How Rejecting Medicaid Funding Boosts the New Marketplace Rates
Tiff over WI and MN Insurance Rates Rekindles Debate about BadgerCare
A dispute emerged last week over the difference between premiums for health insurance purchased through the new Marketplaces in Minnesota and Wisconsin. The squabble between Citizen Action of Wisconsin and the Insurance Commissioner’s Office has rekindled debate over the effects of the decision by the Governor and Wisconsin legislators to turn down federal Medicaid funding and cap BadgerCare eligibility at 100% of the federal poverty level.
Although I don’t feel qualified to comment on all the various reasons that the rates in the new Marketplace in Wisconsin seem to be considerably higher than those in Minnesota, I think it’s important to understand how the choices states made about Medicaid eligibility are affecting the rates charged by insurers participating in the Marketplaces.
A report issued last week by Citizen Action compares the Marketplace rates in various parts of Wisconsin with those in Minnesota. It concludes that the rates in some of the major market areas in Wisconsin are more than twice those in comparable communities in Minnesota. Citizen Action attributes the higher rates in Wisconsin to two factors:
- A more lenient rate review process in Wisconsin; and
- the decision by Wisconsin lawmakers to cap BadgerCare eligibility of adults at the federal poverty level (FPL), thereby adding to the insurance Marketplace pool a group of less healthy adults.
J.P. Wieske, the public information officer and legislative liaison for the Office of the Commissioner of Insurance (OCI), argued that Citizen Action’s methodology in calculating the rate differences was unclear, and he says our state’s rate review process was approved by federal officials. And according to a story in Wisconsin Health News last Thursday, Wieske discounted the Medicaid argument by noting that Wisconsin expanded Medicaid to all adults below the poverty level.
I haven’t carefully studied the data regarding the rates in the two states, and I know very little about how the rate review procedures compare, but I feel compelled to respond regarding the Medicaid issue. Although it’s very possible that the comments of the OCI spokesperson were taken out of context, I nonetheless think it’s important to understand that citing Wisconsin’s expansion of coverage for childless adults up to the poverty level isn’t (or wouldn’t be) a valid rebuttal to the argument that not providing BadgerCare for low-income adults above the poverty level puts upward pressure on rates in the new Marketplace.
Keep in mind that adults below the poverty level aren’t eligible for subsidies in the insurance Marketplace. Thus, the BadgerCare expansion up to 100% of FPL has little or no relevance to Citizen Action’s argument about the effect on Marketplace rates of not including low-income adults above that level in BadgerCare.
Although one can dispute the magnitude of the effect, I think there’s little question that putting adults who are between 100% and 138% of FPL into the Marketplace results in higher rates. There are several reasons for that. First, adults in that income range – many of whom have long been uninsured – tend to be less healthy and more expensive to cover, at least at first. Second, those adults are exempt from the individual mandate, so there is a significant risk for insurers that only the sicker members of the group will enroll. I think the higher risk of adverse selection is a significant distinction between Wisconsin’s federal Marketplace and the state-run Marketplace in Minnesota.
A more complete summary of reasons why the Medicaid expansion to 138% of FPL helps hold down rates can be found in a Sept. 2012 issue paper by the Center on Budget and Policy Priorities (Why a State’s Health Insurers Should Support Expanding Medicaid).
Other organizations have reached much the same conclusion. For example, a “decision brief” by the American Academy of Actuaries says premiums in the new Marketplace could increase in states that don’t expand eligibility to 138%, compared to those that do, “due to health status differences of new enrollees,” and “due to spreading fixed reinsurance subsidies over a larger enrollee population.” And a report issued by the Rand Corporation this year estimates that “age-standardized nongroup premiums increase, on the order of 8 to 10 percent, if states fail to expand Medicaid.”
I hope that a closer examination of the Marketplace rates in MN and WI will show that they are closer than they initially appear to be, and I suspect we will learn that there are many factors that contribute to the gap in rates. Although it might not be the most significant variable, the combination of higher cost and greater risk of adverse selection that stem from covering adults below 138% of FPL in the Marketplace, rather than in BadgerCare, is an important factor.