Friday, December 16, 2011

Essential Health Benefits Provide Flexibility…For States to Raise Premiums

We noted this morning that the essential health benefits would raise Americans’ insurance premiums.  The 15-page guidance released by HHS this afternoon shows just how much it could cause premiums to skyrocket.

While the guidance claims to create state flexibility, it largely does so by giving states the “flexibility” to impose more benefit mandates, not fewer.  Through 2016, HHS proposes to allow states to set benefits according to one of the following benchmarks – one of the three largest small group plans in the state; one of the three largest state employee plans in the state; one of the largest federal employee plans; or the largest HMO in that state.

In reality though, the “flexibility” provided to states could allow them to let premiums skyrocket.  Take for instance the largest federal employee plan – the Blue Cross Blue Shield Standard Option.  According to the Office of Personnel Management, in 2012 the average monthly premium for that plan will be a whopping $587.88 per month, or $7,054.56 per yearThat’s for an individual policyThe cost of a family plan is even higher – $1,327.80 per month, or $15,933.60 annually.  Premiums by 2014 will obviously be even higher yet.

As a reminder, the Congressional Budget Office estimated that in 2014, average premiums of Exchange policies will be $5,200 for an individual plan, and $14,100 for a family plan.  In other words, the cost of the most popular federal employee plan in 2012 already exceeds by several thousand dollars what CBO estimated plans would cost on Exchanges in 2014.  And the regulation allows states to require this rich benefit package in their Exchanges.

Some of the reason for the higher premiums in the federal Blue Cross plan is the relatively low cost-sharing associated with it.  But the HHS guidance also notes that the plan “covers about 95 percent of the benefit and provider mandate categories required under state mandates.”  In other words, by selecting the federal Blue Cross plan as their benchmark, states will be permitted to incorporate virtually every benefit mandate under the sun into their required benefit package.  What’s more, Page 10 of the HHS guidance suggests that the federal Blue Cross plan will be the default plan for determining benefit packages: “If none of the benchmark options in that benchmark type offer the benefit, the benefit will be supplemented using the FEHBP plan with the largest enrollment” – i.e., the extremely rich Blue Cross plan.

It’s worth noting that Section 1311 of the Obamacare statute requires states to pay for the increased cost associated with mandated benefits.  But because the federal Blue Cross plan effectively covers EVERY benefit mandate in existence, states can choose to mandate an extremely rich benefit package, and not pay for the financial consequences of this decision – the costs instead will be foisted on the federal taxpayers funding insurance subsidies in that state.  And remember too that individuals CANNOT buy insurance across state lines without permission – they are essentially a captive audience, and will be forced to pay the cost of the mandated benefits, without shopping across the border in another state.

Today’s guidance may provide “flexibility” to states – but individuals could be paying for that flexibility for a long time to come.