April 28and, the Centers for Medicare and Medicaid Services (CMS) announced their final adjustments to the Affordable Care Act (ACA) rules for calendar year 2023. Among the changes is a requirement that plan sponsors participate at the federal-healthcare.gov-exchange offers standardized plans in addition to their other products. An important objective of this policy, which is opposed by the insurance industry, is to increase competition by making the differences in premiums between different plans more obvious to consumers.
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States already have the possibility of imposing standard models on their markets, and several do so. California has required insurers to sell only standardized plans since ACA market reforms took effect in 2014. A total of nine states implemented some version of benefit standardization in 2022. (Colorado was on track to join them in 2023 even before the federal mandate was announced). ). New Jersey and Maryland have implemented partial standardization regarding allowable plan deductibles.
The case for the CMS rule change and an outline of the new policy was set out in a document released late last year by the Office of the Assistant Secretary for Planning and Evaluation (ASPE) of the Department of Health and Social Services. Several points stand out:
- There is precedent for the standardization of insurance sold directly to consumers. In legislation passed in 1990, Congress required insurers sponsoring Medigap policies to conform to ten standard models (the number of allowed plan models was increased in the Medicare Modernization Act of 2003) . Now in place for over three decades, the federal Medigap rules have become an accepted part of the market.
- The ACA statute established a framework of essential benefits but did not explicitly mandate strict standardization of plans (CMS acts under its broad authority to impose rules that will improve the functioning of the market). Except in 2017 and 2018 (as noted below), insurers in states that did not impose standardization requirements were free to adjust the cost-sharing terms of all their offerings as long as the actuarial value of the coverage remains within the limits established by the ACA for the various metal levels.
- The ACA allows states that run their own marketplaces and those that run their marketplaces through healthcare.gov to impose standardization rules on participating insurers and, as noted, several have chosen to do so (in 2022, 17 states plus the District of Columbia run their own exchanges; 3 states run their marketplaces but rely on the healthcare.gov platform). Additionally, for 2017 and 2018, CMS implemented an optional Obama-era standardized plan framework – called Simple Choice – that applied to all states using healthcare.gov as the portal through which consumers select their plans. . Insurance policies that conform to the specified models have been placed on a special display on the healthcare.gov website to distinguish them from other offerings.
- Enrollment in Simple Choice coverage was low, despite the favorable placement. In 2018, only 6.8% of the eligible population subscribed to a Simple Choice plan.
- The Trump administration’s decision to suspend Simple Choice from 2019 coincided with a substantial increase in the number of plan and product sponsors. In 2022, the average number of plan sponsors in a county served by healthcare.gov was 6.4, up from 2.8 in 2019. Additionally, the average number of policies available in these counties was 107.7 in 2022 , up from 25.9 in 2019. The ASPE report notes that many of the policies offered by insurers through healthcare.gov are broadly similar, but include minor tweaks that allow them to be sold as separate products.
- A federal district court ruled in 2021 that the Trump administration acted arbitrarily in revoking the Simple Choice option from 2019.
- The Biden administration argues that the research underscores the dangers of too many diet options, as consumers become unable to weigh the trade-offs between premiums and additional benefits. The ASPE document points to studies documenting high percentages of consumers who select objectively inferior plans when presented with a large number of options.
- The CMS rule creates eight standardized plans that all insurers participating in healthcare.gov must offer when selling policies on the relevant tiers (there are four models for the silver tier due to the different levels of cost-sharing assistance related to these plans). So, for example, insurers wishing to sell one or more platinum plans must offer the standardized design of CMS in addition to its other versions. CMS templates specify deductibles and other cost-sharing terms for different tiers. For example, the standard gold plan has an annual deductible of $2,000, a co-payment requirement of $30 for primary care visits, and a coinsurance of 25% for emergency services.
- Separate standardized plans are being created for Louisiana and Delaware to accommodate their cost-sharing rules for specialty-level prescription drugs. Additionally, Oregon, which operates its marketplace through healthcare.gov, is allowed to keep its version of standardized offerings.
- Standardized plans will again be displayed separately from other offerings on healthcare.gov. Brokers selling directly to consumers in affected markets will be required to do the same in their promotional materials.
- States that run their own exchanges are exempt from the rules that apply to healthcare.gov coverage. They remain free to impose their own standardization requirements.
The administration’s push for standardization is sure to remain a point of contention with the insurance industry for years to come. If the new rules are found to reduce premiums for consumers (and taxpayers) by increasing, rather than weakening, plan competition, they are likely to become a permanent feature of the market. Conversely, if consumers find themselves with inadequate options because many insurers pull out of the market, pressure could intensify on CMS to revise the requirements.
James C. Capretta is a columnist for State of Reform and senior researcher at the American Enterprise Institute.