The U.S. Department of Health and Human Services ("HHS") issued three proposed regulations on November 20, 2012 (collectively, the "Regulations") on the Patient Protection and Affordable Care Act (the "ACA").1 These proposed rules, published on November 26, 2012, in the Federal Register, were issued after months of regulatory and political delays, including constitutional challenges to the ACA. It has been reported that a number of rules implementing key provisions of the ACA were held back until after the U.S. presidential election, including market reform rules and health insurance exchange rules. Although the three proposed rules do not touch upon health insurance exchanges, it has been reported that the exchange rules are imminent. Now that the election is over, it can be anticipated that HHS will quickly start issuing all of its long-awaited rules.
The first proposed rule on health insurance market reforms provides details on the ACA's "guaranteed issue" and "community rating" requirements, as well as the prohibition against preexisting condition exclusions and limitations on discrimination based on health status (the "Market Reforms Rule"). The Market Reforms Rule also sets forth details on HHS-based rate review. The second proposed rule provides additional guidance for states to choose what constitutes "essential health benefits" to be offered by insurers in each state (the "EHB Rule"). The third proposed rule provides guidance to employers on worker wellness programs, which are intended to encourage employers to offer financial incentives for workers to stay healthy (the "Wellness Program Rule").
HHS has solicited comments regarding many specific proposals and questions posed by the Regulations. The Market Reforms Rule and the EHB Rule have a 30-day comment period and the Wellness Program Rule has a 60-day comment period. The comments must be filed with HHS by December 26, 2012, and January 25, 2013, respectively.2
The Market Reforms Rule
Under the Market Reforms Rule, health insurance issuers offering non-grandfathered plans are prohibited from discriminating against individuals because of a preexisting condition. Additionally, issuers must limit premium variations only on four factors—age, tobacco use, family size and geography. Health insurance issuers will be prohibited from charging higher premiums to certain enrollees because of their current or past health problems, gender, occupation, and small employer size or industry. This rule also requires states to set up a single, statewide risk pool for each of their individual and small employer markets, or a merged single risk pool. Also a catastrophic coverage plan option must be made available in the individual market for young adults and people for whom coverage would otherwise be unaffordable. Finally, in a lengthy discussion on costs and benefits, HHS solicits comments on a number of questions, including cost containment of rates and the negative impact of ACA-related costs on financial performance of insurers, as well as controlling potential increased administrative costs borne by the states.
Fair Health Insurance Premiums
Under the Market Reforms Rule, as of January 1, 2014, health insurance issuers in the individual and small group markets would be allowed to vary premiums based only on the following factors: age (within a 3:1 ratio for adults); tobacco use (within a 1.5:1 ratio and subject to wellness program requirements in the small group market); family size; and geography. Issuers in these markets will no longer be able to charge higher premiums based on other factors, including preexisting conditions, health status, claims history, duration of coverage, gender, occupation, employer size and industry.
For the age rating, there will be three bands, children ages 0 to 20; adults ages 21 to 63 and adults over age 64. "Curves" will be used to reduce the price jump when a customer ages from one band to the next. For the tobacco rating, issuers will be allowed to charge more to tobacco users, but issuers will also be required to lower the rates to a non-smoker's level, in some cases, if the consumer is participating in a cessation program.
Under the ACA, states can choose to enact stronger consumer protections than these minimum standards. Starting in 2017, states have the option of allowing large employers to purchase coverage through the Exchanges. For states that choose this option, these rating rules also would apply to all large group health insurance coverage. These proposed rules standardize how health insurance issuers can price products, bringing a new level of transparency and perceived fairness to premium pricing.
Guaranteed Availability of Coverage and Guaranteed Renewability of Coverage
Health insurance issuers would be prohibited from denying coverage or renewal of coverage to an individual because of a preexisting condition or any other factor, with certain exceptions. Individuals would need to buy coverage during open enrollment periods. In addition, individuals would have new special enrollment opportunities in the individual market when they experience certain specified losses of coverage.
In the small group market, issuers will be required to have year-round open enrollment periods, permitting employers to purchase health insurance coverage at any point during the year. HHS stated that open enrollment periods for individuals are necessary to decrease the risk of adverse selection against a small employer group by employees who would elect coverage only when they need medical care. Additionally, issuers will have to establish special enrollment periods for qualifying events for the group and individual markets.
Single Risk Pool
Health insurance issuers will be required to maintain a single statewide risk pool for each of their individual and small employer markets. A state may choose to merge the individual and small group pools into one pool. In either a separated or merged risk pool, premiums and annual rate changes for a plan would be reviewed by regulators in the context of the impact on the entire risk pool.
The Market Reforms Rule also includes provisions for enrollment in catastrophic plans. Catastrophic plans have lower premiums, protect against high out-of-pocket costs and cover recommended preventive services without cost sharing. The catastrophic plan option is aimed both at individuals ages 30 and younger and at other uninsured individuals who have been exempted from the ACA minimum coverage ownership mandate because they cannot afford the ACA minimum level of coverage or because they are eligible for a hardship exemption.
These high-deductible, catastrophic plans do not have metal level actuarial value requirements, or cover the EHB package until the enrollee reaches the plan's annual cost-sharing limit. A catastrophic plan must cover three primary care visits a year even before the enrollee meets the deductible, but the plan can impose cost-sharing requirements on use of the primary care visits, according to a preamble to the Regulations.
The Market Reforms Rule makes three changes to rate review. Health issuers will have to submit all proposed rate increases to HHS in a standardized format to be specified by HHS on or after April 1, 2013, to be effective on January 1, 2014. The remaining changes pertain to state standards regarding approvals for state-specific thresholds for rate review and revising criteria for a state to have an Effective Rate Review Program, including whether rate increases are accepted on the standardized form described above. This rate requirement is designed to help CMS identify patterns that could indicate market disruption; to "oversee the new, market-wide reforms"; and to monitor healthcare costs.
Essential Health Benefits and Actuarial Value Regulation
The proposed rules on essential health benefits ("EHB"), actuarial value (AV) and accreditation of qualified health plans ("QHP") contain the following new provisions governing: (a) Exchange and issuer standards for coverage of essential health benefits and actuarial value; (b) a timeline for QHPs to be accredited in a Federally Facilitated Exchange, including a State Partnership Exchange on a four-year phased approach with full accreditation required for a QHP issuer by year four and every subsequent year; and (c) an application process for additional accrediting entities of QHPs, in addition to the currently recognized National Committee for Quality Assurance (NCQA) and URAC. To be accredited, a QHP is evaluated with respect to local performance on quality measures by a recognized accrediting entity with a transparent and rigorous methodological and scoring criteria. EHB applicability to Medicaid will be defined in a separate regulation.
Essential Health Benefits – Introduction
Beginning in 2014, all non-grandfathered health insurance coverage in the individual and small group markets must cover EHB for 10 statutory benefit categories, such as hospitalization, prescription drugs, maternity and newborn care, and has to be equal in scope to a typical employer health plan. States may require a QHP to cover additional benefits beyond EHB provided that the state covers the cost of those required benefits. The plans will also have to meet the specific actuarial or metal values specified in the regulations or be a qualifying catastrophic plan. Health issuers will be required to meet the same EHB standards inside or outside of the Exchange.
Base-Benchmark Plans and EHB-Benchmark Plans
The proposed regulations use two different terms that are confusingly similar. A base-benchmark plan refers to the plan selected by a state from permitted options prior to any adjustments to meet benchmark standards. An EHB-benchmark plan covers the standardized set of EHB that a QHP must satisfy. To become an EHB-benchmark plan, a base-benchmark plan must cover the 10 benefit categories of EHB and other requirements specified in the regulation. A state may select its base-benchmark plan from four types of plans: (a) the largest plan by enrollment in any of the three largest small group insurance products in the state?s small group market, (b) any of the three largest state employee health plans, (c) any of the three largest federal employee health plans or (d) the largest insured commercial non-Medicaid HMO in the state. If a state makes no selection, the default base-benchmark plan will be the largest plan by enrollment in the state's small group market. The regulation lists the proposed benchmark plans that either have already been selected by states or, if not selected, the base plan HHS would select for a state that did not indicate a choice prior to October 2012. If a state wants to make or change a selection, it must do so prior to the end of the 30-day comment period.
States will continue to have primary enforcement authority over health insurance issuers. The regulation, however, will allow HHS to take enforcement action against issuers if a state has notified HHS that it has not enacted legislation to enforce or is not enforcing adherence to EHB standards, or it is determined by HHS that the state is not substantially enforcing the provisions of the ACA.
EHB-Benchmark Plan Standards
EHB plans will be required to provide 10 categories of benefits: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; lab services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Pediatric services means services for persons under 19 years of age. The regulations propose a mechanism for supplementing base-benchmark plans that do not include pediatric oral care and vision services, habilitative services and other substitutions that are actuarially equivalent to the benefits being replaced.
The regulations propose that any state-required benefits enacted on or before December 31, 2011, will be considered EHB, which would free the states from paying for such additional benefits. Any state-required benefits offered under a QHP on an Exchange that fall outside of this window will have to be paid by the state. The Exchange will identify which state-required benefits are in excess of EHB and the QHP will calculate the cost of such additional benefits. The calculation must be made by a member of the American Academy of Actuaries in accordance with generally accepted actuarial principles and methodologies. HHS expects for at least plan years 2014 and 2015 that there will be few, if any, payments for state-required benefits since required state benefits enacted prior to December 31, 2011, will be part of EHB.
Prescription Drug Benefits
Health issuers in the individual and small group markets will have to offer EHB prescription drug benefits on or off the Exchange. There were a number of comments to prior HHS bulletins covering prescription drug benefits. In response to such comments, HHS modified its initial thoughts to expand what complies with EHB. A plan can choose to cover the greater of one drug in every category and class or the same number of drugs in each category and class as the EHB-benchmark plan. A QHP must report its drug list to the Exchange, and an EHB plan operating outside the Exchange must report its drug list to the state. A multi-state plan must report its list to the U.S. Office of Personnel Management. Each EHB plan may cover different drugs than those covered by an EHB-benchmark plan, but the drugs must be presented using the U.S. Pharmacopeia classification system and must be chemically distinct. Brand name drugs and their generics are not considered chemically distinct. An EHB plan must have procedures to permit enrollees to obtain prescribed drugs not on its list.
Prohibition on Discrimination
Health issuers subject to EHB rules may not discriminate in terms of covered benefits, payment rates or incentives and may not discriminate on the basis of age, disability, expected length of life or other health conditions. Health issuers may employ utilization management techniques but may not employ them to discriminate against certain groups of people. Taken collectively, HHS interprets these provisions as a prohibition on discrimination by issuers that provide an EHB if the plan's benefit design, or the implementation of its benefit design, or the marketing, discriminate against individuals with significant or high cost healthcare needs. States will have the monitoring role to ensure that plans do not contain outlier practices that would undermine EHB coverage.
ACA sets an annual limit on enrollee cost-sharing. Cost-sharing includes deductibles, coinsurance and copayments but excludes premiums, balance billing amounts for non-network providers and spending for non-covered services. The regulations specify the limits for 2014 and how the increases will be calculated in subsequent years.
AV is the measure of the percentage of expected healthcare costs a health plan will cover for a standard population and can be considered a general summary measure of health plan generosity. Issuers will calculate AV for their plans using an AV calculator developed by HHS using a set of national claims data weighted to reflect the standard population projected to enroll in the individual and small group markets. The model and methodology are explained in a link on the HHS website. HHS proposes an alternative methodology for the expected small number of plans whose designs are not compatible with the AV calculator. The regulations also propose that in and after 2015, state-specific data may be used as the standard population, subject to HHS approval.
Consistent with ACA, the regulations codify the metal plan levels as bronze plan 60 percent of AV, silver 70 percent, gold 80 percent and platinum 90 percent.
Stand-Alone Dental Plans
ACA allows the pediatric dental component of EHB to be offered in a stand-alone dental plan in an Exchange. If such plans are available on the Exchange, QHPs may exclude the pediatric dental component of EHB.
Accreditation of QHP Issuers
The current phase one application and review process is amended to permit additional accrediting entities the opportunity to apply and to demonstrate how they meet the requirements for recognition. In a concurrent Federal Register Notice, NCQA and URAC are recognized as accrediting entities for the purpose of QHP certification. The recognition of accrediting entities in phase one will be effective until it is rescinded or this interim phase one process is replaced by a phase two process, which may establish additional criteria for recognized accrediting entities.
The Wellness Program Rule
The Wellness Program Rule reflects ACA-based amendments to existing regulations regarding nondiscriminatory wellness programs in group health coverage. Currently, workplace wellness programs include (a) "participatory wellness programs," which generally are available without regard to an individual's health status that contain, for example, reimbursement for the cost of fitness center membership; and (b) "health-contingent wellness programs," which require individuals to meet a specific standard related to their health to obtain a reward and include, for example, a reward to those who do not use, or who decrease their use of, tobacco.
The Wellness Program Rule sets forth anti-discrimination rules for wellness incentives that apply only to health-contingent wellness programs, including:
- programs must be reasonably designed to promote health or prevent disease;
- programs must be reasonably designed to be available to all similarly situated individuals; and
- individuals must be given notice of the opportunity to qualify for the same reward through other means.
The Wellness Program Rule also increases the maximum permissible reward under a health-contingent wellness program from 20 percent to 30 percent of the cost of health coverage. Employers may increase the maximum reward further to as much as 50 percent for wellness programs designed to prevent or reduce tobacco use.
These proposed rules would be effective for plan years starting on or after January 1, 2014.