Combining rating areas in Colorado to bring down mountain premiums

Even before the ACA, individual health insurance in Colorado’s mountain towns was more expensive than in most of the rest of the state.  The ACA makes health insurance much more affordable for most people earning up to 400% of poverty level (especially in states like Colorado, where Medicaid has been expanded… we have no coverage gap).  And it makes health insurance much more accessible for people with pre-existing conditions.  Both of these are great provisions, and were long-overdue.

But now that individual policies are guaranteed issue, the prices are a lot closer to group premiums than they were in the past (in both cases, this is referring to total retail rates – the pre-subsidy premiums in the individual market, and the full premiums in the group market, including the portion that the employer pays).  And thanks to the MLR rules, at least 80% of individual premiums are being used to pay medical expenses.  That means health insurance premiums are more indicative than ever of health care costs.

Unfortunately, those costs are higher in the mountains of Colorado.  There are a variety of reasons for this, but the end result is that health insurance is very expensive in the Colorado mountains, particularly in Garfield, Pitkin, Summit and Eagle counties.  These four counties are lumped together in one rating area, although health care in Garfield county appears to be less expensive than in the other counties.   And other mountain counties – including Routt – are also quite expensive despite being in another rating area.

Those four counties in the Colorado mountains rating area actually have the most expensive individual health insurance in the whole country.  And that has not gone over well with residents, county attorneys, and county commissioners.  Rep. Jared Polis addressed the issue last fall with HHS, and while he did not ask for an individual mandate waiver for mountain residents, he did ask HHS to “work with me to develop a solution to the issue…”

After months of discussion, a (sort-of) solution has been reached, although it appears that it may only lower rates by 4 to 8 percent.  The current plan is to reduce rating areas in Colorado from eleven down to nine and lump the “resort” rating area in with a rating area that includes 18 other western Colorado counties.  This strategy was approved by HHS in May and will be combined with recommendations from a new commission that will begin meeting this summer to address health care costs.

resort rating areas in ColoradoOn one hand, grouping those counties into fewer rating areas in Colorado to be more in line with the general purpose of insurance, which is to group many people into one pool and spread risk as much a possible.  To that end, larger rating areas make sense, just as the new 3:1 age rating ratio makes sense.  But we also have to look at it from the other perspective:  should people who live in less well-to-do areas be expected to essentially subsidize the cost of living for people who live in resort communities?  I know it’s more complicated than that, and I know that there are certainly areas in the “resort” rating area that are not resort communities (I addressed this recently in a post about the Obamacare “subsidy cliff“).  But when most people in Colorado think of Eagle county, they think of Vail.  And Pitkin county?  Aspen.  It’s a bit of a tough sell to convince people living in other parts of the state that they should be paying higher health insurance premiums so that people in those areas can pay less.  So I can see it from both sides, although it seems like the combined rating area on its own isn’t going to have a dramatic impact on either group’s premiums.

But we also have to keep in mind the fact that the higher premiums are only an issue for people who don’t qualify for ACA subsidies.  People living in the “resort” counties with incomes under 400% of poverty level are eligible for huge subsidies, because the subsidies are based on capping premiums as a percentage of income.  So a person living in the mountains with an income of 300% of poverty level will pay no more than 9.5% of income for a silver plan – the same as a person living in Denver (the person in the mountains will receive a much bigger subsidy in order to bring the premium down to that level.  In some cases, people in lower-priced rating areas might not receive a subsidy at all, even with an income under 400% of poverty).

But for people with incomes above 400% of poverty level, health insurance is indeed expensive in the mountains.  And it’s certainly understandable that they want the state to do something to fix the problem.  But it’s important to point out that 400% of poverty level is a good income.  Of course it doesn’t go as far in a place with a high cost of living, but people who live in expensive places are used to everything costing more.  For a lot of them, that financial trade-off is worth the benefits they get from living there (for people with lower incomes who don’t have as many choices in terms of where they live, Medicaid expansion and the ACA’s subsidies have made health insurance much more accessible in the mountain communities).

But this article says that “it’s the middle-class folks — those who make more than 400 percent of the federal poverty level …  taking the hit across the region.”  I think it’s important to point out that a good chunk of middle class people are well under the 400% of poverty threshold and are eligible for subsidies.  For a family of four, 400% of poverty level is $95,400.  I realize that’s still considered (upper) middle class, but it’s well above the median household income in the US (about $51,000), and it’s also considerably above the median household income for a family living in Pitkin county (about $75,000).  I’ve seen guidelines that cap “middle class” as low as $76,000, and others that extend just a little into the six figure range.  But saying that “it’s the middle-class folks… taking the hit” in this case is a bit misleading.  Most middle class families in the Colorado mountains are eligible for subsidies.  When it comes to steep premiums, it’s the households on the upper end of middle class (and of course, those with even higher incomes) that are “taking the hit.”

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