How Iowa’s Individual Insurance Market Went from Bad to Worse

Iowa’s new law exempting certain health plans from state and federal regulation will make a bad situation worse for the state’s beleaguered individual insurance market, according to a report released last week from the Commonwealth Fund.  The report targets state legislation exempting health plans offered by the state’s Farm Bureau from state and federal regulations, including Affordable Care Act (ACA) provisions that protect people with preexisting conditions and provide a minimum standard of benefits.

The new Iowa law is supposed to give individual market consumers access to cheaper, non-ACA health plans. But it’s likely only healthier consumers will benefit from these plans. And while details are being ironed out, the Farm Bureau plans are expected to be medically underwritten and not cover the ACA’s minimum set of benefits.

As a result, the plans will likely be unaffordable to Iowans who are older, have preexisting conditions or need comprehensive coverage. And many could be denied enrollment outright. This means enrollees in ACA-compliant individual market plans will be older and sicker and marketplace consumers who do not qualify for the ACA’s income-related premium subsidies will face increasingly higher premiums.

“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,” according to the analysis.

The report noted that, as of 2016, only 20 percent of eligible Iowans had enrolled in the marketplace, which is about half of what was seen in surrounding states. Wellmark’s off-and-on marketplace participation has also been a factor as it maintained a large block of pre-ACA grandfathered and transitional (“grandmothered”) health plans.

High administrative costs for maintaining grandfathered health plans caused many insurers — other than Wellmark — to end these products over time. While other states that prohibited these policies to ensure a healthier, more stable individual market, Iowa embraced the Obama administration’s decision allowing renewal of grandmothered health plans. This led an estimated 60 percent of Iowans buying insurance on their own to stay with these pre-ACA plans.

“Left with a smaller and sicker pool of enrollees than they had projected, it is therefore not surprising that the insurers remaining in the market needed significant premium increases. The premium hike implemented in 2018 likely drove as many as 26,000 Iowans to drop their coverage this year.”

If Wellmark had ended its grandfathered policies, and if the state had prohibited grandmothered plans, Iowa’s individual market would be a lot healthier than it is today, the report concluded.

Iowa’s segmentation of the individual health insurance market between healthy and less-healthy consumers is a warning for other states. Expanding the availability of short-term and association health plans, which has been promoted at the federal level, could damage their markets to the point of 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.”