotherapy treatment I would need,
and would only pay for five doctor visits a year. So not only did I
have all of these emotions from being diagnosed and having to have a
mastectomy, now I had to worry about how I was going to get the
treatment that I needed. I applied for the Arizona State Health
Insurance Program and was denied. I searched and searched for any other
insurance that would help me. I looked into the Preexisting Condition
Insurance Plan but found out that I had to be without health insurance
coverage for 6 months to be able to qualify. By the time I would have
been eligible for the program, I would have completed my treatment.
I was told by the hospital where I was receiving my care that in
order to be able to have my chemotherapy treatments, I would need to
pay for them up front before they would administer them. Because of the
kindness of friends and family, I was able to pay for three of the six
chemotherapy treatments that were recommended by my oncologist. I was
only working 28 hours a week and was not able to take on any more hours
because of the side effects from my treatments. It got to where I could
not afford my rent or pretty much anything else, so I made the decision
to move back to Iowa. At 36, I was moving back in with my parents. I
felt like a failure, but had no other option.
After I moved back to Iowa, I continued my search to try and
identify health insurance coverage that would allow me to access the
lifesaving cancer treatments I needed. I looked into the Iowa State
Health Insurance Plan and found that because of my breast cancer, I
would have qualified for the program if I had been diagnosed in Iowa.
However, since I was diagnosed in Arizona, I was denied health
insurance coverage again. Thanks to the hospital in the town where I am
living, I was able to receive the rest of the chemotherapy treatments I
needed without having to worry about paying for them up front. The
hospital has a policy of treating patients first, and then worrying
about how they will get paid. Currently, I am seeing my oncologist
every 3 months for followup visits. I am also paying out-of-pocket for
my prescription cancer drug, Tamoxifen.
Unfortunately, I am now so far in debt because of my medical bills,
I feel that I will likely need to file bankruptcy in 2013. My medical
debt to date is near $40,000.
I now have peace of mind knowing that, in 2014, I will no longer be
denied coverage because of my pre-existing condition--cancer. Having
access to affordable insurance coverage and quality medical care will
give me a better peace of mind for the future. My future is much
brighter today than before the enactment of the Affordable Care Act,
and for that I am very grateful.
Thank you very much for your time. I will be happy to answer any
questions.
The Chairman. Thank you very much, Miss Cook for your very
poignant, moving statement. I think that just pretty much sums
it all up.
Mr. Carlson, welcome. Please, please proceed.
STATEMENT OF CHRIS CARLSON, PRINCIPAL AND CONSULTING ACTUARY,
OLIVER WYMAN CONSULTING, MILWAUKEE, WI
Mr. Carlson. Thank you. Mr. Chairman and members of the
committee, thank you for this opportunity to testify on the
impact of guarantee issue and new rating rules.
My testimony will focus on the studies that I and other
actuaries have prepared to assess the impact of changes in non-
group premium rates resulting from the ACA. There are three
issues I will address specifically.
First, the analysis that we and others performed to measure
the impact of the 3 to 1 age rating limitation on non-group
policies. Second, the estimates we have developed on the
increase in premiums that will be required to fund the health
insurer taxes beginning in 2014. Third, the report sponsored by
the Society of Actuaries that measures the impact of newly
insured on claim costs in the non-group market. In addition, I
will touch on other issues that will both increase and decrease
premiums.
First, Kurt Geisa and I co-authored an article published in
the American Academy of Actuaries magazine. The purpose of the
article was to assess the impact of age-rated limitations
required by the ACA. Currently in most States, health insurance
premium rates are allowed to vary by a ratio of at least 5 to 1
based on age, however, actual costs may vary by as much as 6 or
7 to 1. Thus, insurers must compress the rates at the high and
low ends to maintain the required ratio of premium rates by
age.
Our work was intended to measure the impact of age rating
compression, but also includes an assumption for the impact of
all other provisions of the ACA. For this, we relied upon the
CBO's letter to Senator Bayh in 2009 where the CBO estimated
that non-group premiums would increase by 10 to 13 percent
relative to current law. This amount represents changes due to
factors such as the increase in benefits, competitive factors,
and guaranteed issue.
In our analysis, we assumed that the overall change due to
these other factors would be at the low end of this range or a
10 percent increase. Importantly, I note that our article
illustrates the impact on premiums for those individuals that
are not eligible for the subsidies.
We showed that for individuals in the lowest age bracket,
ages 21 to 29, premiums would increase by 42 percent in total,
of which 29 percent is due to the age rating compression.
Further, individuals at ages 30 to 39 would see an increase of
31 percent in total or 19 percent due to the age rating
compression.
The Urban Institute recently published a report that also
researched the impact of age rating. They concluded that the
premiums for individuals between the ages of 21 to 27 would
increase by 21 percent due to age rating, consistent with our
results. We also agree with their conclusion that this would
not affect most young adults due to premium subsidies available
through the Exchanges. However, there will be certain
individuals who are not eligible for subsidies whose premiums
will increase substantially due to the age rating limitations.
Regarding the second topic, Oliver Wyman researched the
impact of health insurer taxes. We, and others, including the
CBO, believe that these fees will be passed through directly to
policyholders in the form of higher premiums. Overall, we
anticipate that these increases will affect premiums by roughly
2 percent in 2014, and as much as 3.7 percent by 2018.
Third, the Society of Actuaries sponsored a report prepared
by Optum that estimated the change in claim cost due to newly
insured individuals in the non-group market. It is expected
that in most States which currently do not require a guaranteed
issue, new entrants to the non-group market will have higher
morbidity than those currently insured. Therefore, it is
expected that the premiums in the non-group market will need to
be increased in 2014 due to the inclusion of a less-healthy
population.
On average, Optum estimated that the non-group claim costs
would increase by 32 percent after inclusion of the new
entrants into the market. The results, however, vary widely by
State from a reduction of 13.9 percent in New York, which
currently has guaranteed issue and community rating, to an
increase of 80.9 percent in Ohio. Generally, the States that
have more restrictive market rules prior to the ACA will see
lower claim costs relative to current costs.
Finally, I will briefly discuss other components expected
to affect premiums in the non-group market.
First, premiums will increase due to requirements to
provide essential benefits and minimum actual values. For
example, the CBO estimated that increases in premiums due to
the amount of insurance coverage would be 27 to 30 percent.
Second, the open marketplace created as a result of the
Insurance Exchanges will put pressure on health plans to keep
premium rates down in order to be one of the lowest cost
options and to attract those that are eligible for subsidies.
If a health insurers' premium rate is greater than the
second lowest Silver Plan, enrollees would have to pay more
out-of-pocket in premium, which would not be reimbursed by the
premium subsidies.
Third, additional fees and taxes, including the exchange
fees of 3.5 percent for the Federally Facilitated Exchanges and
the medical device tax, will also likely pass through to
premiums.
Fourth, and finally, the Temporary Reinsurance Program will
reduce non-group premium rates by reimbursing health insurers
for individual claims that exceed a threshold. The State of
Vermont recently published post-ACA rate filings, one of which
estimated that the reduction in costs for the non-group market,
due to the Temporary Reinsurance Program, would be 9.6 percent
in 2014.
Mr. Chairman, again, I thank you for the opportunity to
speak, and look forward to answering any questions.
[The prepared statement of Mr. Carlson follows:]
Prepared Statement of Chris Carlson
i. introduction
Chairman Harkin, Ranking Member Alexander, and members of the
committee, I am Chris Carlson, principal and consulting actuary at
Oliver Wyman. I have nearly 20 years of experience as a health care
actuary and have been actively involved the last few years in helping
stakeholders, including clients, regulators and actuarial colleagues
understand and implement the changes required by the Affordable Care
Act (ACA). I am delighted to have this opportunity to testify on the
effect of guarantee issue and the new ratings rules on the nongroup
health insurance marketplace.
My testimony will focus on topics that I and my firm of Oliver
Wyman and other health actuaries have studied in preparation of
implementing the new marketplace rules required by the ACA. These
topics include:
The analysis that we and others performed to measure the
impact of the 3 to 1 age rating limitation of the ACA on nongroup
policies.
The estimates we have developed on the increase in
premiums that will be required to fund the health insurer taxes
beginning in 2014.
The report sponsored by the Society of Actuaries that
describes the cost of newly insured individuals in the marketplace
relative to the current nongroup marketplace participants.
Other factors that will impact the level of health
insurance premiums in the nongroup marketplace after implementation of
the ACA.
Overall, we note that the age-rating limitations by themselves
result in no change in the average premium. However, since current age-
rating laws in most States allow for a 5 to 1 ratio or more in the
highest to lowest rate, the change in the premium required for certain
policyholders to compress to a 3 to 1 ratio is significant. Our study
indicates that the impact of the age rating compression will increase
the average premium for policyholders between ages 21 and 29 by 29
percent. The Urban Institute published a report \1\ that assessed the
impact of age rating compression but using a different methodology.
Although the magnitude of their results is different, the results are
consistent as they estimated that premiums for single adults between
ages 21 to 27 would increase 21.3 percent due to the age rating
compression. In both cases, this increase would only apply to
individuals that are not eligible for any premium subsidies and have
incomes above 400 percent of the Federal Poverty Level.
---------------------------------------------------------------------------
\1\ Blumberg, Linda J. and Buettgens, Matthew, ``Why the ACA's
Limits On Age-Rating Will Not Cause `Rate Shock': Distributional
Implications of Limited Age Bands in Nongroup Health Insurance'', The
Urban Institute, March 2013.
---------------------------------------------------------------------------
Beginning in 2014, health insurers will be assessed additional
premium taxes required by the ACA. The amount to be collected in 2014
is $8 billion, increasing to $14.3 billion in 2018 and with trend
thereafter. We estimate that the impact of these taxes will be to
increase premium rates by 1.9 percent to 2.3 percent in 2014, and by
2.8 percent and 3.7 percent in years 2018 and later.
The Society of Actuaries sponsored a study \2\ of the newly insured
individuals that will be enrolled in the nongroup market as a result of
the ACA's provisions related to guarantee issue. This report estimated
that the nongroup cost per member per month across all ages would
increase by 32 percent after the ACA compared to pre-ACA. This would be
in addition to the increases for the younger individuals aged 21 to 29,
described above.
---------------------------------------------------------------------------
\2\ ``Cost of the Future Newly Insured Under the Affordable Care
Act (ACA)'', Society of Actuaries, March 2013.
---------------------------------------------------------------------------
There are other factors that will drive changes, both increases and
decreases, in the nongroup premium rates after implementation of the
ACA. These include:
Increases:
Benefits required for essential benefits and actuarial
value.
Additional fees and taxes including the Exchange fees
of 3.5 percent and the medical device tax which will likely be
passed through to premiums.
Decreases:
Competition created by the Exchange marketplace.
The temporary reinsurance program will reduce
nongroup premium rates in the first 3 years post-ACA.
ii. age-rating under the aca
The ACA reforms the market rules that all health insurance
providers must follow in the pricing of health premiums beginning on
January 1, 2014. In general, premium rates are only allowed to vary by
four criteria: geography, age, tobacco usage and actuarial value. Of
these, there is a further restriction that the premiums may not vary by
age by more than 3 to 1 from the highest age tier to the lowest age
tier. In fact, the regulations that were promulgated by the Department
of Health and Human Services mandated specific factors by age to be
used, unless otherwise developed by an individual State.
Kurt Giesa and I, actuaries at Oliver Wyman, co-wrote an article
for Contingencies magazine, which is published by the American Academy
of Actuaries, which estimated the impact of the age rating compression
on different age cohorts in States that currently allow age rating
beyond 3 to 1. The importance of this work is to help move beyond
looking at premium changes based on broad averages, especially in a
case where an average would mask substantial differences. We believe it
is especially important to look at the age cohort from 21 to 29, since
even after accounting for ACA's provision requiring that adult children
be allowed to remain on their parents' coverage until age 26 this age
group has an uninsured rate that is roughly twice the uninsured rate
for the nonelderly population.
To create our study, we used three primary data sources. The first
was the 2011 Current Population Survey (CPS) conducted by the U.S.
Census Bureau (use of the 2011 CPS data takes into account the impact
of the ACA's adult child coverage provision, which became effective for
plan years beginning on or after Sept. 23, 2010). For premium-level
assumptions, we relied on Congressional Budget Office (CBO) estimates
regarding selection and impact of increased benefit levels tied to
actuarial values. We excluded the effects of medical cost trend because
it's assumed to occur regardless of the ACA. (CBO estimates of premium
increases include growth in the underlying cost of coverage related to
an increase in benefits over what is purchased today, positive
selection due to an assumed improvement in risk pool mix, and lower
prices due to greater market efficiencies.) Our estimates of the level
of premium assistance are generous, as we based them on average
premiums. Had we based them on estimates of premiums for the second
lowest-cost silver plan (as will be the case under the ACA), the
assumed levels of premium assistance would have been lower and consumer
out-of-pocket costs for health insurance and the premium rate changes
in 2014 would have been higher.
To construct premiums by age in 2013, we relied on a set of
proprietary rating factors maintained by Oliver Wyman. These rating
factors are based on costs and are consistent with factors used in the
industry. For 2014, we used the standard age curve that CMS put forward
in its proposed Health Insurance Market Rules. We also collected data
from two large health insurance issuers to verify our estimates derived
from CPS data on demographic distributions and found similar results
when looking at these carriers' actual market data.
While a range of ACA provisions will be implemented in 2014,
perhaps the most important for young adult insurance premiums are the
provisions for age band compression and the provisions related to
advanced premium assistance tax credits and cost-sharing reduction
assistance. The essence of age band compression is that younger people
pay more for their coverage so that older people can pay less. As with
many other issues that affect pricing, this is effectively a matter of
the amount of cross-subsidization that will flow among different
enrollees with respect to their health insurance premiums. We need to
distinguish the cross-subsidies that are the result of age band
compression from the general pooling of risk that underlies all
insurance. While insurance generally provides a retroactive cross-
subsidy among insured individuals to protect against unknown risks, age
band compression is a prospective cross-subsidy from the young to the
old.
Our analysis shows that under the ACA, premiums for people aged 21
to 29 with single coverage who are not eligible for premium assistance
would increase by 42 percent over premiums absent the ACA. People aged
30 to 39 with single coverage who are not eligible for premium
assistance would see an average increase in premiums of 31 percent.
Those with single coverage aged 60 to 64 who are not eligible for
premium assistance would see about a 1 percent average increase in
premiums. Our estimates of these effects are shown in Chart 1 and
reflect the assumptions described above. These estimates assume a
starting age band of about 5 to 1, reflecting States where coverage
currently is underwritten.
Our core finding is that young, single adults aged 21 to 29 and
with incomes beginning at about 225 percent of the FPL, or roughly
$25,000, can expect to see higher premiums than would be the case
absent the ACA, even after accounting for the presence of the premium
assistance. Similarly, single adults up to age 44 with incomes
beginning above approximately 300 percent of FPL can expect to see
higher premiums, even after accounting for premium assistance. This is
because in today's market, younger enrollees can buy coverage that more
closely reflects their expected actuarial costs based on their age, and
this coverage is pooled with other similar risk classes in accordance
with standard actuarial principles. In addition, the ACA requires that
all nongroup coverage meet essential health benefit requirements, both
with respect to the type of services covered and with respect to the
actuarial value of the coverage.
Consider, for example, a 25-year-old person with income at 300
percent of FPL, or $33,510. This person currently could purchase
coverage for about $2,400 per year, or 7.2 percent of his or her
income. Age band compression and the other changes to the ACA would
result in premiums (before premium assistance) increasing by 42 percent
to $3,408. As shown in Chart 2, this person at 300 percent FPL will be
required to pay 9.5 percent of his or her income, or $3,183, toward the
cost of coverage. The cost of his or her actual premium would increase
by $783, even with the $225 in premium assistance. (The impact of cost-
sharing reduction assistance at these income levels is not relevant
because the assistance completely phases out at household incomes above
250 percent of FPL.)
While our analysis focused primarily on the impact of age band
compression, the interaction of age band compression and the
elimination of premium variation related to health status also deserves
attention. Analysis of representative carrier data suggests that
eliminating health status as a rating factor itself may increase
premiums by roughly 17 percent to 20 percent for those who have
preferred rates because of lower-than-average health risks. Young
adults often qualify for these preferred rates. These increases would
be in addition to any premium rate change due to age compression,
required increases to benefits, or other factors discussed above. On
the flip side, older individuals often cannot get coverage in the
nongroup market or afford coverage if it is offered. The ACA addresses
many of these concerns for older persons separate from the issue of age
band compression. It mandates that nongroup coverage be offered on a
guaranteed-issue basis. The ACA's prohibition on varying premiums based
on health status will lower rates for older people. And the same
arguments that apply with respect to premium assistance for younger
individuals apply to those who are older--for anyone with household
income up to 400 percent of FPL, the ACA makes premium assistance
available that caps spending on coverage at 9.5 percent of income, or a
lower amount for incomes less than 300 percent of FPL. The difference
between young and old at similar income levels is that younger
individuals at a given income level are much less likely to find it
economically rational to purchase coverage if it takes up 9.5 percent
of their income, while older individuals have a greater expectation of
health care cost spending as a percentage of income.
In light of these tradeoffs, it is important to consider ways of
mitigating the effect on rates for younger people while leaving
benefits of the ACA in place for older people in the pre-65 age cohort.
Breadth of Impact
Looking at the uninsured by FPL and age in 2011 shows that 11.2
million people (or almost 25 percent of the uninsured in 2011) were
between the ages of 21 and 29, and roughly 1.4 million of these
individuals will not be eligible for premium subsidies because their
household income exceeds 400 percent of FPL. At the same time, close to
another 2.6 million uninsured individuals are estimated to have incomes
above 225 percent of FPL, the crossover point above which those
purchasing single coverage can expect to pay more out-of-pocket for
coverage than they otherwise would, even after accounting for premium
assistance. In total, this means that close to 4 million uninsured
individuals aged 21 to 29--or roughly 36 percent of those currently
uninsured within this age cohort (4 million/11.2 million)--can expect
to pay more out-of-pocket for single coverage than they otherwise
would, even given the availability of premium assistance.
Roughly 7.6 million people, or 40 percent of those covered in the
nongroup market in 2011, had incomes above 400 percent of the FPL and
would be ineligible for premium assistance. Taking into account both
the 400 percent FPL phase-out level and the 225 percent FPL crossover
point, we estimate that almost 80 percent of those ages 21 to 29 with
incomes greater than 138 percent of FPL who are enrolled in nongroup
single coverage can expect to pay more out-of-pocket for coverage than
they pay today--even after accounting for premium assistance. With a
crossover point of about 300 percent of FPL for those aged 30 to 44, we
estimate that about one-third of those older than age 29 with incomes
greater than 138 percent FPL who currently are insured with individual
contracts will see higher premiums even after accounting for premium
assistance.
Also of potential importance to the cost of coverage for young
adults are two ACA provisions: the creation of a catastrophic plan
option and coverage of adult children to age 26 through their parents'
group coverage. The ACA provides that beginning in 2014 issuers can
offer a catastrophic plan option to those under age 30 and to others
for whom the cost of coverage is deemed unaffordable. The ACA's
provisions on cost-sharing applicable to ``metallic level'' coverage
and the actuarial value requirements do not apply to these plans. If
they are substantially more affordable than other coverage,
catastrophic plans may prove an important option for young adults to
keep premiums affordable (though premium assistance will not be
available to those purchasing the catastrophic coverage, regardless of
income). The ACA also includes provisions allowing parents to keep
adult children on their employer-sponsored group coverage up to age 26.
This provision is already in effect, and early indications are that it
has helped to cover more young adults. Because this coverage is by
definition group coverage, however, increasing dependent coverage for
young adults in this way does not improve the quality of the risk pools
in the nongroup market. In fact, comparing the 2011 CPS data against
earlier periods suggests that one effect of the adult child coverage
provision on the nongroup market has been to increase the proportion of
older enrollees in relation to younger enrollees.
From a policy perspective, the issue of age band compression and
whether its effect on the cost of coverage for young people is
outweighed by the value of premium assistance matters for at least two
reasons:
Equity--While judging fairness and the tradeoffs implicit
in age band compression raises subjective questions, technical analysis
can help objectively unmask distributional differences relevant to this
question.
Market Efficiency--If people aged 21 to 29 are asked to
pay substantially more for their coverage than they otherwise would,
will they choose to obtain or maintain coverage at all?
This question has clear implications for insurance markets, which
rely on the presence of balanced risk pools in order to provide
affordable coverage. Younger people tend to be healthier and have
expected health care costs that are lower than those of older people.
An adult near retirement age, for example, is generally expected to
have health care costs that are roughly six to seven times or more than
those of the average male aged 21 to 29. If healthy young people choose
to leave the risk pool or join in proportionately fewer numbers
relative to those with immediate health care needs, the effect would be
to create an unbalanced risk pool and higher prices for those seeking
coverage.
Our analysis raises questions as to whether younger individuals
will perceive coverage as cost effective. In our analysis, we blended
young males with young females to look at age 21 to 29 cohorts as a
whole. Had we broken the analysis out by gender, it would show a
greater impact on young males (meaning premium increases would be
higher and the crossover point would occur at a lower FPL level) and
less of an impact on young females. The CBO's 2009 analysis of premiums
under the ACA suggests that more young people would obtain coverage
under the ACA than under current market conditions, leading presumably
to the conclusion that risk pools for nongroup coverage in 2016 would
be younger and healthier than today's markets. More recent estimates at
the State level by various parties have reached different results.
These analyses have focused on factors such as the impact of guaranteed
issue and the elimination of underwriting. Important to all these
analyses are assumptions regarding the effectiveness of the individual
coverage mandate, which could encourage young people to obtain and
retain coverage even if it is not otherwise in their perceived economic
interest to do so. In this regard, the ACA requires that every
individual maintain coverage or pay a tax penalty that is equal in 2014
to the greater of $95 or 1 percent of modified adjusted gross income,
with the penalties for not maintaining coverage gradually increasing
over time--phasing up to the greater of $325 or 2 percent for 2015 and
ultimately the greater of $695 or 2.5 percent of income after 2016. The
relatively low penalties associated with the individual mandate make
the effectiveness of the mandate uncertain, particularly in the first
few years of reform when stability is essential and the penalty can be
expected to fall well below the annual cost of the minimum standard of
coverage required under the ACA. This situation was given clarity in
the June 2012 ruling from the U.S. Supreme Court--the law does not
require maintenance of coverage, only maintenance of coverage or
payment of the tax penalty.
Given the significance of these issues, policymakers should assess
how various ACA provisions affect the underlying affordability and cost
of coverage for younger individuals, in order to better understand
issues that may affect their decisions to obtain and/or maintain
coverage. Understanding these issues requires analyses that go beyond
consideration of broadly stated averages, which can mask the effects on
important subpopulations. There are several options for mitigating the
potential impact of age band compression. One approach, provided the
ACA allows for this, would be to phase in the age band requirements
over a period of years, thus allowing the market to stabilize with
respect to other changes before full implementation of age band
compression requirements. This might also bring about higher enrollment
levels among young adults, which could lead to a healthier risk pool
overall and help hold down premium rates for everyone--young and old.
Another complementary possibility would be to ensure that the
pricing rules for catastrophic coverage provide adequate flexibility to
increase the likelihood that these policies will be affordable. This
appears to be the approach that CMS had taken in its recently released
``Notice of Benefit and Payment Parameters for 2014.'' Affordability is
especially important for young adults who have incomes that make them
ineligible for premium assistance or are above the 225 percent FPL
crossover point. For these individuals, an affordable catastrophic
coverage plan could mean the difference between obtaining and going
without coverage. Because these plans are not eligible for premium
assistance and are limited to those age 30 and younger (and those for
whom coverage is ``unaffordable''), there would be a natural limiting
point with respect to the number of people who would be expected to
enroll. As a result, the potential impact on coverage costs for older
people because of the reduced level of cross-subsidy from those
enrolled in catastrophic coverage would be limited.
The Urban Institute prepared a similar study using their simulation
model to assess the impact of the age rating compression. In general,
the results of their model are consistent with our results for the
youngest ages. The Urban Institute estimated that the increase in
premium rates due to the age rating compression would be 21.3 percent
for the ages 21 to 27, compared to our estimate of 29 percent. Further,
we agree with the Urban Institute's conclusion that ``most young adults
currently covered by nongroup insurance will be shielded from the full
effects of the narrower age-rating bands.'' However, we believe that
some young individuals will be affected by the age-rating and will see
substantial increases beginning in 2014.
iii. insurer taxes
The ACA, establishes an annual fee on the health insurance sector--
effective in 2014. The new fee applies with some exceptions to any
covered entity engaged in the business of providing health insurance
(including private plans that participate in public programs), but does
not include self-insured employer-provided health plans. The amount of
the fee will be $8 billion in 2014, increasing to $14.3 billion in
2018, and increased based on premium trend thereafter. The fees are
non-deductible for Federal tax purposes. As we explain later, this
feature implies that for each dollar assessed and paid in fees, more
than a dollar in additional premium amounts must be collected (e.g.,
$1.54 for every $1.00 in fees, assuming a 35 percent Federal corporate
income tax rate). In total, on a statutory basis, between 2014 when the
fees are first imposed and 2019, the total amount assessed (and
actually collected from health insurers) will be at least $73 billion.
Net revenues to the Federal Government, however, will increase by a
lesser amount as reflected in revenue effect estimates by the Joint
Committee on Taxation (``JCT'') which show Federal revenues increasing
by $60.1 billion over 10 years (2010-19). As highlighted below, both
the JCT and CBO conclude that the new fee on health insurance plans
would increase premiums.
The CBO prepared an estimate of the impact of the market reforms
required by the ACA in a letter to Senator Evan Bayh on November 30,
2009. However, in this document, the CBO made no explicit calculation
of the impact of the insurer fees on average premiums in the market.
Instead, they stated ``these fees would largely be passed through to
consumers in the form of higher premiums for private coverage.''
In a June 2011 letter to Senator Jon Kyl, the JCT explained that
the fee on health insurance providers is similar to an excise tax based
on the sales price of health insurance contracts. They estimated that
repealing the health insurance industry fee would reduce the premium
prices of plans by 2.0 to 2.5 percent, and that eliminating this fee
could decrease the average family premium in 2016 by $350 to $400.
Our analysis quantified the impact of the fees imposed on health
insurers under the ACA on the cost of health insurance coverage in both
the commercial and public sectors. Our analysis estimates that the
insurer fees will increase the costs of fully insured coverage by an
average of 1.9 percent to 2.3 percent in 2014, further increasing over
time such that by 2023, the fees will ultimately increase costs on
average by 2.8 percent to 3.7 percent. This implies a material increase
the average dollar cost of fully insured coverage, raising the average
cost of such coverage by several thousand dollars over a 10-year period
beginning in 2014.
iv. cost of newly insured
The Society of Actuaries (SOA) sponsored a report that was prepared
by Optum that estimated the impact on claim costs due to the expansion
of the nongroup market. It is expected that in most States, which
currently do not require guarantee issue, new entrants to the nongroup
market will have higher morbidity than those currently insured.
Therefore, it is expected that the premiums in the nongroup market will
need to be increased in 2014 due to the inclusion of a less healthy
population. On average, Optum estimated that the nongroup claim costs
per member per month would increase by 32 percent after inclusion of
new entrants in the market. The results vary widely by State from a
reduction of 13.9 percent in New York (which currently has guarantee
issue and community rating) to an increase of 80.9 percent in Ohio.
Generally, the States that have more restrictive market rules prior to
the ACA will see lower claim costs relative to current costs. The full
report can be found at http://cdn-files.soa.org/web/research-cost-aca-
report.pdf.
v. other factors
I briefly discuss other components expected to affect premiums in
the nongroup market:
Increase in benefits required for essential benefits and
actuarial value: The CBO estimated that the increase in premiums due to
the amount of insurance coverage would be 27 percent to 30 percent.\3\
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\3\ http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/
doc10781/11-30-premiums
.pdf.
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Competition created by the Exchange marketplace: It is
expected that the open marketplace created as a result of the insurance
exchanges will put pressure on health plans to keep premium rates down
in order to be one of the lowest cost options and to attract those that
are eligible for subsidies. If a health insurer's premium rate is
greater than the second lowest silver plan, enrollees would have to pay
more out-of-pocket in premium that would not be reimbursed by the
premium subsidies.
Additional fees and taxes including the Exchange fees of
3.5 percent in federally facilitated exchanges and the medical device
tax which will likely be passed through to premiums.
The temporary reinsurance program will reduce nongroup
premium rates in the first 3 years after January 1, 2014: Health
insurers will receive reimbursement for individual claims that exceed a
threshold. These reimbursements will decrease the insurers' claims
costs during 2014 to 2016, when this program in operational. The State
of Vermont recently published post-ACA rate filings, one of which
estimated that the reduction in cost for the nongroup market due to the
temporary reinsurance program would be 9.6 percent in 2014.\4\
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\4\ http://www.dfr.vermont.gov/sites/default/files/MVPH-
128956063.pdf.
The Chairman. Thank you very much, Mr. Carlson, and thank
you all for your testimony.
I knew that Senator Murphy was delayed in getting here
because of prior commitments, and I want to recognize Senator
Murphy, who wanted to make some statements.
Statement of Senator Murphy
Senator Murphy. Thank you very much, Mr. Chairman. I merely
wanted to welcome Mr. Counihan to the panel; so glad that the
committee selected him to join us.
I am going to have to leave again, but we are very lucky to
have him in Connecticut overseeing our Exchange. Despite the
tough timelines, we are doing very well and he brings to this
panel a wonderful combination of experience in the public
sector having worked a similar job in the Massachusetts
Connector, as well as in the private sector. He has been very
articulate talking about the provisions of the health care bill
that will help to ease some of the rate shock concerns that
have been expressed by these panels today.
And I wanted to thank the Chairman for having him be part
of this panel and thank him for being here and for his great
work in Connecticut.
The Chairman. Thank you, Senator Murphy.
We will now begin a round of 5-minute questions. Ms. Cook,
Stacy, when you said you are now $40,000 in debt and may have
to file bankruptcy this year.
I think I saw someplace, and maybe staff or someone down
there can help me, that one of the single largest causes of
personal bankruptcies in America was health care debt. Am I
saying it correctly? Professor Corlette.
Ms. Corlette. I believe that is correct, Senator.
The Chairman. I also saw that one of the reasons, the
highest reason for bankruptcy and also for losing homes, not
being able to pay mortgages, is because of high medical debt.
I think your story really does illustrate so much of what
is going on in America. Unfortunately, there are hundreds of
thousands of people in your same situation. It may not be
cancer, but it may be something else.
Ms. Cook. I agree.
The Chairman. They just simply cannot get insurance
coverage. I mean, I was struck by the fact that you moved back
to Iowa and the Iowa State Health Insurance Plan would not help
because you were diagnosed in Arizona. I just find that
alarming: that because of moving from one State to the next, I
mean, you were diagnosed in one State, but you cannot get the
coverage in another State. That just is mindboggling.
So now, you are doing your followup. But again, now you are
pre-existing, this won't happen until, what, October 1st of
this year, is that right? When the no pre-existing condition
clauses start, is that right?
Ms. Corlette. Miss Cook will be able to enroll in a plan
starting October 1st, but the coverage does not actually start
until January 1st.
The Chairman. She can enroll, but the coverage starts in
January.
Ms. Corlette. The open enrollment period begins in October.
The Chairman. Oh, that is right. There is an open
enrollment period. So, at least you have the peace of mind of
knowing that----
Ms. Cook. Yes.
The Chairman [continuing]. You will be able to get coverage
that you can afford beginning next January. And you can seek
the health care that you need.
Ms. Cook. Yes.
The Chairman. I just wish you didn't have to go through
that. I wish hundreds of thousands of Americans did not have to
go through that.
And then when I hear about young people now, free riders as
we have called them in the past, that now they are going to
have to sign up. They are going to have to pay more. Mr.
Carlson pointed that out. It has been pointed out before. These
young people have got to pay more. But I bet you when you were
in your early 20's, you were diagnosed at what age, 28?
Ms. Cook. Yes.
The Chairman. I bet before that, you probably thought you
were just going to sail right through.
Ms. Cook. I actually turned down cancer insurance not 2
months before I was diagnosed. I never thought that I----
The Chairman. Because you are young and you are healthy.
Ms. Cook. Yes.
The Chairman. Yes, you are invulnerable. I remember. I was
like that once. Young, you're invulnerable.
I think what Mr. Counihan said, really brings it home that,
how did you say that, again? I am going to remember that, Mr.
Counihan. I just thought it was very profound. You said that,
``The hallmark of health reform has been the concept
of shared responsibility, the sense of shared
ownership, of a common value that our Nation benefits
more from more citizens realizing the peace of mind of
health insurance coverage.''
I think that is really it. I think that's really it, that
this is a shared sense of responsibility.
As I said to the earlier panel that we all know, any of us
who have been involved in insurance know that the best
insurance coverage, the cheapest is when you have more people
in the pool. Get more people in the pool. When you start
dividing it up, there are going to be some winners, and there
are going to be some losers. And therefore, then you put the
responsibility, then you shift, you shift to those who are the
least able to maintain health, or those who have been hit with
a double whammy like Miss Cook. So I just see it in those terms
of a shared value in this country.
And as others have pointed out that we are paying for it
one way or the other. We pay for it through uncompensated care.
Sadly enough, we also pay for it through the suffering of
people who cannot get insurance coverage. Is that not also
something we care about, too, in our society? People should not
have to. I mean, it is enough to be hit with a chronic illness
or disease, cancer, other things, it is enough. But then to be
double hit with the fact that you cannot even get health care.
You cannot pay for it. You have to go into debt up to your
eyeballs, have to file for bankruptcy. Is that what we are
about as Americans? Is this the right system? Is that the right
kind of system?
I think, as I said, Miss Cook, I think you just brought it
all home with your story about what this is all about. I will
have some more questions maybe, but I just wanted to get that
out.
Senator Alexander.
Senator Alexander. Thanks, Mr. Chairman.
I want to thank the witnesses for coming. Sorry, I was a
little late getting back because of the vote. Miss Cook, thank
you especially for coming. That cannot be easy to do.
Mr. Carlson, I would like to ask you a couple questions.
You mentioned the Congressional Budget Office report in 2009.
It estimated, I think you said, that the President's proposed
health care plan would increase individual premiums by 10 to 13
percent. Is that what you said?
Mr. Carlson. That is correct.
Senator Alexander. Some of those people would then have
subsidies, right, which would reduce the cost?
Mr. Carlson. Yes.
Senator Alexander. But not all of them, right?
Mr. Carlson. Not all.
Senator Alexander. Do you know what the percent was?
Mr. Carlson. I do not know those numbers offhand.
Senator Alexander. I think it was about half.
Mr. Carlson. But it was in our article, we do show the
numbers there.
Senator Alexander. Right. That was a discussion that I
happened to have with the President. I know that in 2008, he
went around the country, and we have it in ``The New York
Times'' saying that he would lower the country's health care
cost of premiums by $2,500 for a typical family.
I was asked to speak at the Health Care Summit the
President invited me to in 2010, which I did, and we had a
difference of opinion when he said that individual premiums
would go down 14 to 20 percent. I cited that CBO report saying
they would go up, net, 10 to 13 percent. He said I was wrong. I
think I was right. The CBO was talking about an actual increase
in premiums. Is that correct?
Mr. Carlson. That is correct, yes.
Senator Alexander. And in your study, the Society of
Actuaries, one of the Obama administration officials said that
was an insurance company report. Is that correct?
Mr. Carlson. The Society of Actuaries is an independent
organization and they sponsored the report. It was written by
Optum which may be owned by an insurance company, but from my
perspective it is an independent report.
Senator Alexander. Your conclusion was that individual
premiums would rise, how much?
Mr. Carlson. The SOA report expected that they would go up
32 percent due to the new----
Senator Alexander. This would be when the law takes effect,
is that right, in 2014 through----
Mr. Carlson. That is correct.
Senator Alexander [continuing]. 2017?
Mr. Carlson. Well, I think it is----
Senator Alexander. Over what period of time?
Mr. Carlson. I do not know that they quantified the timing
of that increase.
Senator Alexander. Yes. And do you recall what the reasons
for the increase in the prices, the expected jump in rates
were? What the principle, driving forces were?
Mr. Carlson. That was principally going to be driven by the
individuals who are going to be entering the market who had
pre-
existing conditions and needed the insurance for getting
medical care.
Senator Alexander. Would another one be that the
requirement that somebody my age would pay less and somebody my
son's age would pay more?
Mr. Carlson. That is actually not included in that 32
percent.
Senator Alexander. That is a cost in addition.
Mr. Carlson. For a young individual, that would be a cost
in addition.
Senator Alexander. Do you have any idea how much individual
premiums for young men may go up over the next several years.
Have you done any estimate of that?
Mr. Carlson. We have not necessarily put the pieces
together, but it is possible you can do that and kind of look
at all the different components, and see how they add up, and
it would be quite----
Senator Alexander. But wouldn't common sense say that
unless coverage was reduced, which it has not been so far as I
know, that if you reduce prices, costs for someone my age, they
go up for someone my son's age. That is the whole point of the
rating, is it not?
Mr. Carlson. That is correct, yes.
Senator Alexander. Equalize that. In the equalization, it
tends to keep this one down and raise this one up. Would
another reason that the individual rates might be going up be
that the requirements that the policies have more benefits to
them, that they are richer policies?
Mr. Carlson. That is correct.
Senator Alexander. What did the report say about that?
Mr. Carlson. The CBO report said it was 27 to 30 percent. I
think it depends greatly on what State you are in. Some of the
States have already significant mandates for providing
benefits, so their increases may be significantly less than
that.
Senator Alexander. Have you done any work to determine
whether people who are self-employed, the policies they
typically have, would be consistent with the requirements of
the new law?
Mr. Carlson. I am sorry. I do not think I understand the
question.
Senator Alexander. The people who are self-employed and
have their own individual insurance plan, will then have to
have a new plan that meets the requirements of the law.
Mr. Carlson. Absolutely. Yes.
Senator Alexander. Have you done any work to determine
whether the new requirements are consistent with what most
people already have?
Mr. Carlson. No, I mean, I think all of these, the factors
that we are discussing will affect those individuals as well.
Senator Alexander. Mr. Chairman, there is no doubt that the
law expanded coverage, but I think the point we are finding is
that someone is going to be paying the cost. Individual rates
are going up.
The President said they would not. He said that at a
meeting with Members of Congress, he was talking about actual
increases in rates. He was, unfortunately, incorrect about that
based upon all of the projections that I have seen from the
Society of Actuaries, from BlueCross BlueShield in Tennessee,
and others. But we will know for sure when the implementation
of the law takes place fully beginning next year.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Franken.
Senator Franken. As I said in the first panel, the record
is that, for over the last 3 years, we know that part of ACA
has gone into effect. And now, if you have pre-existing
conditions as a child, you have to be offered coverage. And we
know that the growth in the cost of care has actually slowed
down relative to what it has been in the last 50 years.
The President never said it would go down as an absolute.
It was----
Senator Alexander. I have it here. I was at the meeting,
Senator Franken. He was speaking to me and I have the text here
if you would like to read it afterwards.
Senator Franken. I never heard him say it publicly. What he
said publicly was that relative to what they would otherwise
be, costs would go down. That is what I heard publicly.
Senator Alexander. I do not mean to interrupt your time.
Senator Franken. That is quite all right. That is in
response to a private conversation you had with the President
or a conversation you had with the President. What I heard
publicly is that the price, we were bending the cost curve. I
do not know how often we heard that. I would like to take that
time, though.
The Chairman. I do not see a statement.
Senator Franken. I would like to take that time.
Professor Corlette, as you discuss in your written
testimony, the health care law includes new requirements for
insurance companies that will help prevent premium increases,
and I think they already have.
For example, my Medical Loss Ratio provision--a provision
that I based on a Minnesota State law that has been on the
books since 1993--requires insurance companies to spend 80 to
85 percent of your premium dollars on actual health care. And
only 15 percent for large group policy, 20 percent for a small
group policy, for an individual policy, on administrative
costs, on profit, on marketing, CEO salaries, et cetera. If
your insurance company goes over this ratio, you get a check
back or your employer gets a check back. Over 13 million
Americans benefited from that.
In your analysis, how will these features of the health
care law pressure insurance companies to keep premiums from
going up? Do you think the Federal Government is doing a good
job implementing this provision and is there room for
improvement?
Ms. Corlette. Thank you, Senator, for that question.
As you know, last year, about 12.8 million Americans got
over $1 billion in rebates because of your MLR provision. So we
thank you for that.
I do think the Federal Government is implementing it well.
I am sure there may be some tweaks that people might be
advocating for, but in general, I believe it is being
implemented well.
I also think this provision of the law coupled with the
rate review provisions will take on added importance as we go
into 2014 and the insurance market changes. Because it will be
really important to have State insurance departments and the
Feds examining the proposed rate increases that are coming in
from the insurance companies, and looking at the assumptions
they are making and the projections they are making to ensure
that they truly are justified. And if they are not justified,
thanks to the MLR provision, consumers will get that money back
at the end of the year.
So both of those provisions combined are critical. Thank
you.
Senator Franken. Thank you. Miss Cook, thank you for your
testimony.
Ms. Cook. You're welcome.
Senator Franken. This is why I ran. There is a woman in
Fergus Falls, MN who has diabetes. When I was running in 2007-
8, her son, 24 years old, had diabetes, pre-existing condition.
He could not get insurance. So she shared her insulin with him.
This is why we are doing this.
What does it mean to you that you know that with a pre-
existing condition, you will now be able to get coverage?
Ms. Cook. It means a lot to me, because after having it
twice, there is a good chance that possibly I could get cancer
again. So at least I will be able to have insurance if it does
happen again.
Senator Franken. I know I am out of time. I would love to
have a second round.
The Chairman. Senator.
Senator Franken. I said I am out of time, but I would love
to have a second round.
The Chairman. I will try. We will have a second round.
Senator Franken. Thank you.
The Chairman. Professor Corlette, I want to get to the
essence of this. Mr. Carlson's analysis, and I read it last
evening--I looked at it again here--compares premiums for
coverage now with projections for premiums for coverage after
2014. But again as Senator Alexander and I were just having a
little conference here privately, that is not really comparing
apples to apples, is it, because the benefits that are going to
be provided will be a lot different than what they have right
now.
You described in your testimony some of the gaps and holes
in the benefits in the current market. Could you elaborate on
that, the kind of ``Swiss cheese'' coverage--that is my own
term--that we have now that they would have to pay for out-of-
pocket. But now, that is going to be a covered benefit.
Could you elaborate on that?
Ms. Corlette. Sure. Thank you, Senator.
I think your analysis is dead-on and that premiums actually
only tell you one part of the picture. People in today's market
frequently have to pay out-of-pocket when care is not covered
under their plan. And it is the reason why 57 million Americans
live in families struggling with medical debt and 75 percent of
those Americans have health insurance.
We are moving to a system that doesn't just address the
premiums that people pay, but the actual overall out-of-pockets
that they pay. So when you look at the financial picture for an
individual or a family, you have to be looking at both.
The Chairman. OK. A followup then, this analysis Mr.
Carlson compares premiums that would have been paid by
uninsured adults before versus after ACA reforms are in effect.
But doesn't that miss the fact that many uninsured people in
the market now have been turned down for coverage altogether,
and then that they have to pay for medical costs out-of-pocket,
Miss Cook being a primary example of that? I mean, isn't that a
fact that many of them have already been turned down?
Ms. Corlette. Yes, Senator. And I think that those kinds of
out-of-pocket spending should----
The Chairman. So I asked Mr. Carlson, how can you compare,
have an analysis that compares premiums that would have been
paid by uninsured adults before versus after in-effect? Since a
lot of the people that you are looking at there--I don't know,
maybe you can correct me--you did not separate out those that
had been turned down for insurance. Did you?
Are they not lumped in that same group?
Mr. Carlson. They are, yes, and I don't disagree with what
you are saying. I think as an actuary, our responsibility is
simply to educate people on what the cost of this is going to
be. That really is the purpose of the reports.
The Chairman. There is no cost to Ms. Cook. She cannot pay
anything. She gets turned down. So it is not a cost before
versus a cost after. It is the cost after for full coverage
because she has already been turned down.
We are not talking about someone who is paying in for
insurance now and what they are going to pay afterward. We are
talking about someone now who cannot even get insurance, who
has medical bills, racking up debt compared to what is going to
be afterwards.
But your analysis does not take, the actuarial analysis,
does not take that into account.
Mr. Carlson. Right. And you are correct. We are looking at
people who are currently insured and what their expectations
are going to be.
The Chairman. Perfect. Thank you for your honesty. I
appreciate that very much. We are not really looking at apples
versus apples on this thing.
Now, I must, of course I will be able to with my friend on
this here, but we were looking at the statements by President
Obama--he used to be a Senator--in regards to this going back
and forth. And in my reading of it, I thought it was very clear
that he pointed out this difference in his statement there.
Do you mind if I read that?
Senator Alexander. No, but you have to read the whole
thing.
The Chairman. I can't read the whole thing.
Senator Alexander. I don't mind at all if you read it.
Senator Franken. I would love to hear the context.
The Chairman. Well, no. That is not it. That was another
one.
Senator Alexander. Well, here is the part.
The Chairman. Of course, look, we are all--in this business
sometimes we do say things that maybe we did not give full
thought to or something like that, so I always excuse those.
If someone in our position has said something that is not
quite square, you have got to go back and say, ``Is that what
they really meant or did they mean something else?'' People do
get a lot--and this is a confusing topic sometimes, even for
those of us that have been in it for years and years.
Sometimes, I know I have said things I have to go back and say,
``Did I say that? If I did, that is not what I really meant. I
was thinking of something else, but it came out wrong.''
Senator Alexander. That is what he said to me.
The Chairman. Yes, well, this just struck me that, I guess
this is a transcript.
Senator Alexander. Right.
The Chairman. He said, this is the President,
``So Lamar, when you mentioned earlier that you said
premiums go up, that's just not the case according to
the Congressional Budget Office.''
Senator Alexander came back and said, ``CBO report says the
premiums will rise in the individual market as a result of the
senate bill.'' The President says, ``No, no, no, no. Let me,
and this is an example of where we have got to get our facts
straight.'' Senator Alexander, ``That's my point.'' This is a
good reading.
[Laughter.]
And the President says,
``Well, exactly. So let me respond to what you just
said, Lamar, because it's not factually accurate.
Here's what the Congressional Budget Office says, `The
cost for families for the same type of coverage as
they're currently receiving would go down 14 to 20
percent.' What the Congressional Budget Office says is
that because now they've got a better deal because
policies are cheaper, they may choose to buy better
coverage than they have right now, and that might be 10
to 13 percent more expensive than the bad insurance
that they had previously,''--what I call the `Swiss
cheese' coverage--``But they didn't say that the actual
premiums would be going up. What they said was that
they'd be going down by 14 to 20 percent.''--That is
that apples-to-apples--``I promise you, I've gone
through this carefully with the Congressional Budget
Office. I'd be happy to present this to the press,
whoever is listening, because this is an important
issue.''
Well, anyway, it goes on and on, and on and on, and on and
on. But I thought what the President was trying to do was to
make the case that I was trying to just make is that, yes,
premiums are going to go up because you've got better coverage.
You've got more complete coverage. Before, if you were lucky
enough to be able to buy it, you had ``Swiss cheese'' coverage
or you are like Miss Cook, you don't even have ``Swiss cheese''
coverage; you don't have any coverage at all. I guess that is
just the point I was trying to make, and I have used up way too
much of my time.
Senator Alexander.
Senator Alexander. So thanks, Mr. Chairman. And I won't use
up much of my time. And on one point, I do not disagree with
you, on one of the main reasons that premiums are going to go
up is because of expanded coverage. I don't disagree with that.
In fact, that is what the Society of Actuaries found.
Is that right, Mr. Carlson?
Mr. Carlson. Yes, that is correct.
Senator Alexander. And you have found that the medical
claims will go up by about one-third.
Is that correct?
Mr. Carlson. Yes.
Senator Alexander. And as a result, the cost of the
premiums would go up significantly.
Mr. Carlson. You can make that assumption, yes.
Senator Alexander. And then there were two other reasons
that costs were going up. One is the costs are allocated
differently.
Is that correct?
Mr. Carlson. Well, the cost allocation would impact the
younger individuals, but obviously----
Senator Alexander. So for a younger individual it might go
up more.
Mr. Carlson. Yes.
Senator Alexander. And then the third reason was what
Senator Harkin said was that the policies are richer. I mean,
if you've got more of a Buick or even a Cadillac, than a
Chevrolet or a Ford, and so you are paying more for it.
Mr. Carlson. Right.
Senator Alexander. So those are all correct reasons, but
the point is the costs are going up.
The discussion the President and I had, and without plowing
it too much, I had said that the congressional--just what Mr.
Carlson said. That under the President's plan, the CBO said in
2009 that the premiums would actually go up 10 to 13 percent in
the individual market. That is what it said. It did not say it
would go up relative to anything other than what they were
today, they would be that much higher. They also said that some
people would get subsidies; that was about half the people, I
think.
And then the President interrupted me and said that I was
wrong about that, and he pointed out that for a comparable
policy, costs would go down. Correct. But we are not talking
about a comparable policy. We are talking about policies that
are richer, that cover more people, and that have different
rating systems.
The fact of the matter is, according to the Society of
Actuaries, when this law is fully implemented--and most of it
happens next year--costs are going up in the individual market.
And BlueCross BlueShield of Tennessee says they are going to go
up at the rate of about 32 or 33 percent. And for younger
people, it may be 2 or 3 times that. For them, that is rate
shock.
Now, that does not mean it is a bad idea to expand
coverage, that a better policy is not better than a worse
policy. It may mean that giving me more benefit than my son is
something that we ought to talk about.
We just need to be honest about the fact that when this
hits, it is going to be a shock to a lot of people. It is going
to be a rate shock, and we can take credit for the expanded
coverage and the better policy. But somebody has got to pay the
bill. That is what I am saying and that was the difference of
opinion that the President and I had.
Having said that, the President served a nice meal last
night at the White House to a group of Senators, and I was
privileged to be one of them, and I appreciated that very much.
But I thought that was an instructive discussion.
Thank you, Mr. Chairman.
The Chairman. Thanks, Senator Alexander.
Senator Franken.
Senator Franken. My point is the President kept saying, and
said over and over again, he is going to bend the health care
cost curve. Any discussion of whether--you said that discussion
wasn't relative to what it would otherwise be. Well, of course.
So then it is meaningless because if the insurance premiums
were going to go up anyway by more than that, then relative to
what they were going to go up to, it was going to bend the cost
curve and go down relative. And that is important because we
know that in the past 3 years, relative to what insurance
premiums were going to go up to, they have bent the cost curve.
In Connecticut, Aetna, because of the Medical Loss Ratio
cut premiums, did it not? Mr. Counihan.
Mr. Counihan. I do not know the details of that, Senator,
but I know what you are saying.
Senator Franken. It is because the Medical Loss Ratio
includes administrative costs. You have to hit 80 or 85
percent, depending on whether you are an individual policy or a
large group policy.
Let me ask you this: in your actuarial study, the 3.5
percent, you said, is going to get passed to the consumer?
Mr. Carlson. Correct.
Senator Franken. Does that count as administrative cost?
How is that used?
Mr. Carlson. I do not know the exact----
Senator Franken. Well, you are the expert on the study, how
was that 3.5 percent figured in, in the Medical Loss Ratio?
Mr. Carlson. It may not be a part of what is considered
administrative costs.
Senator Franken. May not? What is it? I want to know.
Mr. Carlson. There are certain fees and taxes that are
excluded from the calculation of the administrative expenses
and they may qualify as one of them.
Senator Franken. I would like to know the context. Do you
know, Professor?
Ms. Corlette. I am afraid I do not offhand.
Senator Franken. OK. I think that is important.
Here is the other point. Yes, Ms. Cook's policy is cheaper
than a policy that she might have now, but the policy did her
no good. Doesn't that mean something? Does it mean something to
you, Ms. Cook?
Ms. Cook. Yes.
Senator Franken. It means everything to you, doesn't it? So
yes, policies might increase. The cost of an average policy
might go up because it includes basic coverage.
I think that is the whole point. Half of the bankruptcies
in this country have been because of medical costs; half. Do
you know what the bankruptcies are in Germany and they don't
have a single payer? They have insurance. The bankruptcies
because of medical costs are zero.
That is the whole point of this thing is so that Ms. Cook
can get treated for cancer when she is 28 years old. I cannot
believe we are losing sight of that. So that the mother in
Fergus Falls does not have to share her insulin with her 24-
year-old son. That is the whole point of this. And yet, we have
put things in place, like the Medical Loss Ratio that have
actually bent the cost curve on the cost of insurance thus far.
Isn't that right, Professor Corlette?
Ms. Corlette. It certainly has given insurers an incentive
to price their products more accurately.
Senator Franken. OK. So this study was done by, you said
they are owned by an insurance company? What insurance company
are they owned by?
Mr. Carlson. I believe their parent company is United.
Senator Franken. OK. And most actuaries in this country,
what percentage are employed by insurance companies?
Mr. Carlson. I don't know that number offhand.
Senator Franken. OK. What you are talking about is mainly
about what it costs for people. What age group did you mainly
focus on?
Mr. Carlson. We looked at all age groups, but obviously the
main bullet point is to look at the ages 21 to 39, basically,
to see what the impact on their premiums would be.
Senator Franken. And what percentage of those, say, 21 to
29 would be eligible for subsidies?
Mr. Carlson. I don't have the number offhand, but it is a
majority.
Senator Franken. Professor?
Ms. Corlette. I do not have that number offhand either, but
I would also point out that they may be eligible for Medicaid.
And they can also buy Bronze level or catastrophic plans, which
would be cheaper than the Silver level plans.
Senator Franken. OK. My time is up. I would like to thank
all the witnesses, and I would like to thank the Chairman and
the Ranking Member for this hearing.
I just want to say one more time, the President, when he
talked about this time, and time, and time, and time, and time
again talked about bending the curve, bending the cost curve.
That is what he was talking about.
Senator Alexander. Mr. Chairman, if I am going to be
contradicted, in ``The New York Times,'' July 23, 2008, Barack
Obama said, ``I will lower the health care costs of this
country enough to ``bring down premiums by $2,500 for the
typical family.''
Senator Franken. Yes, and may I say that you can quote
someone, and then the next sentence could be, of course, that
means relative to----
Senator Alexander. Let me read the whole speech by him, Mr.
Chairman. ``In speech after speech, Senator Barack Obama has
vowed that he will lower the country's health care costs enough
to, ``Bring down premiums by $2,500 for the typical family.''
Moreover, Mr. Obama, the presumptive democratic nominee has
promised his health care plan will be, ``In place by the end of
my first term.''
I would not bring this up except for the fact that I was in
the President's Health Care Summit. I said, I repeated what the
Congressional Budget Office said, which was that individual
premiums would go up as a result of this law. The President
said I was wrong. I was right about that. Now, there are
reasons for that.
Senator Franken. No, he explained, though, that what they
said was for if it was the same policy, it would go down.
The Chairman. He did say that.
Senator Franken. We are both acknowledging that----
Senator Alexander. Senator Franken, I was there and you
were not, and I have the transcript and you don't.
Senator Franken. I know, but you read the transcript.
Senator Alexander. I read the transcript and what I said
was, ``Mr. President, the CBO says that the new health care law
will raise individual premiums 10 to 13 percent,'' and that is
precisely what it said.
He then explained that if there were comparable costs,
well, we weren't talking about comparable costs. We were
talking about a new health care law that we were considering,
and which is now the law, and which will have the effect of
raising individual premiums by more than 10 to 13 percent.
Now, I do not think we need to argue about that. That is
just a fact. And there are reasons for it. We have discussed
the reasons. The reasons are that expanded coverage, richer
benefits, those two are the principle reasons; more medical
claims according to the Society of Actuaries.
But he did say that and it is nothing to be ashamed of, he
just said it.
Senator Franken. Well, look, I would note that he said this
at a time when he also said it would be in place before the end
of his first term. So it sounds like pretty early in the
process.
And what I have heard him say is, so many times, is that we
would bend the cost curve, and that means relative to what
health care costs would have gone up anyway. And I am saying
that in the last 3 years since we have passed the Affordable
Care Act, we have had the lowest increase in insurance premiums
than we have had in about 50 years.
So that tells me that we are bending the cost curve, and I
am very proud of the Medical Loss Ratio provision I put in
because that has helped bend the cost curve.
Senator Alexander. The only last word I would say, Mr.
Chairman, is that the President's Health Care Summit was in
February 2010. He was the President. This is when we were
passing the law, and bending the cost curve is all of our
objectives.
But the fact was CBO said individual premiums will go up as
a result of this law 10 to 13 percent. The law has not yet gone
into effect in most parts, and when it does, it looks like it
will cost, the premiums will cost more.
The Chairman. Thank you, I guess, as chair, I do get the
last word.
The record will remain open for 10 days for other
statements to be submitted to the record.
I am listening to this and I am thinking we can go back and
say, he said-she said, they were right-they were wrong. We can
go back and look at all that stuff.
I think where we are now, we just have to ask the question:
will the general public, will the American citizens, writ
large, be better off under this system than they were under the
other system?
Will we close some of these tragic, tragic cases like Miss
Cook and others around that have been so tragically portrayed
today and in other forums? Will we move beyond that?
Will we recognize--I keep coming back to what Mr. Counihan
said--will we recognize that what we are talking about is a
sense of shared ownership of a common value? Shared ownership
of a common value, that value is that our Nation benefits if we
have more citizens covered by some form of health insurance
that have that peace of mind,
I think we are a better country for it. I don't know,
everybody keeps talking about bending this cost curve and stuff
like that. I have said many times, the best way to bend that
cost curve is keep people healthy in the first place.
We keep forgetting about that, prevention, getting to
people early, preventative health care services, wellness
programs that we know work demonstrably. We have data on this
from the Trust for America's Health and other independent
groups.
It seems to be going forward since this is the law. As I
stated in my opening statement, we have had a lot of political
back and forth on this in campaigns all over the country. I
won't be engaging in that any longer.
But it seems that we have settled this. We have a law. The
question is: how do we make it work best? Yes, how do we make
it cost-effective? What is the best cost-effective way of
having this shared value of having everyone covered? Not having
people that have pre-existing conditions, of having that peace
of mind that you won't go bankrupt.
What is the best way? We have the law. If there are
suggestions on how to improve it, make it more cost effective
without damaging Miss Cook, or damaging somebody else, or
separating out this group from another group and saying,
``Well, you are young and healthy. You don't need to
pay anything. You can grab that parachute when you jump
out of the plane,'' so to speak. ``When you get sick,
you can run down and get coverage, but you don't have
to pay for anything now. You're not part of our
society.'' I don't think that is the way we want to go.
From the very beginning of this, the priority in my mind is
to put everybody in this pool, this insurance pool. Put
everybody in this pool. Give everybody at least some basic
coverage which they can rely on, cannot be excluded from no
matter their age, or condition of health, their sex, their
gender. I don't care.
We can go back and say, ``Well, you said this.'' I bet I
have, over the last several years of working on this bill both
as chairman and working on the health care bill, I bet there
are a lot of things I have said that have been wrong.
Maybe I just did not understand it at the time, or I was
thinking of something else. Yes, we make mistakes and say
things. OK, fine. We can go back.
Right now, going forward, how do we make this work? What is
the best way? If you have some ideas on making it more cost
effective, I would like to know it.
That is what I hope these hearings are going to show is
that we are trying to move ahead to change the health care
system and make it work for more people in this country. And to
bring us all into this pool of shared values, of keeping
everyone covered by health insurance.
So I thank all the witnesses for being here. I thank my
good friend, Senator Alexander, and he is a good friend. He
knows that and I respect him highly.
And I will say this publicly. Senator Alexander is always
looking to see just what is the best way forward. What is the
best way? Not going backward, he is going forward and I
appreciate that. It is right to raise these questions. If there
are things that need to be fixed and adjusted, OK, let's figure
out how we do that.
I hope that moving forward, that is the spirit in which we
can go forward, both on this committee and other committees,
too, that have a part of this, like the Finance Committee and
others.
But it is going to happen. I mean, it is set in law.
Nothing is changing it, but fine tuning it. I said before, if
fine tuning needs to be done, then let's figure out how to fine
tune it and make it even better than what it is. I do not think
that what we have is the end-all and be-all of health care
coverage in America. I think it is a heck of a lot better than
what we have had.
But I hope we go forward in that kind of spirit.
With that, thank you all very much. The committee will
stand adjourned.
[Additional material follows.]
ADDITIONAL MATERIAL
Response by Gary Cohen to Questions of Senator Harkin, Senator
Alexander, Senator Sanders, Senator Whitehouse, Senator Baldwin, and
Senator Enzi
senator harkin
Question. One of the most important of the set of consumer
protections that will become effective in 2014 is the requirement that
private insurance plans cover a comprehensive set of essential health
benefits. Congress required pediatric dental services to be covered as
part of this package, recognizing how important oral health is for
children--as the Medicaid program has for years. I'm interested in your
Office's work on this issue. For children and families who currently
have coverage, what is being done to ensure a smooth transition to
2014, without disruption of coverage? Could you describe the Federal
Exchange's outreach and enrollment efforts directed at families with
children without dental coverage?
Answer. CMS has been following a multi-step plan for outreach to
individuals, families, and small businesses in preparation for open
enrollment. This plan is aimed at identifying both individuals who are
without coverage and individuals who have coverage who may transition
to the Marketplace. Children and families who currently have pediatric
dental coverage will be able to keep the coverage they have if they
choose to do so. CMS is in contact with State Medicaid and CHIP
programs to coordinate outreach and eligibility activities, and will
incorporate information into our call center and consumer materials to
direct individuals to this information.
senator alexander
Question 1a. Under the health care law, Medicaid eligibility will
be based, as it is now, on monthly income at the time of application,
while eligibility for premium tax credits in the exchanges will be
based on yearly income.
How is your office coordinating with Federally Facilitated and
State-based Exchanges to ensure that taxpayer-funded subsidies are not
over or under paid to enrollees?
Answer 1a. The Affordable Care Act set up a system of coordinated,
streamlined processes to determine eligibility for enrollment in a
qualified health plan, advance payments of the premium tax credit,
Medicaid, or CHIP. This system is designed to ensure that individuals
and families are enrolled in the right coverage the first time.
Marketplaces will be able to check authoritative data sources such as
IRS income data for tax credit eligibility. On the application,
individuals will be asked to attest to projected annual household
income, as well as current income. If the attestation to projected
annual household income is inconsistent with information that the
Marketplace receives from the IRS and SSA, the Marketplace will take
additional steps to verify the attestation, including requesting
additional documentation from individuals in certain circumstances.
This process is detailed in 45 CFR 155.315(f) and 155.320(c). In
addition, when presenting individuals with an eligibility determination
for tax credits, Marketplaces will make individuals aware of the
potential for reconciliation of advance payments of the premium tax
credit, should their circumstances change. Marketplaces have
flexibility to establish reasonable thresholds for the requirement to
report changes in income. Finally, if an individual, receiving advance
payments of the premium tax credit experiences a reduction in income
over the year, they may be able to claim the difference on their tax
return.
Question 1b. Governor Haslam of Tennessee recently proposed
expanding access to the new exchange in our State to individuals who
would otherwise be eligible for Medicaid. His proposal would affect
175,000 Tennesseans and is similar to the plan put forward by Governor
Beebe of Arkansas. Please provide a status report on how well Governor
Haslam's proposal is being received by the Department.
Answer 1b. HHS remains committed to working with States as they
consider the expansion of Medicaid. As we have outlined, we are
interested in providing States with the flexibility within the law that
they identify as helpful to the coverage of the new adult group made
eligible by the Affordable Care Act. We are pleased that States have
come to us with innovative ideas and we continue to work with each of
them. Like other States, we are working directly with Tennessee on the
ideas they have outlined and look forward to continuing those
discussions.
Question 1c. Have you considered that if CMS does not work with
Tennessee to approve this request, lower-income Tennesseans could be
denied access to health insurance?
Answer 1c. We believe the Affordable Care Act provides the
opportunity and avenues to ensure health insurance for millions of
Americans who currently lack it. Both through the availability of
Medicaid coverage and coverage through the new Marketplaces, we want to
make sure that currently uninsured Americans have an avenue to achieve
coverage. As you are aware, the Supreme Court's ruling left the
decision to provide Medicaid coverage to the new adult group made
eligible by the Affordable Care Act to the States. With that in mind,
we are working hard with each interested State to identify how these
coverage opportunities will work best in their State, to provide
opportunities for coverage for currently uninsured Americans.
Question 2. Have you done any analysis to determine the cumulative
impact upon premiums of all the new mandates, taxes, and fees being
imposed upon health plans operating in the new health insurance
exchanges? If so, please provide the total cost. If not, please explain
why.
Answer 2. We do not have an aggregate estimate of the impact on
premiums at this time because we do not know the rates or the numbers
of enrollees. It will be up to the issuers to determine how to set
their premiums. We expect that the Marketplace will be a competitive
one, and we will evaluate premium information once we receive the
qualified health plan certification packages from issuers.
Question 3. Please detail your agency's legal authority to use
Prevention and Public Health funds to pay for implementation of the new
health law, including the new navigator grant program and
implementation of the health insurance exchanges.
Answer 3. The purpose of the Prevention and Public Health Fund is
to provide for expanded and sustained national investment in prevention
and public health programs to improve health and help restrain the rate
of growth in private and public sector health care costs. In fiscal
year 2013, CMS will invest Prevention Fund resources to assist
Americans in gaining affordable health care coverage which aligns with
the purposes of Prevention Fund to be used for prevention, wellness,
and public health activities. The Affordable Care Act-related
activities funded with the Prevention Fund will include consumer
engagement and education, eligibility support including support for
appeals, assistance with enrollment, and the Navigator program to help
individuals understand options available and enroll in health
insurance. Implementing the Health Insurance Marketplace is the
Administration's top public health activity and will likely
significantly improve prevention in the next year by enabling
individuals to enroll in coverage through private health insurance.
Increasing access to care, in particular to preventive services, is a
component of our national efforts to restrain the cost of health care
and ensure more Americans can lead healthy lives, which is also a key
goal of the Prevention Fund.
Question 4. In your agency's recent budget, the outlays for the
Federal Pre-existing Condition Insurance Program are projected to be
greater than the amount of money left in the fund. Please detail how
your agency will fill this shortfall so that those enrolled do not lose
access to insurance before 2014.
Answer 4. CMS is working to ensure that the limited amount of
funding appropriated to the program is available to continue providing
covered services to enrollees until 2014, when people will no longer be
denied health coverage because of their health status. The fiscal year
2014 congressional Justification does not project that outlays in
fiscal year 2014 will exceed the $5 billion provided in the Affordable
Care Act for this program. CMS is aggressively managing costs in the
Federal PCIP program to ensure that the remaining funds are sufficient
to cover current enrollees, and will use all available cost-containment
strategies to ensure that coverage continues through 2013 for current
enrollees.
For example, CMS has been monitoring PCIP enrollment and spending
regularly and has made necessary adjustments to the program to ensure
responsible management of the one-time $5 billion appropriation. We
maintain low administrative costs and work to maximize the
appropriation for patient medical care.
Starting in 2014, health insurance issuers will no longer be able
to discriminate against Americans with pre-existing conditions. All
Americans--regardless of their health status or pre-existing
conditions--will finally have access to quality, affordable coverage.
On October 1, 2013, Americans with pre-existing conditions will be able
to apply for affordable health insurance coverage through the new
Health Insurance Marketplace.
Question 5. We understand that insurers are in the middle of the
submission process for plan submissions to the Federally Facilitated
Exchange (FFE). Many are stating that the applications are quite
complex. What are you doing to ensure a data-submission process that
has no bumps in the road?
Answer 5. The submission process for the Federally Facilitated
Marketplace began on April 1, 2013. The early response has been very
encouraging and we expect to see robust competition for the business of
millions of Americans who will be shopping for health insurance in the
Marketplace. States that are operating their own Marketplaces have also
begun accepting submissions from issuers as well.
We have been committed to supporting the submission process for
insurers. We've gotten feedback from States and issuers as they've
accessed the system and we've addressed whatever issues have come up.
CMS made available a draft letter to issuers about offering Qualified
Health Plans in the Federally Facilitated Marketplace for comment. CMS
made changes to the draft letter based on the comments received from a
variety of stakeholders, including issuers, health and patient advocacy
organizations, agents and brokers, and consumer groups. We have a Help
Desk that responds by e-mail to anyone with questions about how to
submit information to us, we hold regular phone calls and we regularly
publish answers to frequently asked questions. I am extremely proud of
the work the team is doing to make sure that we will have products on
the shelves on October 1.
Question 6. You've said time and time again that States will
continue to regulate insurance markets. If that is the case, why are
you requesting so much data be submitted to HHS, including data that
duplicates what insurers have to submit already to the States? For
example, any rate increase. Won't this increase administrative costs?
And what do you plan to do with all this data?
Answer 6. Title XXVII of the Public Health Service Act (PHSA)
assumes that States will exercise primary enforcement authority over
health insurance issuers in the group and individual markets to ensure
compliance with health insurance market reforms. CMS has confirmed that
almost all States--including States where a Federally Facilitated
Marketplace is operating--will enforce the market reforms of the
Affordable Care Act. Where a State is enforcing these market reforms,
CMS will not duplicate the State's work, and will instead rely upon the
State to ensure that issuers are in compliance. This includes the
State's review of whether individual and small group market health
plans, and potential qualified health plans, cover essential health
benefits and comply with actuarial value standards.
To address your specific question about rate increases, section
2794(b)(2)(A) of the PHSA requires the Secretary of Health and Human
Services to monitor premium increases of health insurance coverage
offered both inside and outside the Marketplace beginning in plan year
2014. On February 27, 2013, CMS finalized a rule (78 FR 13406)
requiring that issuers offering health insurance coverage in the small
group or individual markets report information about all rate
increases. We have worked to minimize the administrative burden on
issuers by simplifying the reporting template and coordinating with
State processes.
Standardizing the reporting process will reduce administrative
burden and duplication over time, and enable both States and CMS to
evaluate information about the single risk pool, actuarial value,
essential health benefits, and other market reforms beginning in 2014.
This reporting will also assist States and CMS in monitoring the health
insurance market inside and outside the Marketplace for adverse
selection.
senator sanders
Question. I would also like to ask about the guidance recently
issued by CCIIO establishing criteria for Qualified Health Plans to
contract with Essential Community Providers. When we are talking about
safety net providers, and especially primary care safety-net providers,
we need to consider access to care in addition to access to insurance.
An insurance card is not worth very much if you cannot see your doctor.
I am concerned that the guidance reduces the strength of congressional
intent and that insurers in Vermont and across the country will not
contract with all Essential Community Providers. If a Qualified Health
Plan does not contract with an Essential Community Provider, such as a
community health center, I want to be sure that low-income patients are
not charged higher cost-sharing out of network for visiting their
health center. Can you please explain how you plan to update this
guidance and implement stronger standards in the future to protect low-
income beneficiaries who are seeking the cost-effective, high quality
care they deserve? If you do not currently have any such plans, could
you please tell me about actions you will be taking to address this
concern?
Answer. The Exchange Establishment final rule at 45 CFR 155.1050
and 45 CFR 156.230 sets forth network adequacy requirements for all
Marketplaces. A QHP issuer must maintain a network that is sufficient
in number and types of providers, to assure that all services will be
accessible without unreasonable delay. Provider directories must be
made available online (and in hard copy by request) and list providers
who are not accepting new patients. The State or CMS will use the QHP
certification process to ensure network adequacy. Ongoing monitoring is
typically handled by State insurance departments. In general, States
enforce network adequacy as all issuers, both inside and outside the
Marketplace, must meet the standards set forth in State law. Nothing
prohibits States from applying more stringent standards or protections
across their markets.
In addition, 45 CFR 156.235 requires that a QHP issuer have a
sufficient number and geographic distribution of essential community
providers, where available, to ensure reasonable and timely access to a
broad range of ECP providers for low-
income and medically underserved individuals in the QHP's service area.
Because the number and types of ECPs available varies significantly by
location, CMS will evaluate QHP applications for sufficient inclusion
of ECPs for the 2014 coverage year based on the Safe Harbor Standard
articulated in the annual letter to issuers, released on April 5, 2013.
Issuers that meet or exceed the standard will be presumed to meet the
standard without additional documentation. Nothing prohibits States
from applying more stringent standards or protections across their
markets. Issuers that fail to meet the Safe Harbor Standard will be
required to submit a narrative justification detailing how the issuer
will provide access for low-income and medically underserved enrollees
and how the issuer plans to increase ECP participation in the issuer's
provider network(s).
This policy balances the need to include ECPs in issuer networks
and affordability of coverage. CMS will continue to assess QHP provider
networks, including ECPs, and may revise its approach to reviewing for
compliance with network adequacy and ECPs in later years.
senator whitehouse
Question 1. I would like to ask about the guidance recently issued
by CCIIO on March 1 and finalized on April 5 that establishes criteria
for Qualified Health Plans (QHPs) to contract with Essential Community
Providers (ECPs). I have heard from advocates in my State who are
concerned that, under the guidance released by CCIIO, there may not be
a sufficient number of ECPs included in QHP provider networks to ensure
access to care for underserved populations. Please discuss how CCIIO
arrived at the safe harbor requirement that a QHP that demonstrates
that at least 20 percent of ECPs in the plan's service area are
included in the plan's provider network will meet the regulatory
standard in 45 CFR 156.235(a). Does CCIIO anticipate raising the safe
harbor and minimum expectation thresholds in future guidance?
Answer 1. The Exchange Establishment final rule at 45 CFR 155.1050
and 45 CFR 156.230 sets forth network adequacy requirements for all
Marketplaces. A QHP issuer must maintain a network that is sufficient
in number and types of providers, to assure that all services will be
accessible without unreasonable delay. The State or CMS will use the
QHP certification process to ensure network adequacy. Ongoing
monitoring is typically handled by State insurance departments. In
general, States enforce network adequacy, as all issuers, market wide
(inside and outside Marketplaces), must meet the standards set forth in
State law. Nothing prohibits States from applying more stringent
standards or protections across their markets.
In addition, 45 CFR 156.235 requires that a QHP issuer have a
sufficient number and geographic distribution of essential community
providers, where available, to ensure reasonable and timely access to a
broad range of ECP providers for low-
income and medically underserved individuals in the QHP's service area.
Because the number and types of ECPs available varies significantly by
location, CMS will evaluate QHP applications for sufficient inclusion
of ECPs for the 2014 coverage year based on the Safe Harbor Standard
articulated in the Letter to Issuers, released on April 5, 2013.
Issuers that meet or exceed the standard will be presumed to meet the
standard without additional documentation; however, nothing prohibits
States from applying more stringent standards or protections across
their markets. Issuers that fail to meet the Safe Harbor Standard will
be required to submit a narrative justification detailing how the
issuer will provide access for low-income and medically underserved
enrollees and how the issuer plans to increase ECP participation in the
issuer's provider network(s).
We believe that this policy balances the need to include ECPs in
issuer networks and affordability of coverage. CMS will continue to
assess QHP provider networks, including ECPs, and may revise its
approach to reviewing for compliance with network adequacy and ECPs in
later years.
Question 2. I'm proud that Rhode Island has been proactive in
planning and implementing its exchange. Rhode Island was the first
State in the Nation to receive a Level II Exchange Establishment Grant
to help with implementation. I'm also pleased to report that I've heard
from folks in my State that CCIIO has been a great partner in working
with Rhode Island to set up its exchange. However, I'm concerned that
there hasn't been sufficient focus on how to best set-up the exchanges
so that they will be able to help drive delivery system reform and
improve health and productivity outcomes. Rhode Island is committed to
implementing an active purchaser exchange that will help drive delivery
system reforms. But if we do not build the exchanges from the start in
a way that gives them the tools to contribute to better delivery and
outcomes, I think there are going to be very legitimate questions about
the value of the investments we are making. What specifically is CCIIO
doing to support and encourage States like Rhode Island that want to
ensure they effectively use Federal support to build exchanges capable
of supporting more systemic reforms in the future?
Answer 2. CMS encourages States, such as Rhode Island, to develop
and implement Marketplaces in a manner that best suits the needs of
their residents. Through rulemaking, guidance and grant funding
authorized by section 1311 of the Affordable Care Act, CMS has defined
minimum Marketplace requirements that provide States with the maximum
flexibility possible. Within the design of their Marketplaces, States
have the flexibility and funding to design systematic health reforms.
For example, State-based Marketplaces have the option to design QHP
certification as an active purchaser or a passive facilitator of plan
choices. We anticipate that States will continue to be on the vanguard
in using the Marketplace to drive delivery system reform in the private
insurance market.
CMS has also worked to foster collaborative efforts that enable
States to share knowledge and efficiencies that can contribute to
improved delivery systems. Rhode Island is a member of the multi-State
consortia led by the University of Massachusetts Medical School that
received Early Innovator Grant funds. This grant benefited individuals
and small businesses in Connecticut, Maine, Massachusetts, Rhode
Island, and Vermont by creating and building a flexible Marketplace
information technology framework in Massachusetts and sharing those
products with other New England States.
Question 3. What support has CCIIO offered States to help measure
carrier and provider health and outcomes as well as the effects of
coverage on the population?
Answer 3. The Affordable Care Act includes a wide variety of
provisions designed to expand coverage, provide more health care
choices, enhance the quality of health care for all Americans, hold
insurance companies more accountable, and lower health care costs. CMS
is working across all programs and with States to improve population
health outcomes.
Section 1311 of the Affordable Care Act authorizes grant to States
to implement Marketplaces. These Marketplaces will help consumers and
small businesses buy health insurance in a way that permits easy
comparison of available plan options based on price, benefits, and
quality. CMS has supported States to design, test, and implement
innovative designs to measure and improve enrollee health, compare
quality of plans, and leverage the new marketplaces to improve the
health care delivery system. Furthermore, as a requirement of their
Applications and Blueprints, State Marketplaces are expected to have in
place programs for monitoring the impact they are having in their
markets.
One of the first steps to improve health outcomes is to assure that
all Americans get the care they need. Nearly 71 million Americans now
have expanded access to preventive services with no additional cost
sharing through their private insurance plans, and 27 million women now
have guaranteed access to additional preventive services without cost
sharing.\1\ In 2014, insurance companies will no longer be able to
discriminate against those with pre-existing conditions. For the first
time, all Americans will have access to high-quality, affordable
coverage in the new marketplaces and if eligible, get financial
assistance to help pay for the coverage. Coverage in 2014 will be
comparable by different actuarial values, must cover the 10 categories
of essential health benefits, and must not discriminate against those
with high medical needs.
---------------------------------------------------------------------------
\1\ http://aspe.hhs.gov/health/reports/2013/PreventiveServices/
ib_prevention.cfm.
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Based on current estimates of the size of the individual market and
the percent of enrollees in currently marketed plans without coverage
for certain services, coverage of benefits in the individual market may
expand as follows:
8.7 million Americans will gain maternity coverage.
4.8 million Americans will gain substance abuse coverage
subject to requirements regarding parity with medical and surgical
benefits.
2.3 million Americans will gain mental health coverage
subject to requirements regarding parity with medical and surgical
benefits.
1.3 million Americans will gain prescription drug
coverage.
CMS will continue to work with our State partners to improve the
health care system by combining support for State innovation,
guaranteed access to insurance, financial assistance, and improved
benefit designs that facilitate improved comparison on quality and
price.
senator baldwin
Question 1. Some Wisconsin insurance companies have experienced
trouble receiving timely answers to questions submitted on the CMS
Enterprise portal. These companies would like assurances that the data
they submit to the portal will be accepted as timely and accurate. What
is CMS doing to address technical difficulties being faced by issuers
in a way that will ensure robust plan participation in Wisconsin's
Health Insurance Marketplace?
Answer 1. We have had a very encouraging response from issuers in
the QHP application process so far, and we expect to see robust
competition between issuers within the Marketplace. We have continued
to improve our process since the portal opened on April 1. We have
gotten feedback from States and issuers as they have accessed the
system and we have addressed whatever issues have come up. We have a
Help Desk that responds by e-mail to anyone with questions about how to
submit information to us, and we hold regular phone calls and publish
documents to answer frequently asked questions or address technical
difficulties.
Question 2. What protections are CMS enacting to prevent adverse
selection within the Marketplace?
Answer 2. The Affordable Care Act created and CMS recently
finalized the rules establishing risk adjustment, reinsurance and risk
corridors programs (referred to as the premium stabilization programs),
the cost-sharing reductions program, and Marketplace affordability
programs such as advance payments of the premium tax credit. These
programs are designed to provide consumers with affordable health
insurance coverage, to reduce incentives for health insurance issuers
to avoid enrolling sicker people, and to stabilize premiums in the
individual and small group health insurance markets inside and outside
the Marketplaces.
The permanent risk adjustment program makes it possible for issuers
to price competitively without worrying that they will end up with more
costly enrollees. Therefore, issuers will be able to provide coverage
to individuals with higher health care costs and will help ensure that
those who are sick have access to the coverage they need. The
transitional reinsurance program is a 3-year program designed to reduce
premiums and ensure market stability for issuers and for enrollees in
the individual market with the implementation of new consumer
protections in 2014. The temporary risk corridors program protects
qualified health plans from uncertainty in rate setting from 2014 to
2016 by having the Federal Government share risk in losses and gains.
Finally, the tax credits and cost-sharing reductions available to
consumers will encourage young, healthy individuals to purchase
insurance and, in doing so, balance risk in the market.
Question 3. In States with Federally Facilitated Marketplaces, what
more can be done to create collaborative structures to disseminate
information, and to collect constructive feedback? Can formal or
informal advisory committees be set up that include providers, medical
professionals, health advocates, and other key opinion leaders?
Answer 3. CMS has conducted robust outreach with stakeholders
across the Nation regardless of whether their State is operating its
own Marketplace, is partnering with CMS to operate its Marketplace, or
whether they have the Federally Facilitated Marketplace. CMS recently
held and I participated in a meeting of State Insurance Department
officials from the States that will have the Federally Facilitated
marketplace. We will continue to meet and work very closely with
insurance departments and the departments of health around the country
to help get this law implemented.
We've also begun a significant stakeholder outreach effort,
including a national call in March with over 3,000 participants,
including State officials, issuers, and consumers. We also plan to hold
regional and State-by-State calls, leveraging our presence with 10 CMS
regional offices around the country.
We are happy to work with your office to ensure that we are getting
as broad participation in these outreach efforts in Wisconsin as
possible as we move closer to the opening of the Marketplace there.
Question 4. Many individuals seem to misunderstand the decision
about consumer choice, and believe small employers will not have access
to exchanges. Is there a plan for enhanced public education for small
businesses? In Wisconsin, the percentage of small employers offering
coverage has dropped from 58 percent to 32 percent since 2000.
Answer 4. CMS is conducting extensive outreach and education to
raise awareness among consumers and small businesses about new options
to access quality, affordable health care later this year when open
enrollment in the Health Insurance Marketplace and its Small Business
Health Options Program begins. This includes conducting consumer and
small employer research and building infrastructure for customer
service channels like the call center and Web site.
We have begun offering educational sessions to staff and
stakeholders to understand the SHOP program in particular and will have
additional resources and materials available over the summer. A call
center for employers will be available in August, specifically aimed at
helping small employers take advantage of the new program.
To specifically help educate small businesses, we are working with
our regional offices to provide updates on recent rollouts and to
conduct business outreach. We held meetings in March--in Dallas, TX and
Atlanta, GA--and look forward to working with other regional offices to
provide more specific information on the impact of the Affordable Care
Act on businesses. Additionally, we are working with the Small Business
Administration (SBA) to make resources available that provide key
information about how the Affordable Care Act affects businesses so
each can make the right decisions for its own particular circumstances.
For example, the SBA recently launched a weekly webinar series for the
small business community in collaboration with Small Business Majority,
and CMS is serving as a partner on those webinars as well. Through
these ``Affordable Care Act 101'' webinars, small business owners can
learn the basics of the law and what it means for their company and
employees, including insurance reforms, the small business health care
tax credit, the Health Insurance Marketplace, and Employer Shared
Responsibility. These webinars are held every Thursday from now through
the opening of the Marketplace in October and are open to all small
business owners.
Question 5. For Essential Health Benefits benchmark plans in the
exchange that do not include coverage for habilitative services, HHS
has issued a rule that allows insurance companies to define the
coverage it will provide for habilitative services and report that to
HHS. For these types of plans, will HHS review the individual insurers'
submissions to make sure they do not discriminate on the basis of
disability?
Answer 5. As articulated in the Essential Health Benefits final
rule at 45 CFR 156.125, an issuer does not provide EHB if its benefit
design, or the implementation of its benefit design, discriminates
based on an individual's age, expected length of life, present or
predicted disability, degree of medical dependency, quality of life, or
other health conditions. Subsequent to the release of that rule, CMS
released a letter to issuers in Federally Facilitated and State
Partnership Marketplaces on April 5, 2013 that provided additional
guidance and operational guidance to issuers to help them participate
in Marketplaces.
In that guidance, CMS stated that to ensure non-discrimination in
benefit design it will identify outliers with respect to QHP cost
sharing (e.g., co-payments and coinsurance) as part of its QHP
certification reviews. Identification as an outlier does not
necessarily indicate that a QHP benefit design is discriminatory;
rather, CMS will use the outlier identification to target QHPs for more
in-depth reviews. In addition, pursuant to 45 CFR 156.200(e) issuers
will be required to attest that their QHPs will not discriminate
against individuals on the basis of health status, race, color,
national origin, disability, age, sex, gender identity or sexual
orientation.
Question 6. Will there be a process where individuals with
disabilities or groups that represent individuals with disabilities can
file a complaint with HHS if they believe an insurer's plan
discriminates on the basis of disability?
Answer 6. Because States are primarily responsible for enforcement
of EHB requirements for issuers in the individual and small group
markets, individuals or groups who have complaints or concerns about a
plan's compliance with EHB requirements should contact their State
Department of Insurance.
Question 7. What advantages do you foresee for rural communities
and providers within the new Marketplaces?
Answer 7. Marketplaces will make purchasing private health
insurance easier for all Americans, including those living in rural
communities, by providing eligible individuals and small businesses
with one-stop shopping where they can choose qualified health plans
that best fit their needs. New premium tax credits and cost-sharing
reductions will help ensure that eligible individuals and families can
afford to pay for the cost of a private qualified health plan purchased
through the Marketplaces.
As more individuals and families get access to quality health
insurance through the new Marketplaces, rural providers will have a
broader and consistent pool of insured patients to care for, connecting
them with more patients and helping to reduce the burden of
uncompensated care on providers.
Question 8. Are there any barriers to farmers giving up their
expensive high deductible plans and entering into the Marketplaces?
Answer 8. No, and we encourage farmers self-employed individuals
and other small businesses to take advantage of the qualified health
plans that will be available in the Marketplaces. Today, small
employers and self-employed individuals like farmers have a tough time
finding and affording coverage that meets their needs, and, because of
the rising cost of health care, are forced to enter into plans that
don't meet their needs. Additionally, research has shown that the
occupational hazards of farming make them an at-risk group so that
farmers may face higher premiums and lower coverage than other
individuals.
Starting in 2014, farmers and other small businesses will have more
consumer protections. Non-grandfathered health insurance issuers in the
individual and small-group markets will be prohibited from charging
higher premiums to enrollees because of their current or past health
problems, gender, occupation, and small employer size or industry. All
non-grandfathered health plans in the individual and small group
markets must cover essential health benefits, which include 10
statutory benefit categories, such as ambulatory patient services
(including doctors' visits), hospitalization, prescription drugs, and
maternity and newborn care. Non-grandfathered health plans in the
individual and small group markets also must meet certain actuarial
values. The required actuarial value levels are 60 percent for a bronze
plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90
percent for a platinum plan. Actuarial value means the percentage paid
by a health plan on average of the total allowed costs of benefits. For
example, if a plan has an actuarial value of 70 percent, the average
consumer generally would be responsible for about 30 percent of the
costs of the essential health benefits the plan covers. These tiers
will allow consumers to compare plans with similar levels of coverage,
which, along with comparing premiums and other factors, will help
consumers make more informed health insurance coverage decisions.
Small businesses will also have more choice and control over their
health insurance through the Small Business Health Options Program
(SHOP), a new program designed to simplify the process of finding
health insurance for a small business. Because of the lack of
competition and transparency in the current small group market, some
small businesses have been locked into insurance plans that continually
provide worse benefits at higher premiums. With the availability of the
SHOP Marketplaces, small businesses will be able to choose among plans
and make side-by-side comparisons of important features, such as
benefits, premiums, and quality. Thus SHOPs will expand options,
increase competition, and reduce administrative hassle for small
businesses across the country. Currently, if farmers provide insurance
for themselves and their workers, they could have access to the Small
Business Healthcare Tax Credit, worth up to 35 percent of their premium
costs for eligible employers that have low- to moderate-wage workers.
Beginning in 2014, for those farmers who choose to provide insurance
through the SHOP, this tax credit is worth as much as 50 percent of an
employer's contribution toward employee premium costs for eligible
employers who have low- to moderate-wage workers. Businesses with up to
100 employees will be eligible for SHOP, although States can limit
participation to businesses with up to 50 employees until 2016. About 4
million small businesses across the country may be eligible for these
tax credits.
Additionally, the Affordable Care Act creates a new type of non-
profit health insurer, called a Consumer Operated and Oriented Plan
(CO-OP). CO-OPs are run by their customers. CO-OPs are meant to offer
consumer-friendly, affordable health insurance options to individuals
and small businesses. Ten CO-OPs, including the Common Ground
Healthcare Cooperative in Wisconsin, have received approval from their
State insurance regulators to operate in 11 different State markets.
These CO-OPs will be able to offer coverage both inside and outside the
Marketplaces, starting October 1. We are confident that these CO-OPs
will be able to offer consumers in their areas an additional choice in
affordable high quality insurance option.
senator enzi
Question 1. 1. States are expected to have fully operational Health
Exchanges for consumers by January 1, 2014. Many States are expected to
struggle with developing entirely new and comprehensive health
information technology infrastructures. Many of the consumers that may
need to navigate these Exchanges will be new and old Medicaid patients.
However, a 2011 Health Affairs study estimates that 50 percent of all
adults with family incomes below 200 percent of the Federal poverty
level will experience a shift in eligibility from Medicaid to an
insurance exchange, or the reverse, in just the first year of the
Exchanges. What is being done to address potential coverage issues for
the most poor and vulnerable populations that cross eligibility
thresholds during all of these major health system changes?
Answer 1. The Affordable Care Act and its implementing regulations
set up a system of coordinated, streamlined processes to determine
eligibility for enrollment in a qualified health plan, advance payments
of the premium tax credit and cost-sharing reductions, Medicaid, or
CHIP. This system is designed to ensure that individuals and families
are enrolled in the right coverage the first time. We have established
the beginnings of a streamlined system of coverage that will be
supported by modernized eligibility and enrollment systems and a new,
data-based eligibility verification system that relies on existing data
sources to confirm eligibility rather than requiring applicants to
produce paper documentation. All of these changes are fundamentally
designed to minimize disruptions in coverage and to ensure smooth
transitions between insurance affordability programs where appropriate.
As you note, however, sometimes individuals experience changes in
circumstances that will affect their eligibility. The Exchange
Establishment final rule at 45 CFR 155.330(b)(1) states that
Marketplaces must require individuals to report changes in
circumstances that would affect their eligibility within 30 days.
Marketplaces have flexibility to establish reasonable thresholds for
the requirement to report changes in income. Individuals enrolling in
qualified health plans with advance payments of the premium tax credit
will be advised at the time of enrollment about the requirements to
report changes in factors that affect eligibility. Marketplaces must
also periodically check the records of Medicaid and CHIP, if
applicable, to see if individuals have been determined eligible for
those programs. And States can take a variety of approaches across the
Marketplace, Medicaid, and CHIP to smooth transitions, including
working together to coordinate the availability of plans across all
programs and providing information to consumers regarding plans that
serve the Marketplace, Medicaid, and CHIP.
Eligibility rules published on March 27, 2012 (77 FR 18310) create
a strong alignment between Medicaid, CHIP, and the Marketplace. States
and the Federal Government have already made great strides in
identifying and enrolling eligible children in Medicaid and CHIP
coverage and many of those successful strategies are being carried
forward to apply to the other insurance affordability programs. For
example, 12 months of continuous eligibility is a strategy that many
States have already adopted for children and pregnant women in Medicaid
and CHIP that could easily be carried over to the new expansion
population of low-income adults in Medicaid through waiver authority.
We are also entertaining States' proposals and strategies for allowing
individuals to remain in the same source of coverage, regardless of
changes in circumstances. This approach is intended to promote
continuity of coverage between Medicaid or CHIP and the Marketplace.
More information about this policy is available in the December 20,
2012 frequently asked questions (#14) http://www.cms.gov/CCIIO/
Resources/Files/Downloads/exchanges-faqs-12-10-2012.pdf.
Additionally, CMS issued a letter to State health officials and
State Medicaid directors on May 17, 2013 (http://www.Medicaid.gov/
Federal-Policy-Guidance/down
loads/SHO-13-003.pdf) describing five strategies to increase
enrollment. Those five strategies are:
1. Implementing the early adoption of Modified Adjusted Gross
Income (MAGI)-based rules;
2. Extending the Medicaid renewal period so that renewals that
would otherwise occur during the first quarter of calendar year (CY)
2014 (January 1, 2014-March 31, 2014) occur later;
3. Enrolling individuals into Medicaid based on Supplemental
Nutrition Assistance Program (SNAP) eligibility;
4. Enrolling parents into Medicaid based on children's income
eligibility; and
5. Adopting 12-month continuous eligibility for parents and other
adults.
Question 2. Mr. Cohen, States like Wyoming that have opted to have
the Federal Government run their Exchange need to know that coverage
won't be disrupted for thousands of their citizens on January 1st. When
will the Administration issue a proposed rule on the federally funded
Exchange? How much does the Administration estimate the Federal
Exchange will cost? What type of outreach has CMS or HHS done to date
with the Federal Exchange States to ensure that there won't be
disruptions in coverage?
Answer 2. The Exchange Establishment final rule published on March
27, 2012 (FR 182309) fully details the standards for a Marketplace,
whether it is run by the Federal Government, a State, or through a
partnership between the two. We have also provided technical
information and specific details about the Marketplaces through various
guidance such as the General Guidance of Federally Facilitated
Exchanges published on May 16, 2012, Exchanges, Market Reforms and
Medicaid Frequently Asked Questions released on December 10, 2012, and
the Guidance on State Partnership Exchanges published on January 3,
2013. As implementation continues, we have worked closely with States
and other stakeholders to ensure all questions are answered and
guidance is available when needed.
We will continue the close contact with States to ensure that
everyone has the information they need so that they can be ready for
enrollment to begin on October 1, and to ensure that there are no
disruptions in coverage. Keep in mind, if a person receives their
insurance through their large employer, like most people, their
insurance will not be affected. If a person works for a small business,
then that small business may be able to choose from plans in a side-by-
side comparison through the SHOP Marketplace. This expanded Marketplace
will increase competition and lower individual costs. Small businesses
may also be eligible for tax credits to make offering insurance more
affordable, so people whose employers do not offer insurance now could
possibly enroll in employer-sponsored insurance in the future. If a
person does not currently have insurance, then the Affordable Care Act
and the Marketplaces make it easier than ever before to find and afford
insurance. Starting October 1, people are going to be able to buy
comprehensive insurance without discrimination based on gender or pre-
existing conditions.
Many of these people will qualify for premium tax credits to help
lower their monthly insurance premiums, and will benefit from increased
transparency and competition in the Marketplace. The Marketplaces will
not disrupt coverage, instead they will make insurance coverage more
available and affordable for everyone.
As for the cost of the Federally Facilitated Marketplace, the
President's fiscal year 2014 budget requests $1.5 billion for costs
related to Marketplaces, including operations of a Federally
Facilitated Marketplace in each State that will not have its own
Marketplace by January 1, 2014, oversight of State-based and
Partnership Marketplaces, and to carry out the Secretary's duties on
behalf of all Marketplaces, such as operation of a data services hub.
These functions will be operational in fiscal year 2014 beginning with
open enrollment in October 2013. In addition, CMS will collect user
fees from all issuers offering qualified health plans in the Federally
Facilitated Marketplaces starting in January 2014. CMS anticipates
collecting $450 million in user fees in 2014. The cost of
implementation of Wyoming's Federally Facilitated Marketplace for
fiscal year 2014 is included in this budget request. For Wyoming, the
Federally Facilitated Marketplace will be completely funded out of
Federal funds and user fees, at no cost to the State for fiscal year
2014.
Response by Kevin Counihan to Questions of Senator Alexander
and Senator Franken
senator alexander
Question 1. I recognize that many of the rating rules imposed by
the new health care law were already in existence in your State, but
one we discussed during the hearing--age rating bands--could have a
significant impact for younger individuals. Are you concerned at all
about adverse selection leading to an unbalanced risk pool in your
State? Have you done any actuarial analysis about how premiums will be
affected in your State, particularly for young people?
Answer 1. At present, CT has an age rating band of essentially 6:1.
We are cognizant of the impact on both younger and older individuals of
reducing the age rating band to 3:1. We have developed a comprehensive
marketing and outreach plan to raise awareness of the ACA and of Access
Health CT among individuals and small businesses in our State, and we
have elements of this plan which focus in particular on the 18-35 age
band segment.
Question 2. The media has quoted you as saying you need more time
to implement the law. Why? And if Congress were to grant you another
year to get Connecticut's exchange up and running, what benefits do you
believe that would provide consumers?
Answer 2. Implementation of a State-based marketplace is complex
and largely unprecedented. Like all States, we are focused on providing
the best customer experience possible for CT consumers. Our
implementation plan includes contingencies in case we have service
interruptions at either the State or Federal service levels. Obviously,
the more time any State has to implement and communicate the benefits
and obligations of the ACA would be helpful, but we are prepared to
begin open enrollment on October 1.
Question 3. Even with open enrollment periods, there is concern
that young, healthy individuals will wait until they have a serious
medical need to purchase insurance. To mitigate this issue, have you
given thought to limiting individuals to bronze level plans if they
wait to buy insurance?
Answer 3. We have not given consideration to that option as CT
wishes to give consumers as much choice in plan design and carrier
options as possible. Further, the risk of adverse selection is
ameliorated largely through the limits of an annual enrollment period.
senator franken
Question. The medical loss ratio provision, which I authored and
which was included in the health care law, requires that insurers spend
80 to 85 percent of the premium dollars they receive on actual health
care services, and only 15 to 20 percent on administrative costs. In
your role as the CEO of Access Health CT, can you tell us how the
medical loss ratio has changed the insurance market? How has the
provision benefited consumers?
Answer. The medical loss ratio provision provides significant
benefits to consumers through the dedication of a specific percentage
of premium to the payment of medical services. While most carriers in
CT are consistently pricing their plans to meet these rations, we have
examples of consumers receiving rebates from carriers who did not meet
the MLR requirements.
Response by Sabrina Corlette to Questions of Senator Alexander
and Senator Whitehouse
senator alexander
Question 1. In Medicare Parts B and D, CMS pairs an open enrollment
period with a late enrollment fee to incentivize seniors to enroll when
they are first eligible. This encourages younger, healthier people to
enroll earlier and makes the overall risk pool stronger. For States
that are worried about their risk pools in 2014, would a similar system
be beneficial for exchange-based plans?
Answer 1. The Affordable Care Act includes several mechanisms to
ensure a balanced risk pool and mitigate market disruptions. These
include:
Premium tax credits and cost-sharing reductions to make
coverage more affordable for individuals between 100-400 percent of the
Federal poverty level.
A requirement that individuals maintain a minimum standard
of coverage or face a penalty (often called the ``individual
mandate'').
A reinsurance program.
A risk corridor program.
A risk adjustment program.
The Affordable Care Act also requires exchanges to create a
navigator program. Navigators are charged with conducting outreach and
enrollment activities, and providing consumers with assistance
enrolling in Marketplace coverage. Many of these outreach and education
activities are targeting young adults and encouraging them to enroll.
Question 2. On page 7 of your written testimony, you state,
``And, for individuals earning up to 250 percent of the
Federal poverty level, the ACA provides cost-sharing subsidies
that will reduce the cost-sharing amounts and annual out-of-
pocket limits.''
Is it your belief that individuals with incomes between 250 and 400
percent of the Federal poverty level will end up paying more out-of-
pocket than they would have without the law?
Answer 2. Under the Affordable Care Act, individuals between 250-
400 percent of the Federal poverty level are eligible for premium tax
credits but are not eligible for cost-sharing reductions. However, the
law requires insurers to limit annual out-of-pocket costs for
consumers, including copayments, coinsurance, and deductibles, to the
level established for high-deductible health plans that qualify for
health savings accounts ($6,350 for an individual, $12,700 for a family
in 2014). For individuals with high health care needs, this provision
provides critically important financial protections that were not
widely available in the individual market, prior to enactment of the
law.
senator whitehouse
Question 1. Experts have said that, over the long-term, the
exchanges could play an important role in coordinating payment
incentives with other State payers to encourage more comprehensive
delivery system reforms. What are some specific examples of steps
exchanges could take to help encourage system-wide reforms and what
lessons can they learn from States that have gone forward with multi-
payer delivery system reform initiatives?
Answer 1. Currently, only a small number of States have decided to
authorize their exchanges to selectively contract with insurers in
order to provide greater value to consumers. But those that have chosen
a selective contracting or ``active purchaser'' approach have been
working to encourage insurers to work with their provider networks to
improve health care quality and efficiency in the delivery of care. For
example, Massachusetts is requiring insurers to transition from
traditional fee-for-service payments to providers to alternative
payment models such as global or bundled payments. California is
requiring participating insurers to participate in the eValu8 survey, a
data collection tool used by large employers to assess health plans'
efforts to drive quality and efficiency improvements. Plans are also
judged based on their use of mid-level providers and physician
extenders to drive cost efficiency and expand access to care, their use
of delivery system models of care such as Accountable Care
Organizations (ACOs) and Patient-Centered Medical Homes (PCMH), and
their support of shared decisionmaking. In Vermont, insurers, including
qualified health plans, are required to participate in the State's
existing ``Blueprint for Health'' as condition of doing business in VT.
Specifically, they must provide reimbursement to all recognized
Blueprint Medical Homes and designated Community Health Teams.
Question 2. As States work toward finalizing their exchanges, what
lessons can they learn from the Medicare Part D program, including how
to apply Part D best practices to the exchanges and how to avoid some
of Part D's early mistakes?
Answer 2. In implementing the ACA, State and Federal officials and
other stakeholders can draw on the Federal Government's successful
launch of Medicare Part D, a major national health coverage program
that became law in December 2003 and started enrollment just 2 years
later. The program, which now includes 35 million beneficiaries,
represented the first Medicare coverage of outpatient prescription
drugs to be implemented and the first Medicare benefit delivered
exclusively through private plans.
Like the exchanges, Part D required extensive outreach and
education in a short timeframe. And, like the exchanges, Part D also
required ongoing coordination among Federal and State agencies and
private plan sponsors.
Although the officials implementing Part D encountered significant
technical, educational, and coordination difficulties at first, 8 years
later, many of the initial difficulties have been forgotten. The public
generally views the program as a success.
There are numerous areas in which current policymakers can learn
from the Part D experience. One key area is eligibility and enrollment.
Beneficiaries had two initial decisions before acquiring drug coverage
in Medicare Part D: whether to enroll and which plan to select. Many
had a third choice as well: whether to apply for the LIS. Individuals
and families eyeing exchanges must make a more complicated set of
assessments about their financial and health situations and the
benefits and costs of making a change, due in part to new tax
implications of certain decisions under the ACA.
It was initially hard for potential Part D enrollees to understand
the value of the new benefit. Many factors, including an unpopular
late-enrollment penalty, provided a reason for beneficiaries to enroll.
As a result, many initially uncertain about enrollment, including those
taking few drugs, did sign up. The ACA also includes incentives for
people to enroll in coverage, such as significant premium tax credits
and cost-sharing subsidies for those with low and moderate incomes.
More controversially, the law requires that individuals who do not
maintain coverage pay a tax penalty. It remains unclear whether these
incentives will be sufficient to encourage people, particularly healthy
people, to enroll.
Another issue Medicare beneficiaries faced was confusion about plan
choices. For many, selecting a plan among a set of alternatives was a
new experience. The considerable array of choices made it challenging
to compare plans effectively, and many chose plans that were not
optimal for their personal circumstances. There is early evidence in
the new Marketplaces that, at least in some markets, consumers are
facing challenges comparing plan premiums, benefits, networks, and
cost-sharing arrangements.
Response by Chris Carlson to Questions of Senator Alexander
and Senator Enzi
senator alexander
Question 1. In your testimony, you provide evidence that many
individuals participating in the exchange will pay more out-of-pocket
to purchase health insurance than they otherwise would if the law had
not passed. Is it your belief that this problem will only grow larger
as more employers shift employees to the exchanges?
Answer 1. At this time, the impact of employers shifting their
employees to the exchanges is unclear. On one hand, if the individuals
that are shifted to the exchanges are from groups that have a higher
concentration of younger employees, those employees may find themselves
purchasing policies that are more costly than they otherwise would have
paid in the group plan. However, individuals that are fully employed
tend to have lower morbidity and thus could actually provide
improvement in the individual risk pool.
Question 2. An Obama administration spokesperson recently dismissed
the Society of Actuaries study, claiming it was done by an insurance
company. Would you comment on that assertion?
Answer 2. The Society of Actuaries is an independent organization
that maintains high professional standards for its members. As
credentialed actuaries, we are required to comply with the Code of
Professional Conduct in all areas of our work. Specifically, Precept 7
addresses conflicts of interest and states that, ``An Actuary shall not
knowingly perform Actuarial Services involving an actual or potential
conflict of interest unless the Actuary's ability to act fairly is
unimpaired.''
Question 3. You note in your testimony that the age 21-29 group has
an uninsured rate that is roughly twice the uninsured rate for the
nonelderly population. Would giving States some flexibility to
establish age bands in a way that wouldn't negatively impact risk pools
help alleviate some of the pressure facing young adults? Are there
other viable options? Why is it so important to get this right?
Answer 3. Giving flexibility to the States to establish age bands
would certainly help to alleviate potential rate shocks to young
adults. However, it is important to recognize that any flexibility that
still requires States to maintain the 3 to 1 ratio on age bands will
have a very limited effect. One potential option would be to allow
States to phase in the age rating over several years. While this would
not change the ultimate outcome, that young adults will subsidize older
adults, the impact of the rate shock would not be evident immediately
and it could produce greater participation in the non-group market. As
Senator Harkin discussed in the hearing, this issue is important
because the non-group market needs to have the risk spread to as many
consumers as possible. Any limitation in the participation in the
market, especially by those at younger ages that are likely to be of
better health, will spread the cost across a smaller population thus
increasing the rates for everyone.
Question 4. Your testimony touches on another important subject--an
excise tax on health insurers. Can you tell me what benefit the
consumer gains from these taxes on health plans?
Answer 4. It is my understanding that the tax's purpose is to
offset the costs of the Affordable Care Act, which mostly is
represented by the premium subsidies that will be available to
individuals below 400 percent of the Federal poverty limit who purchase
non-group coverage on the health insurance exchanges. Otherwise, there
is no discernible benefit to the consumer for paying the taxes.
senator enzi
Question. Mr. Carlson, you have talked about a number of actuarial
studies related to the impact of the health care law. For example, the
Society of Actuaries estimates that health insurance premiums in the
individual market will increase by 32 percent on average nationally and
in Wyoming specifically. The National Association of Insurance
Commissioners, in a paper released last week, concluded that States
``should begin evaluating these and other strategies immediately in
order to mitigate rate increases when the major market reforms take
effect in 2014.'' What should the Administration be doing to better
address the risks identified by these and other reports? What can
Congress do to better monitor this risk?
Answer. Although there are provisions of the ACA that will reduce
premiums, since the focus of this question is rate increases, I will
limit my response to that side of the equation. Specifically the issues
that I will discuss that may increase premiums are guaranteed-issue,
expansion of benefits, and limits on rating.
Guaranteed-issue will increase rates because individuals that can
currently not obtain insurance because of underwriting restrictions
will now be able to obtain coverage with no restrictions. These
individuals will be more expensive than those currently insured. The
ACA's reinsurance provision attempts to mitigate the increase in cost
for these individuals, and carriers' rate filings indicate that rates
in the non-group market may be as much as 10 percent lower as a result
of the temporary reinsurance program. An extension and expansion of the
reinsurance program could potentially limit the rate increases as a
result of guaranteed-issue.
The other concern with guaranteed-issue is that individuals will
forgo health insurance until they become sick, at which point they will
purchase coverage. The individual mandate and the premium subsidies
attempt to lessen this risk as individuals will be compelled to
purchase insurance because of the mandate, and the premium subsidies
will make the actual premiums paid by individuals below 400 percent of
poverty more affordable. However, the premium subsidies are not
available to everyone, and further, the individual mandate may not be
sufficient to compel healthy and younger individuals to enroll in
coverage.
In response to these issues, the American Academy of Actuaries
suggested in their May 2013 issue brief \1\ on premium changes under
the ACA:
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\1\ http://www.actuary.org/files/
Premium_Change_ACA_IB_FINAL_050813.pdf.
Strengthening the individual mandate would help mitigate
premium increases due to a less healthy enrollee population.
Approaches could include less frequent open enrollment periods,
penalties for late enrollment, more generous premium subsidies,
---------------------------------------------------------------------------
and enhanced public outreach and consumer education.
I would concur with these suggestions.
The expansion of benefits has a significant impact on premiums
because many non-group policies have high deductibles and cost-sharing
and also limit or exclude the coverage of certain benefits, such as
prescription drugs and maternity. From an out-of-pocket perspective,
the addition of these benefits generally does not increase total costs
(premiums plus cost-sharing) since individuals will not pay less when
they do require services. However, the premium rates that individuals
will see in the market will be higher as a result, and consumers may
not be knowledgeable enough to understand the tradeoff. Instead
consumers may be turned off by higher premiums. Without the obvious
solution of relaxing the essential benefits requirements, consumers
will need to be better educated about the premium increases due to
essential benefits will be offset by higher levels of benefits.
Finally, limits on rating, such as requiring age-rating to be 3 to
1, increases the premiums for one group while decreasing the premiums
for another group. Assuming that the limitations on rating do not
affect the composite premiums, the only way to mitigate the rate
increases for certain policyholders would be to remove or relax the
limitations on the rating. For example, moving from a 3 to 1 age-rating
limits to 4 to 1 limits would negate almost all of the impact of the
age-rating compression and resulting rate shock.
[Whereupon, at 12:41 p.m., the hearing was adjourned.]
[all]