Commissioner Faces Difficult Choice on Coverage Option Offered by Obama

Andrew Kitchenman | November 26, 2013 | Health Care
Experts say Kobylowski must balance wishes of NJ consumers with what works best for insurance marketplace

Raymond J. Castro, senior policy analyst for New Jersey Policy Perspective
New Jersey Commissioner of Banking and Insurance Kenneth Kobylowski is weighing whether to allow thousands of state residents to keep their recently cancelled health insurance plans.

The decision will have major policy and political implications over the next year.

When President Obama announced on November 14 that current health plans wouldn’t have to meet new federal regulations over the next year, he opened the door to each individual state health commissioner to decide whether health plans could extend expiring coverage for another year.

Since then, more than 30 states have made those decisions, with roughly half allowing extensions and half declining to allow them. Insurance commissioners from both political parties have reached different conclusions, reflecting the complex factors affecting the debate.

New Jersey officials have indicated that they were seeking additional information from the federal government. State Sen. Nia H. Gill (D-Essex and Passaic) yesterday announced a hearing will be held December 5 in Trenton to discuss the state’s options, and that she has invited Kobylowski.

Federal officials have extended the deadline from December 15 to December 23 for people to buy health insurance so that they will be covered beginning January 1. Since it normally takes months for regulators to approve insurance rates, it would be a challenge for insurers to adjust their plans within that time frame to allow for residents to keep their current plans.

“It’s a difficult choice that they have to make,” said Raymond Castro, senior policy analyst for the nonprofit group New Jersey Policy Perspective.

Roughly 800,000 state residents covered by individual or small-group insurance had their plans cancelled by insurers recently. They are instead being offered new plans that comply with the 2010 Affordable Care Act, which requires that insurance plans offer more extensive coverage than what the most popular individual-market plans in New Jersey currently offer.

While the ACA allowed insurers to continue to offer plans that existed prior to the 2010 law being enacted, New Jersey insurers opted against seeking to “grandfather” these plans, citing new regulations that did affect the plans and the additional administrative burden of offering some plans that comply with the ACA and some that don’t.

When people received notices that they couldn’t keep their current plans, it prompted a national controversy focusing on Obama’s promise that those who liked their current insurance coverage would be able to keep it. Obama apologized for the situation and offered the one-year extension.

Castro pointed out that most New Jersey residents who have seen cancellations would be unlikely to benefit from keeping their current plans. That’s because all small-group plans and some individual plans already offered a state-mandated comprehensive set of benefits that led to higher premiums in New Jersey than in other states– and the ACA compliant plans are similar in price or less expensive. But the most popular individual plans – known as “basic and essential” plans in New Jersey — offer bare-bones coverage, leading to low monthly premiums and higher out-of-pocket expenses.

“It’s the people in the basic and essential who are going to be seeing the biggest hit in terms of cost,” Castro said. “You have to be concerned with what choices that they’re going to be facing.”

However, Castro added, allowing these residents to keep their current plans would have a negative effect on the new health insurance marketplace, or exchange, that will begin covering new individual health plans starting on January 1.

Castro noted that roughly 110,000 state residents currently have individual insurance plans. He noted estimates that one-half to three-quarters of those residents would be eligible for new federal subsidies to purchase insurance through the marketplace.

That means that allowing residents to keep their plans would benefit roughly 50,000 people . The question facing state officials is whether the benefit of allowing these people to keep their plans another year is worth the potential risks to the marketplace.

The estimated 50,000 people affected in the state tend to be healthier, which is one reason why they chose relatively low-cost health plans. If fewer healthy people buy insurance through the marketplace, the remaining participants will tend to have higher average health costs, raising premiums. If premiums become too high, fewer people will buy insurance through the exchanges, leading to the marketplace becoming dysfunctional.

“You can see the huge impact that this will have,” said Castro, who is preparing a report on the issue.

While the ACA mandates that all people s have insurance, some may choose to pay penalties rather than comply with the mandate. The penalty is the greater of $95 or 1 percent of a person’s income in 2014, rising to the greater of $695 or 2.5 percent of income in 2016.

The ACA’s sponsors anticipated potential problems with having more sick people buy insurance in the first three years of the law and built different programs into the law to reduce this risk, such as a program requiring different health plans to share their risks. It’s not clear whether these programs will be enough to offset the additional problems presented by allowing some people to keep their current individual plans.

Wardell Sanders, president of the New Jersey Association of Health Plans, said the timeframe would be tight for insurers to make changes to their planned offerings.

“It certainly presents operational challenges to roll out rates for products that they don’t have rates for now,” Sanders said.

Sanders noted concerns raised by the National Association of Insurance Commissioners and the American Academy of Actuaries that allowing healthier people to keep their plans would skew the marketplace plans toward people with higher health risks, resulting in higher premiums.

While most state insurance commissioners have already decided whether or not to extend the plans, it’s possible that Kobylowski will opt not to announce any decision. This would have the effect of leaving the cancellations in place, and maintain Gov. Chris Christie’s stance of complying with the federal marketplace without actively involving the state government beyond a minimal level.

Castro believes the issue of whether people should be allowed to keep their plans underscores the importance of state regulators working with federal officials.

“The marketplace cannot be run completely separately from the way insurance is normally regulated in this state,” Castro said, adding that it’s the job of state regulators to ensure that consumer rights are protected.

Gill said the issue’s importance led her to call for the December hearing.

“This is certainly a matter that cannot be taken lightly or without public discussion by the decision makers,” Gill said in a statement. “We hope to hear from Commissioner Kobylowski on how this option will affect the residents of our state.”