Enhancing Iowa’s flexibility to reform insurance markets in a single step

Iowa's individual health insurance market is in dire need of reform. Only one insurer, Medica, is offering plans in all 99 counties. For people who do not qualify for income-based subsidies under the Affordable Care Act (ACA), the cost of this coverage is prohibitively high.

Recognizing this, the state proposed a stopgap measure via the ACA's Section 1332 waiver process, but the proposal was withdrawn due to financing concerns and insufficient time to implement the proposal prior to 2018 open enrollment.

Now is the time for Iowa to craft a new state innovation waiver for the individual insurance market and ease the concerns that derailed the stopgap measure last fall.

Under the ACA, the federal government funds assistance with premiums and out-of-pocket subsidies to individuals earning between 100 percent and 400 percent ($12,020-$48,080 for a single individual) of the Federal Poverty Level. State waiver plans cannot increase federal spending, but states work within the rules to create more competitive and affordable insurance options for citizens.

Here’s how: individuals who earn between 100 percent ($12,020 for a single individual) and 400 percent ($48,080 for a single individual) qualify for a tax credit designed to fill the gap between an individual’s expected family contribution and the premium of the benchmark Silver plan — a policy wherein the insurer covers 70% of costs while the insured is responsible for 30%.  In counties with two or more Silver plans, the benchmark is the second-least expensive Silver plan.  In counties with only a single Silver plan, that plan is the benchmark.  If there is no waiver, the ACA pays the insurer the subsidy and the individual pays a monthly premium.  If an individual buys a less expensive plan than the benchmark, they get all of the savings. If they purchase a plan more expensive than the benchmark, they pay the extra cost.

Because Medica offered only a single Silver plan to Iowans in 2018, there were few great deals for subsidized buyers in Iowa. Buyers who know that they are very sick will purchase insurance at any price because they must have it.  The challenge is making insurance attractive — that is, less expensive — for potential buyers who are reasonably healthy.  In turn, more healthy people added into the risk pool will lower premiums for everyone who does not receive premium assistance.  

Medica offers ACA plans in both Iowa and Nebraska.  In Omaha, a family of four with two 37-year old parents and two kids under age 10 with an annual family income of $60,000 qualify for a plan with a $12,000 deductible at no cost, or the least expensive Silver plan for $159 per month.  In Des Moines, that same family pays $154 a month for the least expensive plan or $394 a month for the only Silver plan.   This sizable difference in premiums exists because Medica offers a second, higher cost Silver plan in Omaha that sets the benchmark relatively higher.  This makes the effective subsidies far more attractive for healthy buyers.

Iowa can create a healthier insurance market, better suited to Iowans' needs, while establishing an appropriate Silver plan baseline for funding future state innovations. The Iowa Insurance Division regulates all plans sold in Iowa, and can require any insurer that is the only participating insurer in a given county to offer at least two Silver plans where the least expensive Silver plan is at least 10 percent  less expensive than the second least expensive Silver plan. With this state requirement, the least expensive Silver plan for our hypothetical Des Moines family would cost $267 a month.  

Even without a state innovation waiver, this policy change will lead to healthier people enrolling in Iowa's ACA Marketplace, which will lower premiums for people who earn too much money to qualify for subsidies. If the state wishes to craft a solution customized to meet the needs of Iowans, requiring insurers to offer two or more Silver plans with a significant premium spread the state will still accrue advantages.  It will lead to far more fiscal flexibility and less state expense while providing more Iowans with useful, usable and affordable health care.

David Anderson is a research associated at the Duke University Margolis Center for Health Policy.

Brad Wright. Ph.D., is an assistant professor in the University of Iowa's health management and policy department. brad-wright@uiowa.edu