On April 18, 2017, the Centers for Medicare & Medicaid Services (CMS) published in the Federal Register a final rule (the "Final Rule") aimed at stabilizing the individual and small group health insurance markets (collectively, "Exchanges") created under the Affordable Care Act. The Final Rule is effective June 19, 2017, and will apply to 2018 health plans participating in the Exchanges.
Background – Threats to the Stability of the Exchanges
CMS notes in the preamble commentary to the Final Rule that the Exchanges have been at risk recently due to decreasing numbers of participating insurers and higher premium obligations for consumers. CMS states specifically that some issuers "have had difficulty attracting and retaining the healthy consumers necessary to provide for a stable risk pool that will support stable rates." In particular, according to CMS, healthy consumers who are not eligible to receive premium tax credits under the Affordable Care Act (ACA), as well as healthy consumers who are eligible for the credits, but are not able to receive advanced payments of such credits, may simply drop out of the market, "further damaging the risk pool and risking additional issuer attrition from the market."
Per CMS, another threat to the Exchanges has been issuer-reported "potential misuse and abuse of special enrollment periods in the individual market Exchanges that enables individuals who are not entitled to special enrollment periods to enroll in coverage after they realize they will need medical services." All of the foregoing threats jeopardize, in CMS' view, the ability of the Exchanges to offer competitively priced, affordable and quality coverage. This alert summarizes certain key features of the Final Rule designed to reduce the impact of such threats.
Strategies for Improving the Risk Pool and Increasing Issuer Participation
Shorter Open Enrollment Period
The Final Rule shortens the annual open enrollment period in the individual market for the 2018 plan year. Open enrollment for the benefit year starting January 1, 2018, was previously scheduled to occur from November 1, 2017 through January 31, 2018. However, this time period has been narrowed under the Final Rule to November 1, 2017 through December 15, 2017, which will require individuals to enroll in coverage prior to the beginning of the 2018 plan year, unless they are eligible for a special enrollment period (SEP). CMS’ two-fold rationale behind this change is (1) to improve the risk pool by reducing opportunities for consumers to enroll after they learn they will need medical services in late December and January, and (2) to encourage healthier individuals who might have previously enrolled in partial year coverage after December 15 to instead enroll in coverage for the full year.
Tighter Verification of Eligibility for SEPs
The ACA allows SEPs for consumers who experience various life changes, such as losing health coverage from an employer, relocation, a change in marital status, having children, or adopting a child. However, since the passage of the ACA, the SEP program has, according to CMS, experienced misuse and waste due to consumers who have enrolled through the SEP yet have not experienced an SEP triggering event. The reason for this misuse and waste, as reported in a November 2016 GAO report, is that CMS has historically allowed many consumers to self-attest to a qualifying SEP event. CMS notes in particular that previously uninsured consumers who enroll during the SEP and are otherwise not qualified to do so generally cost more (often because they wait to enroll until they are sick) than consumers who enroll during open enrollment. As a result of this increased number of costlier enrollees, according to CMS, insurers have faced increased claims and decreases to revenue due to a higher risk pool of unhealthy consumers who would not normally have qualified. The Final Rule addresses these SEP risks by:
- Requiring additional documentation for SEP enrollment
- Increasing pre-enrollment verification of SEP eligibility
- Changing the relocation rules to ensure that those who qualify for SEPs are only covered as long as they were covered prior to the move
- Adding new requirements for the marriage SEP, permanent move SEP and exceptional circumstances SEP
CMS estimates that 650,000 consumers will be subjected to increased verification procedures. CMS also estimates that, as a result of these efforts, exchange premiums will be reduced by 1.5 percent.
Modified Interpretation of "Guaranteed Availability" of Coverage
The Final rule also provides that, to the extent permitted by applicable state law, issuers may apply a premium payment that an individual makes for a new enrollment to past-due premium debt owed for coverage from the same issuer, or another issuer in the same controlled group, within the prior 12 month period preceding the effective date of the new coverage. Essentially, the Final Rule enables issuers to condition the effectuation of new coverage of payment of past-due premiums.
CMS hopes that this aspect of the Final Rule will have a positive impact on the risk pool by removing some economic incentives for individuals to pay premiums only when they need access to healthcare services, particularly toward the end of the benefit year. CMS notes that, although the look-back period is for 12 months, individuals with past-due premiums would generally owe no more than one to three months of premiums, and they would not owe premiums for months in which they were not covered.
CMS cautions that "issuers adopting this premium payment policy, as well as any issuers that do not adopt the policy but are within an adopting issuer's controlled group, must clearly describe in any enrollment application materials, and in any notice that is provided regarding non-payment of premiums, in paper or electronic form, the consequences of non-payment on future enrollment." Also, the issuer must apply its premium payment policy uniformly to all employers or individuals in similar circumstances in the applicable market and state regardless of health status and consistent with applicable non-discrimination requirements.
Levels of Coverage (Actuarial Value)
Finally, for plan years beginning on or after January 1, 2018, CMS allows greater variation within a plan's required actuarial value (AV). Currently, with certain de minimis variations allowed, the ACA requires a bronze plan to have an AV of 60 percent, a silver plan to have an AV of 70 percent, a gold plan to have an AV of 80 percent, and a platinum plan to have an AV of 90 percent. The Final Rule adopts a broader de minimis variation range from these percentage figures than previously allowed. Under the Final Rule, for example, CMS states that a silver plan could have an AV between 66 and 72 percent. CMS' hope is that "changing the de minimis range will allow more plans to keep their cost sharing the same from year to year."