3 Proposals Allowing People to Keep Health Insurance Won’t Threaten Marketplaces

Three plans allowing people to keep their individual health insurance policies even if they don’t meet the requirements of the federal Affordable Care Act (ACA) are unlikely to threaten new health insurance marketplaces, according to a new RAND Corporation study.

Although the options will cause some disruption of the risk pools that are important to the insurance exchanges, none of the changes will be severe enough to threaten their viability, according to the study.

An option adopted by President Obama to allow state insurance commissioners to decide whether to extend old insurance policies is the least disruptive of the three policies examined by the RAND report. The most disruptive of the alternative proposals will allow people to keep their old health plans and allow others to buy the policies as well. This option could lead to moderate price hikes and sharply lower enrollment in the new marketplaces, substantially increasing federal spending on subsidies for enrollees.

After criticism arose over some consumers in the individual market losing their existing health insurance plans, President Obama in November announced rules that allow current non-group enrollees to keep their existing health plans, as long as their state’s health insurance commissioner allows it.

Two alternative proposals also were put forward in the Congress, but have stalled. One would require insurance companies to continue to offer non-compliant individual health plans indefinitely, but not allow new enrollees into these plans. A second bill would allow the non-compliant plans to continue and to be offered to new enrollees in the future.

Because each of the proposals would divert many young and healthy people away from the new health insurance marketplaces, there has been concern the changes could lead to a cycle of increasing premiums and enrollment drops that could lead to the implosion of the marketplaces.

RAND researchers used an updated version of the RAND COMPARE microsimulation model, which predicts the effects of health policy changes at state and national levels, to estimate how the three approaches could affect the new marketplaces for individuals under the ACA.

All three plans are likely to increase the overall number of people with health insurance because many non-compliant insurance policies are less expensive than those offered in the new health insurance marketplaces, but offer fewer benefits than policies offered in the new marketplaces. Researchers found that opening the non-conforming plans to new enrollees would have the most detrimental effect on the new insurance marketplaces. Such a strategy would likely raise premiums in the marketplaces by as much as 10 percent and decrease enrollment by 3.2 million nationally. In addition, such a plan would trigger an additional $5 billion in federal spending on subsidies and tax credits in the individual marketplace in 2015. The two other strategies would result in far smaller cost increases.

Source: RAND Corporation, January 21, 2014

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