The U.S. Department of Health and Human Services has rejected a request from Kansas to gradually phase in one of the new requirements of the federal health care law. The decision means consumers who buy individual health insurance policies can expect to see lower premiums, expanded benefits, or even cash rebates.
Under the Affordable Care Act, companies that sell individual insurance policies must spend at least 80 cents of each premium dollar on health care for their members, or for activities that improve the quality of care customers receive. Companies that fall short of the 80 per cent standard will have to pay rebates to their customers to make up the difference.
At a public hearing last March, Coventry Health Care of Kansas CEO Michael Murphy said his company was relatively new to the individual market, and would need extra time to meet the requirement.
“Application of the 80 per cent standard will result in unsustainable losses for Coventry’s individual health plan business, and raise major concerns about our ability to continue operating this segment of business in the state of Kansas,” says Murphy.
Based on those and similar concerns, Kansas Insurance Commissioner Sandy Praeger asked the federal Department of Health and Human Services for a waiver. That would allow the state to slowly phase in the requirement over three years, starting with a 70 per cent standard.
That request was denied Wednesday.
HHS official Steve Larsen says he’s seen no evidence that the new requirement will destabilize the individual insurance market in Kansas. In fact, Larsen anticipates that none of the eight companies currently writing individual health insurance policies in Kansas will pull out of the state.
“There were four companies that were, to varying degrees, below the 80 per cent, all of which we concluded were moving toward the 80 per cent, or if they didn’t hit the 80 per cent, were very profitable, and certainly could sustain paying rebates to consumers to make sure that consumers get value for their premium dollars,” says Larson.
Based on their performance in 2010, those four companies could have to pay more than $5 million in rebates to 35,000 customers between now and next August. But Insurance Commissioner Sandy Praeger says those companies have been adjusting their business practices.
“I know it won’t be that high because I know that companies that were in the low 70’s, by the end of 2011 were close to 80,” says Praeger. “So it won’t be that high.”
And Praeger anticipates that once companies get past the next couple of years, none of them will have any difficulty meeting the 80 per cent standard.
The nationwide advocacy group, Consumer Watchdog, had urged HHS to deny the Kansas request to phase in the new rules. Spokeswoman Judy Dugan says the 80 per cent requirement is the only real financial protection for consumers in the Affordable Care Act.
“Because the whole idea of this requirement is to get insurance companies to operate more efficiently, and more on behalf of consumers, with less administrative cost—possibly a little less profit—and a lower cost of sale,” says Dugan.
Dugan says it’s possible that some consumers will get rebates this year, but she thinks the main benefit from the new requirement will be seen in the premiums people pay for individual insurance policies. To meet the 80 per cent standard, Dugan expects companies to lower their premiums, or to at least hold down future premium increases.
80/20 Adjustment Request Denied
Letter of Denial to Kansas Insurance Commissioner
Consumer Watchdog letter
HHS summary of Kansas request
Kansas Health Consumer Coalition letter
Kansas Association of Community Action Programs letter
Statewide Independent Living Council of Kansas letter
National Patient Advocate Foundation letter
public hearing transcript