Brouhaha Good News Update: De-Merger Averted; Tobacco Surcharge Rejected

Several weeks ago we posted on the controversy over implementing ACA rules on insurance regulations.

It can get complex, but the short summary is that when Chapter 58 merged the individual and small group health insurance markets, Massachusetts allowed insurers to offer discounts to the larger small groups. The discounts are matched by surcharges added to premiums paid by individuals and smaller small groups. So larger small groups (typically companies with 35-50 workers) pay less than they should, and individuals and small firms pay more than they should. The spread resulted in the winners saving around 10% on average, with many companies saving over 18% of the premium.

The ACA bans these surcharges and discounts, starting in 2014. So the larger small businesses were complaining that their rates would go up. Needless to say, individuals, whose rates would go down, are unaware of the issue.

The plan was to ask the federal officials for a transition phase-in, so premium rates wouldn’t go up (or down) abruptly. When the federal CMS initially turned down a phase-in, many insurers and small business groups pushed to de-merge the markets. The de-merger would separate out individuals from the small groups, undoing the 2006 merger. The state’s insurance commissioner sent a letter to CMS (pdf) on March 29, stating that the state was “seriously considering de-merging.” AIM blogged on April 2 that this was its preference as well, if no phase-in was permitted.

We argued strongly against splitting the markets, along with GBIO and MHA. We argued that de-merging the market works against the principle that insurance pools should be as large as possible to spread risk more widely and enhance access to health insurance for individual purchasers. De-merging the markets would re-open the possibility of gaming and strategic market selection.

On Friday, the federal government agreed to a transition period, taking the de-merger issue off the table. DOI Commissioner Joseph Murphy sent this letter (pdf) confirming that Massachusetts will keep its merged market intact. We are very pleased with the decision, which CMS officials says recognizes our existing exchange and health reform progress.

Tobacco Surcharges Turned Down, Too
In addition to the group size adjustment issue, under the ACA Massachusetts also had to decide whether or not to allow insurers to add up to a 50% premium surcharge for people using tobacco. Under current state law, insurers may take tobacco use into account, although few insurance plans use this factor. In a rare alignment of consumer advocates and the tobacco industry, we joined the American Cancer Society and other health groups to argue against the surcharge. Cigarette smokers need health coverage to help them quit, and raising their rates is an obstacle to maintaining coverage. We saw the tobacco surcharge as a bid by insurers to avoid covering riskier individuals, more likely to have higher medical expenses (for a good summary of our position, see this letter from the American Lung Association (pdf)).

As part of their March 29 letter, the state notified the federal government that Massachusetts plans to not permit a premium add-on for tobacco users. This will require a change in state law, which we expect to be proposed as part of the Governor’s ACA implementation bill, due any day now, still.

These two developments point to the advantages the ACA has for Massachusetts, even in some obscure areas of insurance regulation. By removing the group size adjustments, rates will more fair for everyone buying insurance. Eliminating the tobacco adjustment is a positive step for improving health. By paying close attention to these issues, HCFA made sure that consumer concerns were part of the decision-making process.
-Brian Rosman

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9 Responses to Brouhaha Good News Update: De-Merger Averted; Tobacco Surcharge Rejected

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  2. Sick of Liberals says:

    Oh Please! Smokers shouldn’t pay more for insurance because they need coverage to get them to quit? Ummm…. perhaps they should have thought about that BEFORE THEY STARTED!!!
    By your twisted logic, a driver with 10 DUI’s under his beer belly belt should pay the same for car insurance! You socialists neer give up, huh?

    • HCFA says:

      Most smokers started very young, long before they were able to think about health insurance premium rates. The peak years for first smoking is around the sixth or seventh grades, ages 11 to 13. Most smokers in 12th grade had started by the end of 9th grade. Cigarette companies know this, and try to focus their marketing on children. So increased insurance premiums is hardly an incentive to not start smoking.

      • Sick of Liberals says:

        So, “they started when they were young” is justification for my having to subsidize them? I DON’T THINK SO! How come I didn’t start to smoke when I was 13? No matter how you slice it, THEY are the ones who smoke, not me. So THEY should pay more.

        That’s what the mandate was all about, HCFA, isn’t it.? Force healthy people, with healthy habits, to subsidize those who are “victims” of their own stupidity, or maybe iven misfortune. Well, you can put me in jail, and I STILL will not buy insurance, and will continue to pay my own way.

        And groups like HCFA should stop with the “uninsureds cost us too much” mantra. Fact is that many of us would have purchased catastrophic insurance plans which are ILLEGAL now (remember Wendy WIllimams and husband?) . So your argument about what happens in the event of an AMI, CVA, dx of CA etc. is hogwash! And tell me how one BORN with CF, DM, whould be able to pay the same rates as an astronaut?

        HCFA: THe typical bleeding hearts

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  5. HCFA says:

    Josh — Under the decision, the increased premiums for some small businesses are matched by decreased rates for others. The net cost of health care in Massachusetts does not change.

    The current system allows insurers to give out unjustified discounts to some, and impose random surcharges on others. The ACA rule is much more fair, because it requires everyone to the pay the same base rate. It does fix a real problem.

    The issue was that overnight imposition of the ACA rule would mean some firms would see really big increases all at once. Others would see big decreases. The three-year phase-in makes sense, because it avoids abrupt swings in premiums.

    Once it’s phased in, everyone starts from the same place.

    This is hardly lipstick on a pig. More like an order of bacon for everyone in the place.
    Brian Rosman
    Health Care For All

    • TC in Connecticut says:

      “Everyone pays the same”.. How nice. Isn’t that the mantra of a true socialist group like HCFA.

      WHATEVER HAPPENED to r-e-s-p-o-n-s-i-b-i-l-i-t-y? I CHOSE never to smoke! THat means I should save on my own insurance, and those who were dumb enough to light up should pay more.!

  6. Brian,
    How is it good news that smaller companies will now pay more for insurance, and the state lost its authority to set its own rating factors?

    These companies already pay the highest premiums in the country.

    It doesn’t “fix” the problem, it just phases in the increase over 3 years. Sounds like lipstick on a pig to me.
    Josh Archambault
    Pioneer Institute

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