The Road Not Traveled: How Policy, Business Decisions in Iowa Led to Higher Premiums

By Sabrina Corlette and Kevin Lucia
The Commonwealth Fund, June 28, 2018

This year, Iowa’s legislature took the extraordinary step of abdicating the state’s authority to regulate health insurance products. The bill, enacted in April, exempts health plans offered by the state’s Farm Bureau from state and federal insurance regulation, including Affordable Care Act (ACA) provisions designed to protect people with preexisting conditions and provide a minimum standard of benefits.

Proponents argue that such a law is needed to provide individual market consumers with cheaper health plan options than available under the ACA. Critics point out that younger, healthier consumers are most likely to benefit from these plans. And while details haven’t been provided yet, the Farm Bureau plans are expected to be medically underwritten, and not cover the ACA’s minimum set of benefits. As a result, older Iowans, those with preexisting conditions, and those who need comprehensive coverage are unlikely to find these plans affordable or attractive. And many could be denied enrollment outright. As enrollment in the ACA-compliant individual market becomes older and sicker, marketplace consumers who do not qualify for the ACA’s income-related premium subsidies will face increasingly higher premiums.

Iowa’s Farm Bureau statute is making a bad situation worse for the state’s individual market. Thanks to a number of decisions by state policymakers and the dominant insurance company – Wellmark Blue Cross Blue Shield – premiums in the state’s individual market are already among the highest in the country, with an average annual marketplace plan premium in excess of $10,000 in 2018.

A Study of Market Failure: Iowa’s Individual Health Insurance Market

The current dismal state of the ACA individual market in Iowa was not a foregone conclusion. In 2014, when the marketplaces launched, Iowa had four insurers competing in the ACA’s marketplace. In 2018, only one insurer is selling ACA-compliant health plans; it agreed to do so only after implementing an average 50 percent increase to unsubsidized premiums.

Iowa’s marketplace enrollment has also lagged that of other states. As of 2016, only 20 percent of eligible Iowans had enrolled (by comparison, that number was 40 percent in Illinois, 43 percent in Missouri, and 57 percent in Maine). Iowa is an outlier for a critical reason. Wellmark BlueCross BlueShield declined to participate in the marketplace for the first three years, entered only briefly in 2017 and then declined to participate in 2018, but is returning to the market in 2019. The insurer also maintained a large block of pre-ACA grandfathered and transitional, or “grandmothered,” health plans (see table).

Because the enrollees in these plans must pass a health screen before being allowed to enroll, they are relatively healthy. Because Wellmark was able to hang on to these healthy enrollees, the pool of people available for the ACA-compliant market was much smaller and sicker than it otherwise would have been.

Looking Ahead

Iowa’s experience offers important lessons. The more the individual market is segmented between healthy and the less-healthy consumers, the more likely unsubsidized enrollees are to face unaffordable premiums. Federal proposals such as those to expand the availability of short-term and association health plans, to the extent they are not limited by state policies, could result in more state individual markets resembling Iowa’s. The primary losers in such a scenario are the working middle-class consumers: entrepreneurs who run their own businesses, freelancers and consultants, farmers and ranchers, and early retirees who earn too much to qualify for the ACA’s premium subsidies.

https://www.commonwealthfund.org…

Wakely’s Analysis of Alternative Policy Decisions in Iowa’s Individual Market:
https://www.commonwealthfund.org…

We know how to craft a health care financing system that is truly universal, accessible, comprehensive and equitably funded making it affordable for everyone. No state in our nation has achieved those goals, but some, such as Iowa, are far worse off than others, largely for ideological and parsimonious reasons. As a result, their people suffer – physically and financially.

The Affordable Care Act (ACA) was supposedly designed to address many of these health care financing issues. But look at ACA and compare it to a model that many of us said should have been used instead – Medicare, or actually an improved version of Medicare. The provisions of ACA did not ensure coverage for everyone whereas Medicare does ensure some coverage (Part A) for the designated population covered regardless of which state the beneficiaries live in (though the improved version would include absolutely everyone in every state). There are considerable inequities in health care financing under ACA, especially for those just above 400 percent of poverty, whereas the funding of Medicare is more equitable by virtue of using progressive taxes (though it could be even more equitable through better designed tax policies). Accessibility is highly variable under ACA whereas Medicare covers almost the entire health care delivery system and thus improves choice and accessibility (though with an improved Medicare, planning and budgeting of capital improvements would further expand access). But one of the more important differences is that ACA provides state bureaucrats greater leeway in implementing their health care financing systems, whereas Medicare is fairly standardized through the nation. This leeway for states under ACA is what has allowed Iowa and other states with similar political views to deprive their citizens of a more egalitarian health care system.

We are allocating a huge amount of federal tax funds for our health care system. Thus we have a responsibility to see that each individual in each state is treated well by their health care systems. The current experience has shown us that we cannot rely on states to design their own systems because too many will deprive their residents of the care that they should have. Like Medicare, a universal health care financing program should be a national program so that everyone who needs health care can benefit.

Yes, until we have a national, single payer, improved Medicare for all, states should continue to do what they can to improve their health care systems. But we cannot allow that to slow down our efforts to create the political environment that will facilitate the enactment of a universally accessible, equitable and affordable national health program. Iowa is showing us how not to do it.

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