Impose a Free-Rider Tax on Limited Benefits Plans

Katherine Hempstead, Robert Wood Johnson Foundation

Limited benefit health plans are bad for the insurance market and even worse for beneficiaries, argues Katherine Hempstead on the Health Affairs blog site. Such insurance packages do not have to offer the benefits mandated by the ACA.

Hempstead, who directs the Robert Wood Johnson Foundation’s work on health insurance coverage, says that states that have ended limited benefits plans have a healthier individual market, which includes plans under the ACA. Meanwhile, almost all states with “adverse market outcomes” have permitted the sales of limited coverage.

The limited benefits plans constitute “an extreme form of cherry picking that governs both entry and exit.” What makes them affordable is that they are piggybacking on the ACA, Hempstead argues. People with preexisting conditions are not eligible and “in the event that costly conditions develop among this healthy population, the designers of these plans intentionally use the ACA-compliant market as their backstop,” Hempstead writes.

Hempstead says that states that have not barred limited benefits plans should consider levying the free-rider tax. “While it is impossible to come up with an exact method for establishing the size of such a tax, one approach would be to use the medical loss ratio limits established by the ACA,” she writes. “These regulations require that individual carriers spend no less than 80% of premiums on health care services for members.”

Source: Health Affairs