A Healthy Blog

Massachusetts health care — wonky, with a healthy dose of reality

Brouhaha Good News Update: De-Merger Averted; Tobacco Surcharge Rejected

Brouhaha Good News Update: De-Merger Averted; Tobacco Surcharge Rejected

April 7, 2013

Several weeks ago we posted on the controversy over implementing ACA rules on insurance regulations.

It can get complex, but the short summary is that when Chapter 58 merged the individual and small group health insurance markets, Massachusetts allowed insurers to offer discounts to the larger small groups. The discounts are matched by surcharges added to premiums paid by individuals and smaller small groups. So larger small groups (typically companies with 35-50 workers) pay less than they should, and individuals and small firms pay more than they should. The spread resulted in the winners saving around 10% on average, with many companies saving over 18% of the premium.

The ACA bans these surcharges and discounts, starting in 2014. So the larger small businesses were complaining that their rates would go up. Needless to say, individuals, whose rates would go down, are unaware of the issue.

The plan was to ask the federal officials for a transition phase-in, so premium rates wouldn't go up (or down) abruptly. When the federal CMS initially turned down a phase-in, many insurers and small business groups pushed to de-merge the markets. The de-merger would separate out individuals from the small groups, undoing the 2006 merger. The state's insurance commissioner sent a letter to CMS (pdf) on March 29, stating that the state was "seriously considering de-merging." AIM blogged on April 2 that this was its preference as well, if no phase-in was permitted.

We argued strongly against splitting the markets, along with GBIO and MHA. We argued that de-merging the market works against the principle that insurance pools should be as large as possible to spread risk more widely and enhance access to health insurance for individual purchasers. De-merging the markets would re-open the possibility of gaming and strategic market selection.

On Friday, the federal government agreed to a transition period, taking the de-merger issue off the table. DOI Commissioner Joseph Murphy sent this letter (pdf) confirming that Massachusetts will keep its merged market intact. We are very pleased with the decision, which CMS officials says recognizes our existing exchange and health reform progress.

Tobacco Surcharges Turned Down, Too
In addition to the group size adjustment issue, under the ACA Massachusetts also had to decide whether or not to allow insurers to add up to a 50% premium surcharge for people using tobacco. Under current state law, insurers may take tobacco use into account, although few insurance plans use this factor. In a rare alignment of consumer advocates and the tobacco industry, we joined the American Cancer Society and other health groups to argue against the surcharge. Cigarette smokers need health coverage to help them quit, and raising their rates is an obstacle to maintaining coverage. We saw the tobacco surcharge as a bid by insurers to avoid covering riskier individuals, more likely to have higher medical expenses (for a good summary of our position, see this letter from the American Lung Association (pdf)).

As part of their March 29 letter, the state notified the federal government that Massachusetts plans to not permit a premium add-on for tobacco users. This will require a change in state law, which we expect to be proposed as part of the Governor's ACA implementation bill, due any day now, still.

These two developments point to the advantages the ACA has for Massachusetts, even in some obscure areas of insurance regulation. By removing the group size adjustments, rates will more fair for everyone buying insurance. Eliminating the tobacco adjustment is a positive step for improving health. By paying close attention to these issues, HCFA made sure that consumer concerns were part of the decision-making process.
-Brian Rosman