On November 20, 2012, the United States Department of Health and Human Services (DHHS), Center for Medicare and Medicaid Services (CMS) published proposed rules to implement several key areas of the Affordable Care Act (ACA). Among the proposed rules are regulations that assist consumers as they shop for and compare private insurance options. CMS states that the regulations will promote consistency across plans and provide protection to consumers by ensuring a core package of benefits will always be offered. The regulations outline accreditation standards, essential health benefits (EHB), and actuarial standards to which plans must adhere.

CMS also proposed several regulations that it states prevents insurance companies from discriminating against people with pre-existing conditions and protects consumers from insurance company abuses. The other proposed rule implements the ACA's policies related to fair health insurance premiums, guaranteed availability of coverage, risk pools, and catastrophic plans. Where appropriate, comments are due to DHHS by December 20, 2012.

Below is a summary of the key provisions of the proposed regulations.

Accreditation of Qualified Health Plan Issuers

The new proposed rule sets forth deadlines by which qualified health plans ("QHPs") must be accredited. However, QHPs may not seek accreditation from just any accrediting body. As a second quality check, the proposed rule outlines a process by which DHHS will determine which entities are qualified to provide accreditation.

  • Deadlines for Accreditation - An issuer of a QHP for sale on the Exchanges must seek accreditation unless it already has commercial, Medicaid, or Exchange plan accreditation recognized by the state in which the issuer wishes to offer the QHP. By the QHP's second year of QHP certification, the issuer must be accredited as a health plan, but by the fourth year, the QHP must obtain accreditation that meets criteria specific to QHPs, as described below.
  • Recognition of Accreditation Entities - In July 2012, DHHS promulgated a list of clinical quality measures that an accrediting body must include in its review of QHPs. These include that an accreditation entity's review must be evidence-based; must review care for a wide range of conditions such as mental health and substance abuse disorders, chronic care, and acute care; and must include measures applicable to both adults and children.

At the time DHHS promulgated those rules, DHHS recognized only two accreditation bodies as capable of meeting those standards – the National Committee for Quality Assurance, or NCQA, and URAC. However, the recent proposed rule allows additional accrediting entities to apply to DHHS for recognition.

To apply, an accrediting entity must provide to DHHS documentation showing its current accreditation standards and requirements. The application must show the accrediting entity uses the clinical quality measures outlined in 45 CFR § 156.275 and uses transparent and rigorous methodological and scoring criteria.

Within 60 days of receiving a complete application for recognition, DHHS will publish a notice in the Federal Register naming the entity seeking recognition and summarizing whether the entity meets the requirements for recognition. After a 30-day comment period, DHHS will issue a final notice naming those entities that are recognized and not recognized to accredit QHPs.

Essential Health BenefitsThe Affordable Care Act (ACA) seeks to ensure equal access to quality, affordable healthcare. In order to assure this, CMS has issued regulations that outline essential health benefits (EHB) that must be included in any private and/or small group market plan offerings.  EHB must include services within the following ten (10) categories:

  1. Ambulatory patient services;
  2. Emergency services;
  3. Hospitalization;
  4. Maternity and newborn care;
  5. Mental health and substance use disorder services, including behavioral health treatment;
  6. Prescription drugs;
  7. Rehabilitative and habilitative services and devices;
  8. Laboratory services;
  9. Preventative and wellness services and chronic disease management; and
  10. Pediatric services, including oral and vision care.

If it is discovered that the benchmark plan, described below, is missing any of the 10 categories of EHB, the proposed rule states that the state or CMS will supplement the benchmark plan for the category in question.

EHB must be equal in scope to a 'typical employer plan' according to CMS. Therefore, the proposed rules define EHB based on a state-specific benchmark plan, which includes the largest small group plan in a given state. Each state must select a benchmark plan upon which to base the product offering.  The benchmark plan options include:

  • The largest plan by enrollment in any of the three largest products in the state's small group market;

  • Any of the largest three, by enrollment, state employee health benefit plans options;

  • Any of the largest three, by enrollment, Federal Employees Health Benefits Program plans; or

  • The largest commercial HMO in the state.

If a state does not select a benchmark plan, the default plan to be selected by CMS will be the largest small group product in the state (which is also option 1, above). In the appendix to the proposed regulations is a list of state-selected EHB benchmark plans, as well as the benchmark plan to be used as a default for a state that does not select.

CMS also addresses consumer protection concerns by including certain provisions in the proposed rule that enumerate a number of standards. These requirements are designed to protect against discrimination and ensure that benchmark plans offer the full complement of EHB  services. The proposed rules includes provisions that:

  • Prohibit benefit designs that discriminate against enrollees;
  • Include standards for benefits not typically covered by individual plans now (for example, habilitative services); and
  • Include prescription drug coverage, ensuring individuals have access to medications.

Actuarial Value

The proposed rule defines "actuarial value" or "AV" as the percentage paid by a health plan of the total allowed costs of benefits, i.e., if a plan has an AV of 70 percent, on average, the consumer is responsible for 30 percent of the costs of covered benefits. The proposed regulations confirm the AV required of the various "metallic plans", which are the plans to be offered by the insurance exchanges (bronze, silver, gold and platinum): the bronze level plans must have an AV of 60 percent, the silver plans must have an AV of 70 percent, the gold plans an AV of 80 percent, and the platinum plans an AV of 90 percent.

HHS provides a publicly available AV calculator based on national claims data which health plan issuers will use to determine the AV of a health plan based on a national standard population. HHS states that using the AV calculator ensures a consistent set of assumptions and methods in AV calculations for all plans, resulting in consumers being better able to compare plans. The propose AV calculator and methodology documents outline the regulations and guidance proposed by HHS.

The calculator also allows health plans to devise compliant plans without the burden of making the needed assumptions or paying for the analysis for an AV calculation. Beginning in 2015, HHS will accept state-specific data sets for calculation of AV in particular states should states choose to submit the information.

Recognizing the need for flexibility in calculating plan AV, HHS proposes two options for arriving at an AV for such plans. The proposed rule also addresses how to treat small group market high deductible health plans (HDHPs) offered with a health savings account (HSA) or a health plan in the small group market that is integrated with a health reimbursement arrangement (HRA) for purposes of AV calculations. Employer contributions to an HSA and amounts newly available under an HRA will count within the plan design, i.e., a plan with a $0 deductible will have the same AV as a plan with a $1,000 deductible plus a $1,000 HSA or HRA.

The proposed regulations also address how to determine if an employer-sponsored health plan provides "minimum value" or MV. A plan achieves minimum value if the percentage of the total allowed costs of benefits paid under a group health plan or health insurance coverage is 60 percent or greater. The methodologies for determining MV are described in  Treasury Notice 2012-31 released on May 14, 2012.

Insurance Market Reforms

The insurance market reform regulations require that health plan issuers accept every individual or employer who applies for coverage in the individual or small group market, respectively, subject only to certain exceptions such as limits on network capacity. Issuers must renew all coverage in the individual and small group markets subject to certain limited exceptions, i.e., non-payment of premiums or fraud. The proposed regulations also attempt to reform the health insurance market while giving flexibility to states and causing the least disruption as possible to the existing marketplace. Issuers must treat all non-grandfathered business in the individual market and small group market respectively as a single risk pool. DHHS believes this last requirement will spread risk more evenly among consumers which will help keep premiums more affordable for consumers.

Under the proposed regulations, health insurance issuers may vary premium rates in the individual and small group markets based on a limited set of factors: (1) whether the plan or coverage applies to an individual or a family; (2) rating area; (3) age, limited to a variation of 3:1 for adults; and (4) tobacco use, limited to a 1.5:1 variation. All other rating factors, including health status, claims experience, gender, and occupation, are prohibited. State laws prescribing a narrower ratio for age rating and tobacco use, i.e., a maximum 2:1 ratio for age rating, would not be preempted under the proposed regulations. Issuers are prohibited from "re-underwriting" or increasing premiums at renewal for existing customers because the customer incurred claims or experience worsening health during a policy year. The proposed rule also permits enrollment in catastrophic plans.

With respect to rating for age, HHS proposes that there be a single "age band" for all children under age 21 so that the premium rates for all children 0 to 20 years of age are the same. Likewise, HHS proposes a single age band covering individuals age 64 and older where all premium rates are the same. HHS is proposing one-year age bands starting at age 21 and ending at age 63. HHS states that while the one-year age bands will show steady premium increases each year due to age, such increases will be relatively small compared to the premium adjustments consumers would see if five-year rating bands were used. HHS also proposes that issuers within a market in a state use a uniform age rating curve. CMS, in consultation with the National Association of Insurance Commissioners (NAIC), will define permissible age bands for age-rating.

States will be required to establish at least one rating area but no more than seven within the state. These rating areas will apply to all non-grandfathered plans, including those outside the insurance exchange. The proposed rules defines three standards for geographic divisions: (1) one rating area for the entire state; (2) rating areas based on counties or 3-digit zip codes; (3) rating areas based on metropolitan statistical areas (MSAs) and non-MSAs. If CMS determines that a state's geographic rating areas are inadequate or if a state does not create any rating areas, CMS is empowered to create rating areas for the state.

HHS also proposes to amend the rate review program to prepare for market changes in 2014 and to streamline data collection for insurers and states. Starting in 2014, the Secretary of HHS, in conjunction with the states, is required monitor premium increases of health insurance coverage offered both through and outside health insurance exchanges. Health insurance issuers will be required to submit to CMS, and where applicable appropriate state authorities, a Rate Filing Justification if the issuer wants a rate increase for any product. The proposed regulations specify the documentation issuers are to supply to CMS to support the rate increase and CMS will make certain of the documentation available to the public on the CMS website. HHS also proposes to modify the standards for an Effective Rate Review Program and for states seeking state-specific thresholds.

Wellness Programs

The Departments of HHS, Labor and Treasury jointly published a Notice of Proposed Rulemaking which proposes to increase the maximum reward under a wellness program in group health coverage to the extent the additional percentage is in connection with a program to prevent or reduce tobacco use. While a full summary of  that proposed rule is beyond the scope of this Practice Update, the "wellness program" proposed rule is mentioned briefly because of its relationship to the "market reform" proposed rule discussed above, and specifically the proposal to rate for tobacco use. Issuers may implement the tobacco use surcharge in the individual market without having to offer a wellness program. Interested parties have until January 25, 2013 to provide comments on this proposed rule.