This article was originally published with co-author George Kalogeropoulos, CEO of HealthSherpa, on LinkedIn.

“In this final rule, we…focus on enhancing the role of States in these programs and providing States with additional flexibilities, reducing unnecessary regulatory burden on stakeholders, empowering consumers, and improving affordability.”

That statement, in a nutshell, is what is reflected throughout the 523-page document released in April by the Center for Medicare and Medicaid Services (CMS) regarding rules updates for the ACA individual exchanges (AKA “Marketplaces”). The Trump Administration, as has been seen in other policy decisions related to healthcare and the Affordable Care Act, wants to put more control in the hands of state administrators in the form of added flexibility and, in some cases, circumvention of existing ACA rules and regulations.

These rules have a major impact on individual consumers shopping for subsidized and unsubsidized health coverage. Likewise, they have a major impact on what we do here at HealthSherpa, as the leading private marketplace providing enrollment in ACA-subsidized individual health coverage. So, we thought it’d be beneficial to help you understanding some of the rule changes and how they may impact consumers and key players in the individual market.

Here are the significant updates, with a broader analysis provided below.

• Provide for state-level exemptions and/or modifications to EHB rules (starting with 2020 plan year)
• More flexibility with state-based exchanges, especially SHOP
• Ability to apply for exemptions at the state level to MLR requirements
• Risk adjustment updates and state-level flexibility

Updates to benefit and payment parameters:

• Rate Review: reduce regulatory burden to states
• Exempt student health plans from review
• Changing Navigator requirements
• Allowing broker/agent/issuer to have its third party entity participate in operational readiness reviews

Provide for state-level exemptions and/or modifications to EHB rules

Most important to note is that these changes would take effect in 2020, which is one midterm and two open enrollment periods from now. So, what we share here is largely theoretical at this point and the overall impact on rates and Open Enrollment for 2019 is next to none.

The EHB list was established by health and policy experts with the stated purpose of ensuring a baseline of coverage that aligns with the most common and crucial health needs facing the American people — in other words, their most “essential” healthcare needs on an annual basis. This list ensures that consumers are protected in case of a medical need and also protects against the creation and widespread dissemination of low-cost, low-coverage plans that leave Americans financially at risk in case of a medical need.

The following Milliman chart shows a cost breakdown for the EHB’s as they currently stand.

The driver of more than half of all costs — patient services, hospitalization, and prescription drugs — are also components of health plans that can’t be removed even from limited coverage without leaving individuals exposed to either higher out-of-pocket costs or lower utilization, likely also leading to higher relative costs down the line. Indeed, the expansion of short-term, limited-coverage insurance (STI’s) doesn’t cover patient services and prescriptions at nearly the level that EHB-compliant plans do. Other EHBs, such as Maternity and mental health, which have been seen as an unnecessary driver of costs, actually make up a small component of overall costs.

Either way, we’re likely to see some form of coverage available without EHB’s.

STI’s and the rise of Association Health Plans, both expanded through executive action last fall, may leave low-income individuals working hourly and/or working for small employers most exposed to inadequate affordable coverage options.

More flexibility with state-based exchanges, especially SHOP

Since the establishment of SBE’s and the Federally-Facilitated Exchange (FFE) in 2014, their performance has had wide variance from state to state (and FFE) and from year to year. Generally, smaller states that have established their own exchanges have most frequently struggled to raise the funds necessary to keep their exchanges solvent, given the stringent guidelines for funding set for in PPACA and, in some cases, by state legislatures. As a result, some have chosen to shift to the FFE primarily out of necessity, while others have looked (with little success) at establishing regional partnerships and/or technology/administration shares to reduce their operational and administration costs without having to increase the fees charged to issuers to raise operating costs.

HealthSherpa feels that a strong motivator of public-private innovation would be spurred by shifting the relationship between SBE’s and the FFE to a more purely administrative “backend” arrangement and that private partnerships should deepen on the consumer side of the exchange infrastructure.

In this sense, we see an ACA operating model akin to that established for Medicare Advantage plans with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, whereby the CMS (or, in the case of the ACA, states) becomes the key administrator of plan designs, as well as a data-exchange hub for the processing of enrollments and payments. Then the marketing and selling of health plans is primarily undertaken by private entities that are more readily able to connect with consumer populations and drive innovations in plan selection and administration.

Such a model would greatly reduce the current administrative burden experienced by states related to the PPACA state-based and Small-Business Health Options (SHOP) exchange markets, while giving them more flexibility to drive plan design innovation through a more traditional administrative role. It would also free up millions or potentially billions of dollars in administrative fees at the state level going solely to the administration of the PPACA.

Regarding updates to help SHOP exchanges — i.e. state-based and federally facilitated exchanges for small businesses to find group coverage — in the vast majority of states they have been largely ineffective. In that regard, any plan to help them could be seen as 1) beneficial, but 2) largely irrelevant to employers and employees in 2019, especially with Association Health Plans and new HRA rules primed to compete for small business customers over the next several years.

Ability to apply for exemptions at the state level to MLR requirements

The Medical Loss Ratio (MLR) was established by the ACA as a way to ensure that a certain amount (85%) of every dollar spent by health insurers goes to consumer coverage and utilization. That means that everything else — marketing, taxes, commission payments, profit — must fit in the remaining 15 percent. Any profit in excess of this amount must be returned to consumers.

The issue being addressed by the CMS is that, in the volatile individual market, carriers in some states/regions have found it challenging to adhere to these guidelines.

Additionally, the recent tax reform legislation provided major corporate tax cuts, which may actually make it more difficult for carriers to balance in accordance with MLR requirements. Granted, it’s a problem of excess, not regress, but it’s a problem nonetheless.

What all of this means to consumers is very little, except this warning: the purpose of the MLR was always to convert “consumer value” to a monetary measurement. Enabling states to set MLR on their own opens the door for carriers to change that equation in ways that will ultimately lead to less value for consumers. It would also provide for yet another method for red states and blue states to diverge in their healthcare policies as they pertain to individuals — which, ultimately, is bad for all Americans.

Risk adjustment updates and state-level flexibility

Risk adjustment is both core to any insurance market and a key talking point of the individual market, where it has been much studied but has had uneven results. The main reason for flexibility in risk adjustment models is that costs and volumes can vary so widely from state to state that what might ensure is that the exchange is able to predict and account for risk in one state would leave another state underprepared.

State flexibility in this area should be seen as promoting the solvency of state individual markets overall, since the risk must be collective for on-exchange and off-exchange populations for carriers. It would hopefully also lend more stability to the markets, which would in turn lead to more entrants and competitive positioning to help level off or even reduce overall premium costs.

But, sadly, you shouldn’t expect major disruption this year. The regulations are new and fairly conservative and are not at the forefront of state plans to reinforce and/or reshape the ACA’s individual market. This one is about the plumbing, not the interior design.

Updates to benefit and payment parameters

There are several updates of interest to both consumers and policymakers for benefit and payment parameters.

Rate Review: reduce regulatory burden to states – These moves should be seen as a net positive for state-based administrators as they will hopefully require less of them to get plans approved. Hopefully it will further promote the use of new technology as well. However, the impact on consumers is minimal.

Exempt student health plans from review – Again, this change will provide administrative relief for state administrators and the carriers that work with them to get plans approved. However, the consumer impact is little to none.

Changing Navigator requirements – The Navigator program was seen as a lynchpin to the ACA’s ability to provide individuals with in-person, unbiased, non-commission-based guidance in finding the right health coverage to fit their needs. The program has struggled due to a lack of funding in particular. The stated purpose of the update is to allow for a single navigator rather than the currently necessary two per jurisdiction, and also to lift the requirement that navigator groups be locally based. A national group may deem some areas, especially sparsely populated rural areas, as less cost-effective to cover, and therefore leave them open to under-exposure to Navigators. This under-exposure could, in turn, lead to lower enrollment numbers among both subsidized and Medicaid/CHIP consumers.

Allowing broker/agent/issuer to have its third party entity participate in operational readiness reviews. This relatively minor change simply acknowledges that issuers and brokers often work with companies to help them with their business processes and procedures. It’s “modernization” in its simplest form. It won’t be felt by consumers but it’s a small win for efficiency.