Yet another hole in the hull — Single carrier hardship exemption

The Notice for Benefits and Payment Parameters (NBPP) is the Center for Medicare and Medicaid Services (CMS) annual playbook for running Healthcare.gov.  Most of it is fairly boring mechanical changes to risk adjustment but there are always some significant policy changes in it.

One of the quiet policy changes is the expansion of a hardship exemption for individuals who live in counties where there is either no insurers or a single insurer offering coverage. Here is the language from the fact sheet:  

CMS also issued new guidance today expanding hardship exemptions. Under this hardship exemption guidance, individuals who live in counties with no issuers or only one issuer, will now qualify for a hardship exemption from paying the Affordable Care Act’s penalty for not having coverage.

The no insurer part makes sense, it formalizes the procedure of what could be done in a bare county.  I think pretty much every health wonk in the country has thought that if a county has no insurers, a hardship exemption would be granted on either automatic affordability grounds(divide by zero error) or on Secretary’s discretion.

The interesting part was the extension of  a hardship exemption to single carrier counties.  About a quarter of enrollees in 2018 were in single carrier regions.    This was odd.  An exemption allows an individual to not pay the individual mandate penalty.  The individual mandate penalty zeroes out but is not eliminated on January 1, 2019.

I originally did not think this was a big deal:

This makes me lean towards thinking that these two exemptions are primarily messaging rules and not rules with significant pragmatic impact.

I think I am wrong. This rule has some pragmatic impact as it will worsen the Metal risk pool’s morbidity as more people can now buy Catastrophic plans.

A mandate hardship exemption does one other thing. It allows someone over the age of 30 to buy a Catastrophic plan. Catastrophic plans are not subsidy eligible. As we discussed yesterday, Catastrophic plans, from a benefit design point of view, are merely funny looking Bronze plans. However they risk adjust against themselves and do not send any money to the Metal risk adjustment pool for the individual market. Bronze plans premiums are typically higher than the expected claims expense because Bronze plans typically send money into the risk adjustment pool.

So what happens if more people are eligible for Catastrophic plans?

More people with fairly low health needs and more likely to be not eligible for a premium subsidy will buy cheaper Catastrophic plans. These folks are likely to be healthier than the average person still remaining in the Metal risk pool. The average risk will increase. Additionally, there will be fewer Bronze buyers so Silver, Gold and Platinum plans will be receiving less risk adjustment inflows from Bronze buyers. Higher average risk with less Bronze risk adjustment subsidies means higher premiums for Silver, Gold and Platinum plans.

Higher premiums are directly absorbed by the federal government for subsidized buyers. There are cases where higher premiums may be beneficial to subsidized buyers because of expanded spreads. However individuals who are not subsidized and who are buying Metal plans will be worse off. Their premiums will be incrementally higher than they otherwise would be.

The current health policy goal of the Trump Administration is to make the ACA individual market non-functional by splitting the risk pools as aggressively as they can without getting sued. The primary mechanisms of this goal are the elimination of the individual mandate and the expansion of the short term underwritten plans. Both of those policies will suck out good risk from the guaranteed issued, community rated pool. The expansion of hardship exemptions for people living in single carrier counties moves some of the remaining good risk from the Metal risk adjustment pool to the segregated Catastrophic risk adjustment pool. It will not have the same magnitude of effect as the other two policies but it aligns with those policy and political goals.