The individual health insurance rules that federal regulators are developing for 2027 could help individual coverage crowd out more of the small-group market, according to Jeff Smedsrud.
Smedsrud—a longtime supplemental health insurance benefits marketer, who founded HealthCare.com and is now the chief executive officer of Flex Benefits—predicted recently in an email that the draft Affordable Care Act individual health insurance market rules will make individual major medical insurance more attractive and more affordable in many markets.
The Centers for Medicare and Medicaid Services, the arm of the U.S. Department of Health and Human Services that oversees ACA rules that affect individual major medical insurance and fully insured group health coverage, unveiled the draft rules Feb. 9.
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Critics have argued that the draft rules would hurt the ACA public exchange system and the individual major medical market, but Smedsrud says he thinks the rules, as written, would make individual market products leaner, cheaper and more attractive to cash-strapped workers.
Access to a relatively stable, affordable individual major medical market would cause more small employers to drop traditional group health coverage and send workers to the individual market, either with or without Individual Coverage Health Reimbursement Arrangement plan cash, Smedsrud says.
If CMS support for the individual market continues for two or three years, “the net result is that small group plans will be comprised of more lower-income workers, and those of poorer health status,” Smedsrud says. “Small employer plans will become prohibitively expensive. My belief is that we will soon be in a situation in which no employer with less than 10 employees will offer any form of comprehensive health insurance.”
That might be what CMS wants, Smedsrud says.
What CMS’ ACA proposal says
Smedsrud forecasts, based on a close reading of the CMS proposal, that:
- The new draft rules for 2027 would make catastrophic plans—plans that pay only about 50% of the value of a standard health benefits package until the insureds reach the annual out-of-pocket spending maximum—more widely available. It would let the maximum annual out-of-pocket costs be as high as $14,000 for an individual and as high as $30,000 for a family of four.
- An issuer could create monthly deductibles, meaning that a plan with an annual deductible of $6,000 could have a monthly deductible as low as $500.
- A catastrophic plan could stay in place as long as 10 years.
- The proposed 10-year policy duration could increase the appeal of long-term wellness efforts for an insurer by locking an enrollee into a plan longer.
- The proposed 10-year policy duration could lead to a big increase in the lifetime value of commissions for a broker who sold a 10-year catastrophic plan policy.
- Issuers might get financial incentives to offer multi-year versions of ordinary individual major medical policies.
- CMS would try to prune state-required benefits mandates that increase coverage costs.
- The “market integrity” provisions, which are supposed to reduce ACA premium tax credit subsidy application fraud, look tough but fair.
What it means: Smedsrud says the draft regulations are “ruthlessly efficient” about changing the ACA system.
“It’s the first attempt at a complete re-thinking of Obamacare, by putting into discussion previously non-negotiable items such as plan design, duration, benefit limits, loss ratios and other features,” Smedsrud says.
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