Monday, November 11, 2013

Article Takes Closer Look at MN vs. WI Differences in ACA Implementation

Gannett Analysis Examines Possible Reasons for Wisconsin’s Higher Rates

USA Today and a number of local Gannett papers published an interesting story Sunday about differences in ACA implementation between Wisconsin and Minnesota. The lengthy article by Donovan Slack of Gannett says that the Gopher State, in contrast to Wisconsin, is “now enrolling individuals through its health-insurance exchange by the thousands and at premium rates that are among the lowest in the country.”

An analysis of the Marketplace rates by Gannett found that the average premium cost of a silver plan for a 50-year-old in Wisconsin is $403 per month (excluding federal subsidies), or almost one-third more than the average for such a plan in Minnesota. The disparity appears to be even larger for younger consumers. In Wisconsin the statewide average for someone in their mid-20s is $235 per month (not including subsidies), which is 57% above the $150 average in MN.

The article adds, “Wisconsin's rates are not just higher than Minnesota's, they're 21 percent higher than the average across 34 states for which the federal government released detailed premium data.

The rate disparities calculated by the Gannett analysis seem to be somewhat lower than those found in a Citizen Action of Wisconsin report released a few weeks ago, but the article raises similar ideas for what may be accounting for the higher rates in our state – including less rigorous review of rates and the decision in our state to cover lower-income adults (between 100% and 133% of FPL) in the Marketplace, rather than in Medicaid. 

One of the people interviewed for the article is Dan Schwartzer, Wisconsin’s Deputy Insurance Commissioner.  He said premiums have historically been higher in Wisconsin, and cited a study that indicated private employers in our state paid premiums that were 7% higher on average than in Minnesota.  However, other cost surveys referenced by the article suggest comparable or slightly lower health care costs in Wisconsin.  Schwartzer disputed the argument that the Medicaid decision was a factor, but he suggested another potential cause for lower Marketplace rates in Minnesota – the Gopher state’s decision to continue their high-risk pool.

I wholeheartedly agree that the continuation of Minnesota’s high-risk pool for an additional year is probably a significant factor in their lower Marketplace rates.  Keeping that population out of the new Marketplace plans for the next year is a very effective way to help keep rates down because it not only keeps an expensive population out of the new plans, it also removes a substantial source of risk for insurers. Since insurers deciding whether to participate in the new Marketplace already have lots of uncertainties and risks during the start-up year, removing one of the largest risks strikes me as a very smart decision by MN policymakers who are truly committed to making the Marketplace get off to a good start.

I don’t agree with the contention of the Insurance Commissioner’s Office that capping BadgerCare eligibility for adults at 100% of FPL is not a factor in Wisconsin’s higher Marketplace rates. According to the article, the Deputy Commissioner argued that there isn’t any evidence that low-income people being moved from BadgerCare to the Marketplace are less healthy (and more costly to insure). I disagree with that argument, but even if we assume it's true that the low-income adults (between 100% and 133% of FPL) who have been participating in BadgerCare are as healthy as higher income adults, there are still a couple of flaws with the contention that Wisconsin’s lower cap on Medicaid eligibility doesn’t increase costs in the Marketplace.

One problem with that line of argument is that many of the adults in that income range are currently uninsured and likely to be less healthy because they haven’t had regular access to preventive care. Second and more importantly, the adults in that income range won’t be subject to the mandate to buy insurance. As a result, there is a strong probability of “adverse selection” – i.e., the sicker people in that group will buy coverage, but the healthier people are much less likely to do so. Although this probably isn't as big a factor as the decision in Minnesota to continue the high risk pool, I think it’s an important variable.   (Read more in this recent Budget Project Blog post.)

With respect to argument that more lenient rate regulation is a factor in Wisconsin’s higher rates, Schwartzer pointed to a part of the federal law that requires insurers to spend 80% of revenue on medical claims, which limits costs for administration, salaries and profits to 20%. I think that’s an interesting argument, but it suggests that under the ACA there is no longer a need for states to play a role in ensuring that rates are reasonable. Perhaps that’s the current perspective among Wisconsin’s insurance regulators, but Minnesota policymakers seem to have a very different perspective.

I’ve shortchanged some of the arguments on both sides, but you can find the full article here.

Jon Peacock

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