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Waivers? We don't need no stinkin' small group insurance rating rules waivers!

Waivers? We don't need no stinkin' small group insurance rating rules waivers!

May 11, 2015

Governor Baker grabbed a lot of attention last week over an arcane corner of health insurance regulation - small group rating rules.

We've written about this issue before. Here's the quick skinny: when Chapter 58 in 2006 merged the individual and small group health insurance markets, larger firms complained that they would face premium increases, due to the addition of the typically sicker-than-average individuals to their pool. So Massachusetts allowed insurers to offer discounts to the larger small groups. But, 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 some companies saving over 18% of the fair premium.

Massachusetts also allows discounts and surcharges based on the industry, so some groups of companies, typically those with older workers, pay more than the average premium, while others get a discount.

The whole system is a zero-sum game, with every discount matched by a surcharge imposed on someone else.

Then along comes the ACA, which bans all of these distortions and adjustments. The Patrick administration complained that moving from our system directly to the ACA would cause big premium shifts. So the state worked out a deal with the federal officials to phase out our system over four years. In 2014 and 2015, we can only use 2/3 of the state factors, and next year, 1/3. The plan is for them to be gone by 2017.

Now the Baker administration has asked to freeze the phase-out and lock in our current system indefinitely (here's his letter).

We disagree.

Here's our counter letter to federal HHS Secretary Burwell (pdf). We're urging the federal government to continue on the path of phasing out the state-specific rating rules:

Our state-specific rating factors are discriminatory and unfair, and result in unwarranted premium rate increases to individuals and many small businesses. The artificial surcharges and discounts tilt the playing field in the wrong direction. They should be phased out as agreed. ....

HCFA supports the HHS decision to permit Massachusetts to phase out the state’s rating factors over a transition period, as this will ease the gradual implementation of the premium impact of these rules for small employers in the state. We support the CMS rating rules because eliminating certain rating factors will lead to fairer health insurance premiums overall and lower premiums for individuals and smaller small group employers.

The business community is also on board with the administration, at least the larger small businesses that benefit now from their juicy discounts. What makes this issue so frustrating for us is that it exemplifies a standard poli sci conundrum: government policies that take from a broad group to benefit a small group get lots of support from the winners, and the losers in the deal don't even know they're losing. We hope the federal policymakers stick with their principles and make their decision in the whole public's interest.

      -- Brian Rosman