Last week, Colorado regulators announced that they won’t allow transitional (“grandmothered”) health plans to renew again at the end of this year, and that all non-ACA-compliant plans (unless they’re grandfathered) will end no later than December 31, 2015 and will need to be replaced with ACA-compliant coverage.
Grandfathered Plans
Grandfathered plans are those that were already in place five years ago when the ACA was signed into law. For individual plans, that means that you must have purchased your policy prior to March 23, 2010. For small group plans, it just means that your employer must have enrolled in the plan prior to that date, but you could have joined the plan since then if you became eligible for your employer’s plan after the ACA was signed into law. Grandfathered plans are NOT required to terminate, ever, as long as they maintain their grandfathered status and are still offered by the carrier.
Grandmothered Plans
Transitional, or grandmothered plans, are those that were purchased after March 23, 2010, but before the end of 2014. Although they must comply with some aspects of the ACA (preventive care with no cost sharing, and no lifetime limits on coverage, for example), they are not fully ACA-compliant. Originally, the plan was that those policies would end by December 31, 2013, and would be replaced with ACA-compliant coverage. But HHS has allowed them to extend out as far as 2017, at each state’s discretion (I put together a full list of what each state decided, you can see it here).
It’s not a surprise that Colorado regulators clarified that they won’t allow transitional plans to extend into 2016. They already said that last year, when they agreed to allow the plans to continue to exist in 2015. Their announcement last week was simply a reiteration of what they had said almost a year ago.
In the Denver Post article about the policy cancellations that will happen later this year, Colorado Insurance Commissioner Marguerite Salazar notes that “It’s time for them to get on to a better plan. And this will help the exchange. I think with their grant money running out, it’s important to have more people in the exchange to give (it) more income.“
There are about 190,000 people whose plans will be ending by the end of this year. About 75 thousand have individual policies (my family is among them), and about 115 thousand have small group plans. None of these people currently pay the $1.25/month fee that that is assessed on ACA-compliant health plans sold in Colorado. That fee is added to plans sold both on and off the exchange, and the revenue goes to the exchange (although this is frustrating to some people who purchase plans outside the exchange, it’s important to note that the Special Fee Assessment used to be almost four dollars a month back when the money was used to support CoverColorado; in 2014, the fee was reduced to zero because the exchange was able to use CoverColorado’s remaining reserves; for 2015, the fee is $1.25, which is significantly less than it was when the fee was used for CoverColorado).
Once those 190,000 people enroll in ACA-compliant plans, they will be paying $1.25 per policy (not per member) per month to fund Connect for Health Colorado, regardless of whether they purchase coverage in the exchange or not. So it’s certain that the exchange will have an uptick in revenue once we all switch to ACA-compliant coverage.
And for any of those individuals who purchase their new coverage through the exchange, the exchange gets 1.4 percent of the premiums.
Of the 75 thousand people who currently have grandmothered plans that will need to be replaced by the end of the year, my guess is that a good chunk of them do not qualify for subsidies in the exchange. We’ve had two open enrollment periods during which we were able to compare our existing coverage with the new plans available, and those of us who have kept our old plans were probably facing higher premiums to get a new one (hence the decision to keep the old plan). Many of the people who qualified for lower premiums (thanks to subsidies) have already transitioned to an ACA-compliant plan through the exchange. That has certainly been our experience with our own clients (and our own family): The ones who qualify for subsidies have already switched to new plans, while most of those who opted to keep their grandmothered plans do not qualify for subsidies.
We’ve also found that off-exchange is the most common choice for our clients who want to get an ACA-compliant plan but don’t qualify for subsidies. That makes sense, as enrolling through the exchange is more complex than enrolling outside the exchange. If you’re getting subsidies, the extra work is worth it. But if you’re not, it’s hard to see any added benefit to going through the exchange [although it’s important to note that if you enroll off-exchange and then later in the year your income drops to a level that would make you eligible for subsidies, you cannot switch to an exchange plan – and get those subsidies – until the following open enrollment period, unless you have a qualifying event that triggers a special enrollment period; a change in income is not a qualifying event].
So my estimate is that a significant number of the 75 thousand people with individual grandmothered plans might end up enrolling outside the exchange when they select new plans later this year. The 115 thousand people with group plans could be a mixed bag… the exchange has so far only enrolled 3716 people in SHOP (small business) plans, and low SHOP enrollment is still generally the case throughout the country – not just in Colorado. Some of the 11 thousand impacted businesses (that currently provide grandmothered coverage for those 115 thousand employees and dependents) might switch to SHOP coverage, but many will likely choose small group plans outside the exchange. And some will no doubt drop their coverage altogether, which means that their employees will have to seek out individual coverage. This latter group is likely to qualify for subsidies, since higher wage employers tend to be the ones that continue to offer health insurance benefits, even as the cost increases.
All in all, the transition of 190,000 people from grandmothered plans to ACA-compliant plans will certainly bring in more revenue for Connect for Health Colorado. Assuming that all of them do ultimately secure new coverage, the $1.25/policy/month fee will apply universally – although the fee is per policy, not per member, so a family of five would pay just one $1.25 fee per month for an individual policy that covers all five members. And for any who select a new plan through Connect for Health Colorado, the exchange will get 1.4 percent of the premiums (the premiums are the same for the enrollees though, regardless of whether they go through the exchange or not – if the same plan is sold in and out of the exchange, the price is the same).
For the time being, it’s vital that Colorado have its own exchange. I certainly wouldn’t want to be in one of the 34 (maybe 37) states where subsidies could go up in smoke if the Supreme Court rules that subsidies aren’t allowed in the federally-facilitated marketplace (Healthcare.gov). We won’t know the outcome of that case until June, and obviously if SCOTUS strikes down the subsidies in the federally-run exchange, Colorado will have to keep its state-run exchange in place going forward, regardless of the cost. Doing otherwise would mean a death spiral for the individual health insurance market in the state.
But what if SCOTUS rules that subsidies are allowed in every state, regardless of who runs the exchange? That’s the outcome I’m expecting, by the way. In that case, I think Colorado needs to take a hard look at whether the $26 million annual budget for the exchange is a good use of funds. Because at that point, we’ll no longer be able to say that revenue generation for the exchange is a valid benefit to having 190,000 of us transition to ACA-compliant coverage. Are there benefits? Certainly. Although many of us will be paying more for our new plans, we’ll also be getting better coverage in return. But it pretty much starts and ends there. Revenue generation for the exchange is vital at the moment, since it’s crucial that we maintain a state-run exchange until the outcome of King v. Burwell is determined. But it might not be vital in the long term, and it’s important for the state to keep that in mind.
