On April 28th, the Centers for Medicare and Medicaid Services (CMS) announced its final Affordable Care Act (ACA) rule adjustments for calendar year 2023. Among the changes is a requirement that plan sponsors participating in the federally run exchange–healthcare.gov–offer standardized plans in addition to their other products. An important aim of this policy, which is opposed by the insurance industry, is to intensify competition by making the premium differences among the various plans more obvious for consumers.
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States already have the option of imposing standard designs in their markets, and several do. California has required insurers to sell only standardized plans since the ACA’s market reforms took effect in 2014. In total, nine states have some version of benefit standardization in place in 2022 (Colorado was poised to join them in 2023 even before the federal mandate was announced). New Jersey and Maryland have been enforcing partial standardization related to allowable plan deductibles.
The case for CMS’ rule change and a description of the new policy were presented in a paper released late last year by the Department of Health and Human Services’ Office of the Assistant Secretary of Planning and Evaluation (ASPE). Several points stand out:
- There is precedent for standardization of insurance sold directly to consumers. In legislation passed in 1990, Congress required insurers sponsoring Medigap policies to conform to ten standard templates (the number of allowable plan designs was increased in the Medicare Modernization Act of 2003). Now in place for more then three decades, the federal Medigap rules have become an accepted part of the market.
- The ACA statute established an essential benefits framework but did not explicitly mandate strict standardization of plans (CMS is acting under its broad authority to impose rules that will improve the functioning of the market). Except in 2017 and 2018 (as discussed below), insurers in states that have not imposed standardization requirements have been free to adjust the cost-sharing terms of all of their offerings so long as the actuarial value of the coverage stays within boundaries established by the ACA for the various metallic tiers.
- The ACA allows states running their own marketplaces, and those managing their markets 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 manage their marketplaces but rely on the healthcare.gov platform). Further, for 2017 and 2018, CMS implemented an Obama-era optional standardized plan framework — called Simple Choice — which applied to all states using healthcare.gov as the portal through which consumers make their plan selections. The insurance policies conforming to the specified templates were placed on a special display on the healthcare.gov website to make them stand out from the other offerings.
- Enrollment in Simple Choice coverage was low, despite the favorable placement. In 2018, just 6.8 percent of the eligible population signed up for a Simple Choice plan.
- The Trump administration’s decision to suspend Simple Choice starting in 2019 coincided with a substantial jump in plan sponsors and products. In 2022, the average number of plan sponsors in a county served by healthcare.gov was 6.4, up from 2.8 in 2019. Further, the average number of available policies 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 adjustments that allow them to be sold as distinct products.
- A federal district court ruled in 2021 that the Trump administration acted arbitrarily when it revoked the Simple Choice option starting in 2019.
- The Biden administration contends that research points to the dangers of an excessive number of plan options, as consumers become incapable of assessing the trade-offs between premiums and added benefits. The ASPE paper points to studies documenting high percentages of consumers who select objectively inferior plans when they are presented with large numbers 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 templates for the silver tier owing to the various levels of cost-sharing assistance tied to these plans). So, for instance, insurers wishing to sell one or more platinum plan must offer CMS’ standardized design in addition to its other versions. CMS’ templates specify deductible and other cost-sharing terms for the various tiers. As an example, the standard gold plan has a $2,000 annual deductible, a $30 copayment requirement for primary care visits, and 25 percent coinsurance for emergency room services.
- Separate standardized plans are created for Louisiana and Delaware to accommodate their cost-sharing rules for specialty tier prescription drugs. Further, Oregon, which manages its market through healthcare.gov, is permitted to retain its version of standardized offerings.
- Standardized plans will once again be displayed separately from other offerings on healthcare.gov. Brokers selling directly to consumers in the affected markets will be required to do likewise in their promotional materials.
- States running their own exchanges are exempt from the rules which apply to healthcare.gov coverage. They remain free to impost their own standardization requirements.
The administration’s standardization push is certain to remain a point of contention with the insurance industry in the coming years. If the new rules are found to lower premiums for consumers (and taxpayers) by intensifying, rather than weakening, plan competition, they are likely to become a permanent feature of the market. Conversely, if consumers are left with inadequate options because many insurers withdraw from the market, pressure could build on CMS to revisit the requirements.
James C. Capretta is a columnist for State of Reform and a senior fellow at the American Enterprise Institute.