Navigating the ObamaCare Rules

Okay, I admit it. I am completely baffled. Maybe one of you smart folks can help me out here.

I am reading a new Kaiser Family Foundation issue brief on “Implementing New Private Health Insurance Market Rules,” and scratching my head. Is it the summation from KFF that is the problem? The rules themselves? Or have I just grown a lot dumber in my dodderage? (I’m perfectly willing to fess up to the latter if that’s what it is.)

In either case, this doesn’t make any sense to me. Where to begin –

First, it seems the new rules effectively do away with association plans. Employers in such associations will now be subject to all the same regulations and choices as other independent employers. This is puzzling because I thought small business associations had worked to get a so-called “SHOP” provision in the law to encourage the efficiency such associations provide.

Next, while health plans are now guaranteed issue, individual coverage may be subject to an open enrollment period while employer coverage is not, and the minimum contribution and participation rules for small employers may still apply. It isn’t clear what, if any, limits will be placed on these provisions.

Carriers will have to have a single risk pool for all its individual market plans for rating purposes. So, if an insurer offers a plan that is highly efficient (say an HSA program or an HMO), the enrollees of that plan will not be allowed to benefit from their economizing behavior. This is puzzling because I thought one of the purposes of this law was to encourage cost containment. This does precisely the opposite.

Premiums will be “modified community rated,” which means no consideration of health status, gender, or occupation, but geography, age, and tobacco use are still allowed. Age rating may vary by 300%, but must be set at one-year bands from age 21 to 64 (unless a state bans age rating altogether.) This should be interesting for small employers like restaurants with very high turnover. Every month the age profile of their employees could vary substantially, and so would their premium payment. Annual budgeting for company expenses may become a thing of the past.

The tobacco adjustment gets even more interesting. The overall adjustment is limited to a factor of 1.5, but it may vary according to age. KFF writes −

…insurers could apply a lower tobacco premium surcharge for younger individuals and a higher one for older individuals. Using the example in the proposed rule, a younger smoker might pay a few dollars more each month while the older smoker could be charged hundreds of dollars more each month.

Now, the regulation does not define tobacco usage, or explain how a carrier is to find out about it.

But even more curiously, KFF comments that lower-income people are more likely to use tobacco, but the law says that, “people who would have to pay more than 8 percent of family income for coverage are excused from the requirement to have health insurance because the cost is deemed unaffordable.” It doesn’t explain 8% of what? Gross income? Net income? AGI? But 8% of $100,000 is only $8,000. Good luck finding a family policy for $8,000 under this law.

Plus, deductibles may not exceed $2,000 per individual and total out-of-pocket for in-network services is limited to $6,500 for an individual and $13,000 for a family, after which the plan must cover expenses at 100%.

But the real puzzlement kicks in in the discussion of “essential health benefits (EHBs).”

The law lays out 10 categories of services that must be covered –

1. Ambulatory patient services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. Mental health and substance use disorder services including behavioral health treatment
6. Prescription drugs
7. Rehabilitative and habilitative services and devices
8. Preventive and wellness services and chronic disease management
9. Pediatric services, including vision and dental care

Never mind that individual (nongroup) coverage doesn’t typically cover some of these things today (such as Rx, dental, and maternity), so such an expansion will substantially raise costs. That isn’t a puzzle.

More enigmatic is how these things will be defined within these categories. The regulations require each state to identify a “benchmark” plan from its existing private health plans. KFF writes –

Once the benchmark is established, issuers in a state must offer benefits that are substantially equal to the EHB benchmark plan. However, issuers have some flexibility to modify the EHB benchmark plan benefits. Under the proposed rule, within a category of EHB, issuers could substitute benefits or sets of benefits that are actuarially equivalent to those being replaced. Issuers that make such substitutions would be required to submit evidence of actuarial equivalence to the substituted benefits, to the state.

Separate rules apply to coverage for prescription drugs. For each therapeutic category or class of prescription drugs (for example, as defined by the United States Pharmacopeia or USP), health plans must cover the greater of one drug per class or category, or the same number of drugs per class or category as covered by the benchmark plan. Drugs in a class or category must be therapeutically distinct (for example, different doses of the same drug are counted as one drug, as are brand drugs and their generic equivalents.)

Okay, got it? Well, not so fast. KFF continues –

Some areas of ambiguity remain regarding how essential benefit rules will work in practice. For example, the proposed rule does not specify how services in the benchmark plan should be assigned to categories, within which insurers can modify and substitute benefits on an actuarially equivalent basis. Certain categories ― such as “maternity and newborn care” ― are quite specific and self- explanatory. However, others ― such as ambulatory care ― are broad and not well defined, leaving questions about which services are included. For instance, would home health or durable medical equipment best be categorized as ambulatory services or rehabilitative services? What category would apply to organ transplants? Also, some plans today cover expensive injectable drugs (such as chemotherapy drugs) as a medical service, not under their drug benefit.

But the fun is just beginning. KFF goes on to explain, “plans must not design covered benefits in ways that discriminate against individuals based on age, health status or related factors.”

Hoo, boy! That opens up a whole lot of work for the trial bar. Any denial of anything could be seen as discriminatory.

Okay, I don’t want to belabor this. What we’ve written so far is just the beginning. We never even got to the section on “Wellness Benefits.” (Speaking of discriminatory ― spending money on health club memberships sounds like it is discriminating against people who are too feeble to make use of a gym.)

There is a more immediate observation I want to make.

What about Medicare?

All of these rules (and many more) apply to private health insurance. None of them, not one, apply to the government’s own program ― Medicare.

• Medicare doesn’t cover dental and vision.
• Medicare doesn’t have limits on out-of-pocket spending.
• Medicare doesn’t limit its deductible to $2,000.
• Medicare doesn’t vary premiums based on age and tobacco use.
• Medicare has higher premiums for people who delay enrolling.

I find it more than a little curious that all the rules the federal government has established for the private sector do not apply to the federal government’s own favorite program.

Welcome to the world of Animal Farm, where the pigs are a little more equal than the rest of us.

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