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Altering Pre-existing Conditions Law Could Drop Premiums, But Not Deductibles

Analysis  |  By Gregory A. Freeman  
   May 24, 2017

Health plans would lose revenue by lowering premiums, but they would make it up with lower utilization costs.

Changing the way federal healthcare law addresses pre-existing conditions should result in lower premiums, but not necessarily any improvement in the other cost that has consumers frustrated – the high deductibles.

If the Republicans' American Health Care Act (AHCA) or any other bill allowing insurers to charge more for people with pre-existing conditions is passed, insurers would likely begin offering barebones policies with low, or at least lower, premiums beginning in 2019, says Dan Ehlke, assistant professor of health policy and management at SUNY-Downstate School of Public Health.

However, those policies still would come with high deductibles because insurers will still be focused on limiting utilization costs, he says.

The AHCA preserves the existing federal law stating that no one can be denied coverage for a preexisting condition, but states could apply for a waiver from the Obamacare provision prohibiting medical underwriting, which includes factoring in pre-existing conditions to determine the cost of insurance.

States would have to prove that the waiver would improve their insurance markets, and would have to provide additional protection for consumers in the form of high-risk pools to ensure subsidized funding to pay for premiums.

Consumers still would be shielded from medical underwriting if they receive coverage through an employer, and on the individual market as long as they do not have a gap in coverage of 63 or more consecutive days in the prior year.

If they do, and they have pre-existing conditions like cancer or diabetes, then insurers could charge them higher premiums for a year.

"Premiums for younger, healthier Americans could well fall, though many of these same individuals would be receiving less in the way of tax credit subsidies to help them cover the cost of those premiums," Ehlke says.

"Insurers could profit quite nicely, as they'll be incentivized to offer plans with little real coverage to healthier Americans, while shunting the less healthy into high risk pools. On the other hand, without an effective mandate or penalty, at least some younger individuals will opt to go without coverage."

The penalties for interruptions in coverage may not be enough to prevent young people from dropping coverage, he says.

The larger insurers seem to have remained on the sidelines thus far, though they have expressed displeasure with some Obamacare requirements, Ehlke says, and thus seem to be tacitly supporting efforts to change pre-existing condition law. The prospects for the AHCA are dismal in the Senate, where Republicans are devising their own healthcare reform.

"If this version does not survive the Senate, those with pre-existing conditions will be in much better shape, remaining able to afford insurance coverage," Ehlke says.

"Under the AHCA, if they lived in states receiving a waiver, insurance companies could dramatically increase the price of coverage for those with pre-existing conditions, in addition to offering skimpier policies that may not even cover a large range of conditions."

Being able to exclude pre-existing conditions would actually reduce revenues for health plans, notes Ron Howrigon, president of the consulting firm Fulcrum Strategies and formerly a senior manager with Kaiser Permanente, Cigna, and Blue Cross Blue Shield.

"This is not a strategy to increase revenues but rather to reduce expenses by allowing insurance companies to deny paying for those services," Howrigon says. "All the big health plans would like to see this bill pass, as it will limit their risk and exposure."

Gregory A. Freeman is a contributing writer for HealthLeaders.

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