New 'insurance' law threatens stability of Iowa's individual marketplace

Center Focus

New 'insurance' law threatens stability of Iowa's individual marketplace



by Mary Nelle Trefz, health policy associate

Last week Gov. Kim Reynolds signed into law a bill allowing insurers to offer skimpy health plans that can exclude individuals with preexisting conditions or not cover important benefits like prescription coverage or maternity care.

SF 2349 allows Iowa Farm Bureau and Wellmark to offer health benefit plans that are “deemed not to be insurance”—and therefore do not have to comply with state and federal regulations. It also allows small employers to join together to buy health insurance for their employees that don’t have to meet all of the patient protections required by the Affordable Care Act. 

Such plans will likely be attractive to healthy individuals without pre-existing conditions—at least while they are healthy. But allowing plans like these on the market will hurt middle-income individuals with pre-existing conditions and contribute to overall market instability. 

The central concept of insurance is spreading risk over a large group so costs are manageable for everyone. The basic problem in Iowa’s individual insurance market right now is that a majority of people are currently not in the ACA-compliant market at all. Instead they are holding onto older, less comprehensive “grandmothered” and “grandfathered” plans that originated prior to 2014. These plans don't have to cover essential health benefits and people couldn’t even qualify for them if they weren't healthy to start with. In Iowa 55 percent of people in the individual market are in these non-ACA-compliant plans. Nationwide, it’s only 12 percent.

In other words, many of the healthy, cheaper Iowans are covered in one pool, and many of the sicker, more expensive people are in another. The new law will exacerbate this problem: drawing even more healthy people out of the marketplace into skimpier and lower-cost plans and making insurance even more unaffordable for those who remain.

Iowa’s plan to offer health coverage “not deemed insurance” is not a new idea. We only need to look south to Tennessee to preview what is likely to happen to Iowa’s individual market under this new legislation. Tennessee began exempting Farm Bureau plans from health insurance regulations in the early 1990s. Not coincidentally, Tennessee also has one of the sickest health insurance markets in the country, as healthy individuals have obtained cheaper, less comprehensive coverage from Farm Bureau. In addition, Tennessee has had trouble attracting insurance carriers to offer plans on their marketplace. This legislation could make it even harder for Iowa’s individual marketplace—which has already had its own problems attracting and retaining carriers—to do the same. 

We share the desire to make health insurance more affordable, particularly for people who buy their own coverage but don’t qualify for subsidies. But this was not the way to do it. 

The law is now on the books, but the exact rules that operationalize the legislation still have to be written. That means there’s still time to influence exactly how the state implements the law. The Center has submitted comments to the Iowa Insurance Division and will be continuing to monitor and weigh in on how the state proceeds. 

04/13/2018 9:12 AM |Add a comment
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