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Iowa Confronts Obamacare’s Reality

Wellmark's headquarters under construction
Wellmark Blue Cross and Blue Shield headquarters, Des Moines, Iowa. Photo by Mark Hesseltine.

With a breakdown of the Affordable Care Act’s individual marketplace looming in many parts of the state, Iowa is ahead of most of the country in confronting the realities of a law whose basic structure doomed it to fail.

It is a useful exercise. Members of Congress who are trying to rewrite the health care law ought to pay particular attention to the fact that Iowa has recognized that the only practical way to deal with the shortcomings of “Obamacare” is to address the original sin of the Affordable Care Act: guaranteed issue.

The state’s insurance commissioner, Doug Ommen, released a proposal to deal with the “collapse” of the state’s Affordable Care Act marketplace. If the Trump administration allows Iowa to implement its plan, the state will use $352 million in federal funds to backstop insurers and overhaul subsidies for Iowa’s marketplace offerings, providing a fixed amount of assistance based on age and income rather than tying subsidies to the price of the plans. Iowa would also create a single, standardized “silver” level plan for insurers to offer statewide.

Most importantly, Iowa’s proposal would require anybody who wants to sign up for a plan after Jan. 1, 2018 to demonstrate continuous prior coverage with no break of more than 63 days in the prior 12 months, which means residents cannot readily game the system. If you lose your coverage because, say, you quit your job or moved across state lines, you have two months to sign up for new insurance, which will be granted essentially no questions asked. If you have a pre-existing condition, no problem. But you cannot wait until you are diagnosed with a serious medical need to sign up outside the annual autumn enrollment period.

Even this system puts insurers at a disadvantage as long they are not allowed to exclude or restrict coverage for pre-existing conditions when people sign up during annual enrollment. This proposal is not a return to the old, pre-Affordable Care Act system, and it means to a certain extent that healthy customers will continue to subsidize those who wait until they need care before they enroll. But it would also mean it is no longer open season for the cherry-picking shenanigans that exist under the unmodified Affordable Care Act.

Iowa wants to continue giving insurers some sort of financial protection for handling the sickest patients, who are the most expensive to cover. As a transitional step away from the Affordable Care Act, this makes sense. Some people, including those who couldn’t get coverage at all under pre-Affordable Care Act rules, will not drop out of the insurance pool voluntarily no matter how high premiums get. But as many of these seriously ill patients leave the insurance pool over time, either because they recover or because they have shorter life expectancies, a well-planned rate structure should eventually strike a natural balance, since healthy people will have incentives to sign up before they know they will require expensive care.

Iowa’s exchange is small, with only about 72,000 participants. In such a limited pool, effects are often outsized. Wellmark Blue Cross and Blue Shield said last May that about 10 percentage points of a requested 38 to 43 percent premium increase was due to one very sick patient with a rare genetic disorder whose care cost about $1 million per month. Wellmark announced in April that it would stop offering Affordable Care Act plans in Iowa, though it may reverse the decision if the Trump administration approves Iowa’s proposal. If it does not, that very sick individual will become a hot potato for whatever insurer – if any – that chooses to remain in the Iowa marketplace.

It remains to be seen whether current law will give the Trump administration the necessary flexibility to accommodate most of Iowa’s requests. The Wall Street Journal reported that administration officials were open to supporting the proposal if the law will allow them to do so. Yet even if the plan moves forward, it is not meant to be a permanent solution. “It’s a stopgap,” Ommen said bluntly in an interview. But the alternative, if the plan is not approved, is that 94 of Iowa’s 99 counties will likely have no Affordable Care Act exchange coverage options at all for 2018.

Iowa is apparently not seeking relief from some of the Affordable Care Act’s most expensive and gratuitous coverage mandates, which means even if the administration allows the state to move forward, its plan may not go far enough toward reducing basic premiums to the point that most young, healthy people will sign up voluntarily. We also don’t know whether Iowa’s proposal goes far enough toward eliminating the bias in favor of late-middle-aged baby boomers in the Affordable Care Act’s lopsided rate structure, which tilts against young adults.

Still, this proposal is both a start and a blueprint for congressional Republicans as they work on building something functional out of the Affordable Care Act’s financial wreckage. Any workable structure needs a solid foundation in reality. Iowa’s proposal at least shows where to start digging.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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