ACA Title 1,Sec. 1342. Establishment of risk corridors for plans in individual and small group markets.: “Bad” – Removes much of the business incentive for efficiency. This provision effectively eliminates any real incentive for efficiency or prudency in the administration of the health insurance plans for the individual and small group markets. The three year ((2014 – 2016) creation of a federal determined cost experience “corridor” for cost shortfalls and premium surpluses gets the federal government deep into the business of health insurer and health plans. The regulatory requirements of this section are enormous. Also with a 50% rate of federal subsidization for losses (up to a maximum) and 50% rebate of surpluses up to a maximum back to the federal government it generally undermines the market incentives for efficiency in administering health coverage. I believe it would be better if the triggers for this section were at the extreme ends, rather than as a corridor, such as this provision could be triggered by a loss ratio of 110% or greater or a loss ratio less than 70% and then only at the request of the health plan or insurer Involved and if it was triggered both shortfalls and surpluses would be examined. By artificially narrowing the range of price quotes through the existing provision it is likely to have the effect “homogenizing” the efforts of health insurers and plans while providing a subtle incentive to gain business at the expense of the federal government. Also it appears to provide an incentive to not contain or limit administrative cost. Clearly it significantly distorts market mechanisms in health care even in the short run.

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ACA Title 1, Sec. 1341. Transitional reinsurance program for individual and small group markets in each state: “Bad” – Should be emergency provision only. Looks good on the surface, but should be considered as a alternative of last resort, not first resort. Its very presence may encourage irresponsible underwriting in the transitional period. Its good that it is seen as only a three year program with the possibility of extension. Concentration of high risk individuals in any insurance pool is not a good general idea and has a tendency to work against the normalization of risk in insured pools. Also reduces private sector reinsurance solutions and the number of reinsurance providers that write business in employer markets. Should be solution of “last resort” and considered a back up if private reinsurers fail to underwrite needed business. Price tag goes from $10 billion to $4 billion over three years.

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ACA Title 1, Sec. 1333. Provisions relating to the offering of plans in more than one state:”Good” – Mostly – Establishes multi-state health plan offerings. This section of the ACA provides for health plan providers to offer the same plans to the individual and/or small group markets in one or more states. Their state of domicile controls in terms of insurance regulation. The relationship is called a “Health Care Choice Compact” and are slated to be operational no earlier than January 1, 2016. Restrictions regarding “Essential Health Benefits Coverage” and cost sharing limits also apply. Another category of multi-state health plans is also authorized by this section and they are called “Nationwide Qualified Health Plan” and here the provision seems to be written for organizations like the Blues. Again the plans must meet minimums. These plans have to be rolled out in a timely manner and plans are linked to modified community rating which is not good if plans that require wellness are not included. Philosophically the entire law establishes a variety of similar health plans in terms of benefit coverage and cost sharing limits that compete with each other in the marketplace. Variety or diversity in plan design is discouraged and competition between plans mainly on price seems to be the major antidote to high health plan costs. Actually its relatively easy to see how the various legislative proposals from federal legislators were combined with little concern for duplication. Congress seems to have decided that more is better and the more competing plans the better. But a major change that seems to be overlooked is the absence of a provision that would provide an incentive for people to engage in wellness and health lifestyle choices. This concern seems to be relegated to another universe or time dimension.

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ACA Title I, Sec. 1332. Waiver for state innovation: “Good” – Supports innovation by states. Always a good provision, but it also comes with selected limitations including: must include 10 year budget neutrality for HHS, at least provides coverage compatible with “Essential Health Benefit Coverage”, and cost sharing levels no greater than the limits in the Law. These do represent some fairly stringent conditions for securing a waiver. However, controlled innovation is usually a good idea in matters as complex and high stakes as health care.

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ACA Title I, Sec. 1322. Federal program to assist establishment and operation of nonprofit, member-run health insurance Issuers: “Ugly” – Unnecessary and misguided. This section sets up a whole federal system for the awarding of grants, loans and contracts to stimulate consumer run, non-profit health insurance plans with the “catchy” name of “Consumer Operated and Oriented Plan” (CO–OP) program. Does anyone who knows anything about health insurance and health plans really think that these entities will produce more effective or efficient health plans? If they are such a good thing that we need a whole new $6 billion per year federal granting organization why are there not more of them already in existence? Bad idea and another prime example of the philosophical bias replete through the ACA about how innately bad “business” and “capitalism” are for Americans. I don’t agree….I think this is largely how we got to be the only viable superpower on the world stage. This section seems to be predicated on the assumption that if you take the “profit” out of the picture health care will cost less and be more effective. I see no valid empirical data supporting this premise. I believe that the problem with health care costs is not due to profits and profit taking -it is due to the fact that there are virtually no market incentives for people to shop, use health care wisely or maintain and improve their health. Also there is no entity in the U.S. health care system that plays the role of saying …no, you don’t really need that third MRI or that back surgery, or that third stent or that new knee, (because you’re 200 pounds overweight). Multiply this phenomenon by 10,000,000 and the lack of consumption discipline and the economic consequence become pretty clear. My opinion is that this section should be repealed, particularly with its $6 billion price tag.

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ACA Title I, Sec. 1321. State flexibility in operation and enforcement of Exchanges and related requirements: “Good” – Provides option for state to operate insurance “exchange” including standards and protection from federal preemption. This section of the ACA provides for states to operate an insurance exchange and that the Secretary of HHS will promulgate standards and a process for becoming an exchange. The specific requirements include: (A) the establishment and operation of Exchanges; (B) the offering of qualified health plans through such Exchanges; (C) the establishment of the reinsurance and risk adjustment programs under part V; and (D) such other requirements as the Secretary determines appropriate. States must operate their exchanges under federal standards or can choose to allow the federal government to provide the exchange (either directly by the federal government or through a non-profit.). DHHS decided to do it directly through www.healthcare.gov and unfortunately experienced a number of technical problems and delays. This section also recognizes state sovereignty in health regulation and limits preemption by federal law and regulation. Finally there is a general provision for including early versions of state exchanges until they can be evaluated by the standards. I see this provision as helping establish a national platform for developing a more “level” playing field for our health insurance markets. I believe this is necessary to allow consumers not to be confused by self-serving marketing and sales strategies of insurers and to provide a consistent national marketplace for consumers and businesses to purchase health insurance. It helps set the stage for effective price competition among health plans. However, exchanges by themselves, are not likely to lead to significant improvement in the nation’s health.

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ACA Title 1, Sec. 1313. Financial integrity: “Good” – Basic requirements for financial record-keeping, audits, reports and oversight of exchanges. This section requires that exchanges keep sound financial records, conduct periodic audits, report to the federal government, be investigated by the GAO and be monitored for patterns of abuse or filing of false claims. This is a basic requirement for all public expenditures and should be fully pursued by federal regulators. Nothing unusual here!

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ACA Title 1, Sec. 1312. Consumer choice. “Ugly” – In appropriately limits risk pool for individual and small group market. This section of the ACA inappropriately limits the use of one risk pool for all individual plan members and small employer group members. The way I read this it prohibits offering a “Wellness- oriented” risk pool for individual and small employer groups. That is very bad from my vantage point. We know that working populations that do wellness programming have lower health care costs than those that don’t do wellness. This provisions requires only one risk pool for the two groups or the formation of one risk pool for both populations. Either way this seems to prohibit the formation of a risk pool that requires the individual and or small employer to engage in wellness activity. This section needs to be repealed or eliminated. I believe we want to encourage market forces to support people taking better care of their own health. This provision works in the opposite direction – Bad! The other parts of this section define “qualified individuals”, “qualified health plans” and “qualified employers” and set some basic ground rules for how coverage will be structured in and outside of exchanges. Most of these provisions help extend the “level playing field” but also lock everyone into fixed positions which usually acts to prevent innovation.

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ACA Title 1, Sec. 1311. Affordable choices of health benefit plans. “Good” – Established the ground rules for the development and operation of “exchanges.”This section of the Law covers the provision of grants to states for the development of “American Health Benefit Exchanges” including assistance to states to establish exchanges using grant funds, including the establishment of Small Business Health Options Program exchanges (SHOP exchanges), functional activities, basic requirements, rating processes and rules for operation. This section also provides the basic requirement for “qualified individuals”, “qualified health plans”, “qualified employers”, and funding conditions. This section enables the refinements that the promulgation of federal regulations achieves. In general the establishment of basic ground rules for the operation of exchanges will ultimately improve price competition among health plans helping to stabilize future medical trend. However in the meantime, if economic “free riders” are still allowed to purchase health insurance only when they need it, health plans on the exchanges will likely experience periodic “death spirals” from adverse selection. The exchanges themselves will likely have to step in to prevent financial insolvency among the more popular health plans.

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ACA Title 1, Sec. 1304. Related definitions. ‘Good” – Defines individual and group markets and large and small employers.This section simply defines the basic terms including “Individual Market” and “Group Market” and the terms “Large Employer” (101+ employees) and “Small Employer (≤100 employees) and transitional rules for their treatment as they grow or change. States can adopt “50” employees as their benchmark if they choose to do so. This provision is definitional detail that contributes to a “level playing field” on a national basis across states and market sectors. Sound development as long as it is enforced through use.

Please let others know about this blog and have them “follow” @Wellness Czar on Twitter for the section topics. This blog is also available periodically in a color-coded PDF format upon request.