On November 20, 2012, the Department of Health and Human Services (HHS) issued proposed rules under the Patient Protection and Affordable Care Act of 2010, as amended (the Affordable Care Act or the Act), which beginning in 2014 will prohibit health insurance companies from discriminating against individuals because of a pre-existing or chronic condition.  The rules were published in the Federal Register on November 26, 2012. The rules also outline standards related to the coverage of essential health benefits and actuarial value while providing significant flexibility to states to determine how these terms will be defined.  A set of rules addressing employment-based wellness programs in group health plans published by HHS at the same time are discussed in a separate article in this issue of Corridors. This article will summarize the contents of the two other sets of rules implementing the Affordable Care Act. Although not specifically directed toward hospitals, these rules when finalized will affect hospitals as employers and indicate the direction of health care reform.

Market Reforms and Expanded Access to Health Insurance

Under the proposed rule found here, health insurance companies offering products in the small group and individual markets may as of 2014 vary premiums within limits, but based only on age, tobacco use, family size and geography.  Insurers would be prohibited from denying coverage to any American because of a pre-existing condition or from charging higher premiums to certain enrollees because of their current or past health problems, gender, occupation, and small employer size or industry. However, an individual employer may calculate an employee’s contribution for non-grandfathered health insurance coverage (i.e., plans in which consumers were not enrolled as of adoption of the Act) either based on the average, per-employee rate for all its participating employees, as most employers do today, or based on a percentage of the underlying cost of the employee’s coverage, which would increase the cost to older employees or smokers. 

The proposed rule requires insurers offering individual or group plans to renew or continue coverage at the option of the plan sponsor or individual, with limited exceptions such as termination because of nonpayment of premiums, material breach by the plan sponsor, or the employer has ceased to belong to an association through which it participates in a group plan.

While catastrophic coverage is permitted for individual plans, it is catastrophic coverage with a twist.  Consistent with the Affordable Care Act, the proposed rule requires that such policies provide all the essential health benefits (as defined below) once the annual limitation on cost sharing has been met, and provide coverage for at least three primary care visits per year before reaching the deductible.  Catastrophic coverage is permitted only for individuals under the age of 30, or those who have received a certificate of exemption because they have no affordable coverage or for reason of hardship pursuant to 42 USC § 18022(e)(2)(B).  Such a policy may not impose any cost-sharing requirements (copayment, coinsurance or deductible) for preventive services. This portion of the rule is intended to ensure access to this type of catastrophic coverage for people for whom coverage in the individual market would otherwise be unaffordable.

Standards for Essential Health Benefits

The second proposed rule found here is designed to promote consistency among plans and thus help consumers compare non-grandfathered private health insurance options in the individual and small group markets.  The proposed rule was the result of many thousands of comments received from a wide variety of stakeholders including states, health insurers, small businesses and consumers, as well as studies by the Institute of Medicine and the Department of Labor, and gives states more flexibility in implementing the Affordable Care Act.  The rule describes policies and standards for coverage of “essential health benefits” (EHB), which term means a core set of items and services that gives consumers a consistent way to compare health plans in the individual and small group markets.  As a part of the Affordable Care Act’s attempt to give Americans access to quality, affordable health insurance, the Act requires that individual and group policies offer EHB in at least the following ten categories:  ambulatory patient services, emergency services, hospitalization, maternity and newborn care, treatment of mental health and substance abuse, prescription drugs, rehabilitation and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services (including oral and vision care).

Because the Affordable Care Act requires the EHB to be equal in scope to benefits offered by a “typical employer plan,” the rule requires states to select a benchmark plan from among several options.  All plans that cover EHB must offer benefits that are substantially equal to the benefits offered by the benchmark plan.  A state’s options for the benchmark plan include the following:  (i) the largest plan by enrollment in any of the three largest products in the state’s small group market; (ii) any of the three largest state employee health benefit plans by enrollment; (iii) any of the largest three national Federal Employees Health Benefits Program plan options by enrollment; and (iv) the largest insured commercial HMO in the state.  If the benchmark plan is missing any of the ten statutory categories for EHB listed in the prior paragraph, then the benchmark plan must be supplemented in that category.

An appendix to the proposed rule provides HHS’ list of proposed EHB benchmark plans for each of the fifty states.  For North Carolina, HHS proposes the plan from the largest small group product, Blue Cross and Blue Shield of North Carolina’s Blue Options PPO, as the benchmark. As a supplemental category for North Carolina, the rule proposes the Federal Employees Dental and Vision Program (FEDVIP) as the benchmark for the categories of pediatric oral and pediatric vision.

Determination of Actuarial Value

The second proposed rule also addresses the calculation of actuarial value (AV), which is the percentage of total average costs for covered benefits that a health plan will cover based on the provision of EHB.  As of 2014, health plans in the individual and small group markets that are not grandfathered must meet (within 2 percentage points) the following AVs, or “metal levels,” prescribed by the Affordable Care Act:  60 percent for a bronze health plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90 percent for a platinum plan.  The intent is that these tiers will allow consumers to compare plans requiring the same level of cost sharing.  Health plans may offer catastrophic-only coverage with a lower AV for certain eligible individuals. 

HHS has developed a proposed AV calculator, posted on The Center for Consumer Information & Insurance Oversight’s (CCIIO) website, for insurers to use in determining health plan AVs based on a national, standard population.  Under the proposed rule, however, insurers may beginning in 2015 use state-specific data sets for the standard population, if the state has submitted alternate data for the calculator that have been approved by HHS.

The initial response from the insurance industry has been not overly critical.  The public comment period for both sets of proposed rules ends on December 26, 2012.