State Action: How Colorado stakeholders used a creative solution to improve access to health insurance during the COVID-19 pandemic
While COVID-19 has continued to be the most critical health care priority among state policymakers, states have also made progress advancing other promising health care priorities. One such example is in Colorado, where our partners were instrumental in passing recent legislation aimed at improving access to more affordable health insurance. This blog provides an overview of the policy, how it is structured to help people, and how other states can learn from Colorado’s approach. Stay tuned for a second part of this blog, where we interview the authors on building a coalition to help bring more affordable coverage to Coloradans.
State legislatures have an urgent opportunity to make health insurance more affordable and accessible during the COVID-19 pandemic without increasing costs to individuals or businesses. If they act quickly, they can continue the health insurance fee set to expire at the federal level at the end of this year and repurpose it for affordability programs and coverage expansions. States must act before insurance rates are finalized for 2021 to ensure a seamless transition from federal to state fee collection.
In a state legislative session shortened and hurried due to the COVID-19 outbreak, in an extremely restrictive budgetary environment and with a state revenue shortfall of $3.3 billion due to COVID-19, Colorado was able to pass bipartisan legislation that, similar to policies in Maryland and Delaware, continues the fee at the state level and uses the revenue collected to expand access to affordable coverage, including to Coloradans in the “family glitch” and Coloradans without documentation. Other states should do the same.
The Affordable Care Act was projected to reduce the federal deficit when it passed. The costs of the coverage expansions were made up with new taxes and fees, as well as savings in other parts of the health care system.
One of those new fees was assessed on certain health insurers. After a decade of aggressive lobbying, which resulted in moratoriums on the fee in some years, the health insurance industry was able to secure a full repeal of the fee in the 2019 end-of-year congressional spending bill and will take effect in 2021. The fee, which had already been built into premiums for the 2020 plan year, remained in effect for 2020.
Because the fee is already included in premium costs that individuals, small and large groups are currently paying, states have an urgent opportunity to continue the fee at the state level without increasing insurance costs.
COVID-19 has highlighted the necessity of ensuring that all of our residents have access to affordable, quality coverage that meets their health care needs.
This post will add to the existing literature about considerations for state advocates and governments in working to continue this fee and capitalize on this urgent policy opportunity. It is offered by policy advocates in Colorado with first-hand experience getting this policy across the finish line.
How to structure a state-level assessment
Key decision points for structuring a state-level fee include which carriers to assess and what to charge.
Which carriers to assess
The federal assessment applies to the individual and small group markets, the large group fully-insured market, Medicaid managed care organizations, federal employee and retiree coverage, stand-alone vision and dental plans, Medicare advantage plans, and Medicare prescription drug plans. Self-insured (ERISA) plans have not paid the federal fee.
States have the authority to collect fees on the same carriers, with exceptions for federal employee and retiree coverage, as well as Medicare plans. Although they have the authority to collect fees on most carriers, states may choose to exclude certain carriers from a state-level fee.
Colorado’s legislation does not assess the fee on stand-alone vision and dental plans or Medicaid Managed Care Organizations (MCOs). Colorado’s bill doesn’t include vision and dental because those carriers are not expected to benefit directly from the revenue generated. In Colorado, benefit to the fee-payer is central to the definition of a “fee” as opposed to a “tax,” and in a tax-prohibitive state, it was important to minimize the risk that the assessment would be classified a tax and overturned. Other states might also consider the political strength of vision and dental plans in their state.
Colorado’s bill excluded Medicaid MCOs to allow for the assessment of a reduced rate on non-profit carriers. If other states choose to collect the fee on Medicaid MCOs, thus drawing a federal match, the assessment must be broad-based and uniform, which means all carriers must be assessed at the same rate. Colorado has a low penetration of Medicaid MCOs and a large nonprofit (Kaiser Permanente) presence. Therefore, Colorado’s legislation carves out Medicaid MCOs and provides differing rates between for-profit and nonprofit plans, as discussed below.
What to charge
Each year, the federal assessment was revised according to the Internal Revenue Service’s calculation of total revenue the assessment had to produce. That calculation derives from a statutory formula that compares health insurance premium growth to overall economic growth. In addition, the federal formula provides a roughly 50 percent discount to non-profit carriers.
The federal formula is difficult to recreate at the state level. Instead, states can look to their own health insurance rate filings to determine the amount carriers are currently collecting as a percentage of prior-year premiums. Currently, the majority of states use the NAIC SERFF filing access system that allows limited public access to rate filings that companies submit to state or federal regulators before products can be sold each plan year. Readers may be able to find it listed as the ‘health insurer fee’ in the rate filing, although nomenclature can vary by company. According to rate filings submitted by carriers to the Colorado Division of Insurance, the federal fee amounted to approximately 1% of premiums for Colorado’s nonprofit carriers and 2.5% of premiums for Colorado’s for-profit careers.
Prioritizing spending from the revenue raised
Colorado’s legislation incorporates a three-legged policy stool that includes reinsurance, a premium subsidy “wrap,” and an expansion of affordable coverage to previously excluded groups. This approach held a coalition of diverse interests together and ensured political success of the policy.
As states think about how to prioritize spending from a potential state insurance premium fee, they should consider the type of Marketplace they have. Colorado has a state-based Marketplace, which makes it easier to adopt measures to increase affordability — particularly a state premium wrap, while reinsurance has been successfully adopted in states using a federally-facilitated Marketplace.
Colorado enacted a reinsurance program in 2019, following several other states. These programs are eligible for federal pass through funds under Section 1332 of the Affordable Care Act. The state share of Colorado’s program was initially funded by a fee on hospitals, but the policy lacked a sustainable funding source. Despite these funding challenges, the first year of the program was successful, reducing individual health insurance rates an average of 20% in the state, and up to 35% in some rural and resort areas of the state where individual market premiums were once among the highest in the nation.
State premium wraps
By reducing the price of the benchmark plan, reinsurance unintentionally reduced tax credits for some individuals and families receiving financial assistance on the Exchange. Early data in Colorado showed that individuals receiving financial assistance on the exchange experienced a net premium increase of $22, on average, per person, per month — and this increase often hit families of very modest incomes. Further, in Colorado, the nonelderly income group that is most likely to be uninsured is the group with incomes between 200 and 300 percent of the federal poverty level (FPL), which mirrors results in other expansion states.
In an effort to mitigate any unintended impacts of reinsurance, and to improve the purchasing power of tax credits on the Exchange, Massachusetts and Vermont have implemented state premiums wraps for those under 300 percent FPL. Following that model, Colordo’s bill provides funding for a state wrap to supplement ACA tax credits so individuals and families can purchase higher-value coverage, with lower deductibles, that better meet their physical and behavioral health needs.
Ensuring non-discrimination in plan pricing
In order to decrease the cost of the state wrap, Colorado’s legislation includes additional regulatory authority for the Division of Insurance to ensure that silver and gold plans are priced appropriately.
Under the Affordable Care Act, issuers cannot tie premiums to health status. Instead, premiums must reflect expected utilization by a standardized population—a principle issuers in most states are not fully observing. Carriers should be assuming demand for services that is reflective of expected utilization by a standard population across an entire risk pool (i.e. adjusted or modified community rating) and, therefore, demand should be higher in plans that pay a higher percentage of covered claims. In other words, higher value plans typically attract consumers with higher needs and see higher utilization because there are less cost-related barriers to seeking care. Silver plans, then, should see a higher demand factor than gold due to cost sharing reduction (CSR) plans that offer higher actuarial value and lower out of pocket costs for consumers. If premiums reflected covered costs for a standard population, silver plans would generally be priced higher than gold plans.
Currently, though, insurance companies in most states are underpricing on-exchange silver level plans and making up for the difference by raising premiums on plans at other levels. The low-income population that is eligible for CSR plans (those under 250% FPL), which are only available in the silver metal level, is highly price sensitive. Whichever carrier offers the lowest cost silver plan gains a large market share. If one insurer was to price silver higher than gold to better reflect induced demand and CSR variations, they would either suffer the loss of their market share that is eligible for CSR plans or increase enrollment in gold plans to an unprofitable end. Regulators, however, can level the playing field by requiring that all carriers more strictly adhere to pricing practices consistent with modified community rating.
In Colorado, this legislation provides regulators with this levelling authority to realign metal-level premiums in order to improve the market for both consumers and insurers. For consumers, this policy change will help maximize tax credits and protect their purchasing power on the individual market. For carriers, more affordable coverage can attract new customers, lower premiums further by creating a more favorable risk profile, and move consumers from relatively high-deductible silver plans into lower-deductible gold plans, increasing customer satisfaction and retention. This policy change was an important fix to maximize the state wrap portion of funding.
Fixing Coverage Glitches
In every state across the country, there continue to be residents who have been left out and denied access to affordable health coverage. The two largest groups are those in the “family-glitch,” and people excluded based on their immigration status. People in the family glitch have household incomes that would generally qualify them for premium tax credits, however they are ineligible for assistance due to an offer of family coverage through an employed family member and a “glitch” in the way Affordable Care Act regulations define “affordable” coverage. People without proper documentation and individuals enrolled in Deferred Action for Childhood Arrivals (DACA), are not eligible for any publicly-financed coverage in Colorado or most other states and are not eligible to purchase coverage on the Exchange, with or without financial assistance.
Colorado’s legislation makes these groups eligible to purchase state subsidized commercial coverage starting in 2022 and provides funding for the subsidized plans. The plans will be sold through a Public Benefit Corporation established by Colorado’s state Exchange.
As states seek to expand coverage to those that are left behind, they might consider alternative policies such as a state-funded Medicaid look-alike. Due to the tax-restrictive environment, Colorado’s legislation had to establish a fee – as opposed to a tax. This meant the assessment had to be expected to benefit the fee-payers, hence the decision to subsidize private coverage. Other states may choose to expand their Medicaid programs, following a model similar to California.
States will also want to consider who to prioritize for coverage. A fee structured to align with what issuers were paying under the Affordable Care Act will not generate enough revenue to close coverage gaps. Colorado’s legislation establishes an Advisory Board made up of consumers, consumer advocates, health issuers, business and health care provider representatives to structure priorities in the coverage programs. However, in response to critical feedback from communities long standing laws have excluded from coverage, Colorado’s legislation requires the Board to establish a high value, low cost plan (a plan with an actuarial value of at least 90 percent and a zero dollar monthly premium) for the lowest income consumers — in order to ensure that the coverage that is offered meets the needs of those facing the greatest barriers to health.
COVID-19 has highlighted the gaps in accessing affordable coverage for some populations, and underscores the importance of discounted health insurance products in helping consumers avoid medical debt or bankruptcy–and in keeping them healthy. States have an urgent opportunity to collect a fee on health insurance carriers that had previously been collected at the federal level, without increasing costs to carriers, consumers or businesses to increase access to affordable coverage. In order to capitalize on this opportunity, states must determine how to structure a state-level assessment on carriers and prioritize spending from the revenue raised and pass the assessment before 2021 rates are finalized. The experience of advocates in Colorado can help provide a road map to advocates in other states seeking to improve the opportunities of those facing the greatest barriers to health in their state.