Protecting High-Risk, High-Cost Patients

The shortcomings of the health insurance market for individuals purchasing insurance directly (rather than through their employers) are both well-documented and widely recognized. This market has been characterized by benefit exclusions, denials of coverage, premiums that vary greatly by prior health experience and current health status, risk selection, and lack of clear information on plan details prior to purchase. Some of these problems have been addressed previously in the small group market, thanks to earlier federal and state laws, but problems persist in many states.

The Affordable Care Act (ACA) will dramatically reduce these problems in both the nongroup and small group markets, with reforms that establish benefit standards, require readily understandable and comparable information from plans, and prohibit many long-standing market practices designed to avoid enrolling those with high health needs and to limit the payment of legitimate claims.

The Department of Health and Human Services’ (HHS) proposed approach to implementing two key ACA requirements in the nongroup and small group markets—for minimum or “essential health benefits” and insurance plan actuarial value—reflects an effort to balance two competing goals: consistent protection across all consumers and accommodation of variation—whether in experience across states, insurance benefit design, or in the needs and preferences of individual consumers. But this analysis shows that these rules, even in combination with the above insurance protections, may still not ensure that the highest-need, highest-cost consumers receive predictable and adequate insurance protection. Insurers able to avoid the very sick population, whose care accounts for such a large share of spending, may reap substantial financial benefits. Although risk-adjusted payments are intended to mitigate this powerful incentive to select risk, consumer protection will be strongest with policies designed to minimize, not encourage, risk selection. Achieving this goal would require refinement, reinforcement and reevaluation of HHS’ proposed practices, both at initial implementation and over time, in order to minimize risk selection and discrimination that may inevitably remain a part of even much-improved insurance markets.