The U.S. Department of Health and Human Services has proposed two sets of regulations under the Patient Protection and Affordable Care Act (the 2010 health care reform legislation) relating to changes that will take effect in 2014.
Although the new rules focus principally on what states must do to meet health care reform requirements, health plan sponsors, particularly those in the small-plan market, will want to pay attention to both the direct and indirect effects of these regulations. In considering their impact, sponsors should keep in mind that the rules are only in proposed form and leave much to be determined in the future.
The first set of regulations establishes rules for states to follow in establishing health insurance exchanges. These exchanges will make coverage available in the individual and small-group health plan markets.
Employers with no more than 100 employees will be allowed to purchase coverage through the exchange for small-group health plans (although, until 2016, a state may limit availability to employers with no more than 50 employees). In 2017, a state may open its exchange to larger employers. For these purposes, employers under common ownership and control will generally be considered a single employer. The rules for the small-employer exchange address matters such as the standard that health plans must meet to be offered through an exchange, employer applications to participate in the exchange, employee enrollment, and billing.
The second set of regulations implements mechanisms that aim to add stability to the health insurance market. In particular, the mechanisms seek to offset the effects of adverse selection, where one plan incurs higher costs because it covers a less healthy population.
Two of these mechanisms—a program for reinsurance and a program of risk corridors—apply only during a three-year transition period. The third mechanism—a program of risk adjustments based on risk factors—is permanent. Significantly, not all of these programs are limited to plans participating in a state exchange or even to insured plans. The temporary reinsurance program, in particular, will require a third party administrator of a self-funded health plan to report certain information and contribute amounts to fund the risk adjustments.