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How Colorado insurance regulators used an Obamacare quirk to help engineer better health coverage prices for 2019

Some people who buy their own insurance could see 40 to 50 percent drops in premium prices, state officials say

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For the first time in years, Coloradans who buy their own health insurance could be in for some relatively good news this week.

When the state Division of Insurance announces the finalized 2019 rates for the individual insurance market on Thursday, consumers will see the lowest premium price increases since the implementation of the Affordable Care Act. And some consumers could be in for substantial price decreases in the up-front costs of their health coverage.

Michael Conway (Courtesy of the Colorado Division of Insurance)

“We’re going to be able to show for the first time in years that if they shop around they can save money over what they were paying the previous years,” said Michael Conway, Colorado’s insurance commissioner.

Rates on the individual market jumped an average of more than 30 percent last year and 20 percent two years ago. The increase this year is expected, on average, to be in the 6 percent range. But Conway said some people might be able to find premiums that are 40 to 50 percent lower than what they are paying now.

Update on Oct. 4, 2018

Colorado regulators release finalized rates

As expected, the state Division of Insurance announced Thursday that premiums for the individual market will increase by an average of 5.6 percent in 2019 — before tax credits are factored in.

No insurers dropped out of the market for 2019, and plans from Anthem will decrease, on average. The largest increase will be for plans from Denver Health Medical Plan, which will jump nearly 22 percent.

Overall, bronze plans will increase less than 1 percent on average, and gold plans will increase by almost 4 percent on average — less than the 7 percent jump insurers had asked regulators to approve. The biggest change will be in silver plans, which will increase nearly 12 percent on average before tax credits. But that was expected, as explained below.

How did this happen? It has a little to do with market forces and a little to do with a key policy switch made by state regulators. Here’s a rundown of the wonky ins and outs that drove this change in Colorado’s insurance market.

Who’s affected?

The rates set to be announced this week are for people who buy health insurance on their own. That means they buy it through Connect For Health Colorado — the state’s health insurance exchange — or they buy it through a broker or directly from an insurance company. The rates are not for people who get their health insurance through their employer. About 400,000 people buy their own insurance as part of what is known as “the individual market.”

How does the individual market work?

There’s a bunch of ingredients in the individual market that impact what people pay.

The first is the metal tier of plans. There’s three. Gold plans generally offer the most generous coverage and are the most expensive. Silver comes next. And last are bronze plans, which typically have low premiums (so they are cheaper up front) but higher deductibles and out-of-pocket maximums (so they cost more if you have to really use them). All plans must comply with Affordable Care Act — a.k.a. Obamacare — rules for covering people with preexisting conditions and not charging people more based on their health.

The second is tax credits. People with lower incomes are eligible to receive help from the federal government in paying for their monthly insurance premiums. These tax credits are applied immediately, so they cut the price of premiums right away. It is important to note, though, that people have to buy plans on Connect for Health Colorado in order to receive tax credits. Plans not bought on Connect for Health Colorado (sometimes called 0ff-exchange plans) are not eligible for tax credits.

The third is cost-sharing reductions. For people at the lowest end of the income spectrum in the individual market — these are people who make just enough not to qualify for Medicaid — insurers are required by law to help them pay deductibles and copays to further reduce their health care costs. The federal government during the Obama administration used to reimburse insurers for doing this, so insurers never built the costs of the reductions into their plans. But the Trump administration stopped the reimbursements, meaning insurers now recoup their costs by pricing them into their plans.

Why did rates level out this year?

This year’s relative stability is partly because insurers have finally figured out what they’re doing. When the Affordable Care Act went into effect, insurers weren’t quite sure who was going to sign up and how much they were going to cost. Frequent tweaks to how the law was implemented — followed by frequent revisions or attempts to revise the law itself — added additional instability.

But, Joe Hanel, a spokesman for the Colorado Health Institute, said insurers are finding their footing — after requesting big rate increases in previous years to put them on solid ground.

“Carriers are getting more experience on pricing products,” he said. “They really underpriced a lot of their plans for the first few years of the Affordable Care Act, and they realized that the people they were covering had a lot more health needs than what those prices could sustain.”

Did state regulators do anything that had an impact?

Yes, and to understand it you have to know how those ingredients in the individual market stew together.

The federal government calculates how much each consumer should receive in premium tax credits based on the price of the second-lowest-cost silver plan. When the cost of that silver plan goes up, so do the tax credits available to help pay for premiums on any plan.

But silver plans are also significant for another reason: They are the only plans where eligible consumers can use cost-sharing reductions.

Last year, state regulators told insurers to distribute the added cost of not being reimbursed for the cost-sharing reduction across all metal tiers. But other states tried a different strategy called “silver loading,” and it worked.

In silver loading, insurers recoup their money on the cost-sharing reductions by pricing them only into silver plans — after all, those are the only plans where the reductions apply. This raises the price of silver plans significantly. That, in turn, boosts the tax credits available for people to pay for any plan.

For 2019, Colorado regulators switched strategies and told insurers to silver load. And they also added another requirement: Insurers could only silver load plans sold on Connect for Health Colorado. Silver plans not sold on the exchange — which are commonly bought only by people who make too much money to qualify for a tax credit or a cost-sharing reduction — can’t have the added costs built in.

The result is lower premiums on gold and bronze plans and higher tax credits to help pay for those plans.

“So far the federal government lets that happen,” Hanel said. “It negates all the money the feds could have been saving by not paying the cost-sharing reductions.”

The website for Connect for Health Colorado, the state’s health insurance exchange, shown in October 2018. (Eric Lubbers, The Colorado Sun)

What does this look like in practice?

The state Division of Insurance will release some better numbers when it announces its final rates, but the nonpartisan Kaiser Family Foundation has already crunched some prices based on the preliminary rates insurers filed this summer.

The foundation looked at what a hypothetical 40-year-old non-smoker who makes $30,000 a year would pay in Colorado. For both gold and bronze plans, the rates declined — the cheapest bronze plan, for instance, would cost $317 a month before tax credits, as opposed to $338 in 2018. But silver plans saw an increase — from $413 a month to $439 a month before tax credits.

That increase creates silver loading’s special sauce. The Kaiser Family Foundation projected that their hypothetical person’s tax credit would increase from $212 per month in 2018 to $233 per month in 2019 — a 10 percent jump.

And that increase would cut what the person actually pays for premiums each month. The foundation projected an $84 monthly premium for a bronze plan and a $204 monthly premium for a gold plan — a 33 percent and a 17 percent decrease over 2018’s rates, respectively. In the end, that gold plan would even be cheaper than the silver plan — which the foundation projected would be $206 per month after tax credits, or a 2 percent increase over 2018.

That is why Conway says consumers in the individual market should shop around this year and not just let their plans automatically renew. And people who don’t qualify for a tax credit should be sure to weigh their options both on Connect for Health Colorado and off the exchange.

What more can regulators do to bring down costs?

Even with the good news, Hanel notes that health insurance for many folks is still not exactly cheap. Older people and people who live in Colorado’s mountains, especially, pay huge sums.

“For people who don’t get tax credits, it’s still really expensive,” Hanel said.

But Conway said regulators are nearing the end of what they can do on the insurance side to make premiums cheaper.

“We can squeeze health insurers,” he said. “But when they only have 3, 4, 5, 6 percent margins, there’s not a lot we can squeeze out of it.”

Conway believes that means regulators now must look more closely at the underlying costs of medical care — what doctors and hospitals are charging. For instance, he is working with Summit County leaders to possibly create some kind of supersized group of insurance consumers with enough might to negotiate better prices from local health care providers.

“We have to figure out a way for consumers to consolidate their purchasing power,” he said.

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