Editor’s Note: Earlier posts by Timothy Jost provide analyses of regulations implementing provisions of the new health reform legislation governing appeals of coverage denialscoverage for preventive services, a patient bill of rights, grandfathered plans, tax exempt hospitals, the small employer tax creditthe Web portal, reinsurance for early retirees, and young adult coverage.

As of January 1, 2014, every American will have access to health insurance without regard to health status or pre-existing conditions.  Those whose household incomes fall below 400 percent of the federal poverty level will receive tax credits to help cover their premiums and subsidies to reduce their cost sharing.  Those with household incomes below 133 percent of poverty will qualify for Medicaid.  But 2014 is still far away for many Americans who are unable to find or to afford health insurance because pre-existing conditions make them uninsurable or insurable at only very high rates.

For some of these Americans, section 1101 of the Affordable Care Act offers a temporary high risk health insurance pool program, which HHS refers to as the Pre-Existing Condition Insurance Plan, or PCIP, program. This program is also described in a CRS Report issued July 28, with appendices describing the state programs implementing the high risk pool provisions.  The Act requires this program to be “established” within 90 days of enactment, that is by June 23, 2010. The 90 day goal was overly ambitious, but the federal PCIP is in fact already taking applications, as are several state plans.  On July 29, 2010, the Department of Health and Human Services published interim final regulations implementing the PCIP program.

Section 1101 of the Affordable Care Act offers insurance coverage to American citizens or persons lawfully present in the United States who have been uninsured for at least 6 months and who have a pre-existing condition.  The program can be run either by the states or by the federal government through a nonprofit entity.  Twenty-nine states plus the District of Columbia chose to operate their own plans, while HHS will administer the program in 21 states.  Plans must offer comprehensive coverage with an actuarial value of 65 percent of total allowed cost and with out-of-pocket limits no higher than those permitted for high-deductible health plans accompanying health savings accounts.  Premiums must be set at a standard rate for a standard population, and cannot vary based on age by a factor of more than 4 to 1.  Congress appropriated $5 billion to fund the program through 2013.

Defects In The Pre-Existing Condition Insurance Plan 

The PCIP program suffers from widely acknowledged defects.  First and foremost, it is badly underfunded.  In a June 21 letter, the CBO estimated that $10 to $15 billion would be needed to fund the program adequately through 2013.  The CMS Actuary estimated that the appropriated $5 billion would be exhausted in 2011 or 2012.   The PCIP is a prime example of the short-sighted fiscal conservatism that drove the legislation.  It is bound to cause serious political problems when the funding runs out well before 2014.   The underfunding is one of the primary reasons why many states decided not to participate in the program.  

Second, the requirement that individuals be uninsured for at least six months to be eligible makes it impossible for the states to smoothly transition enrollees in their current high risk pools to the new federal program.  Thirty-five states currently have high risk pools, many of which were created in response to the 1996 federal Health Insurance Portability and Accountability, but these programs have worse coverage and higher premiums than the new federal program.  States cannot simply move their current risk pool participants into the federal program, however, because of the six month gap in eligibility requirement, and many will have to run two parallel risk pools.  This is one of the many instances where the legislation could have benefited from a House/Senate conference committee, as the House bill did not require a six month gap in coverage for persons medically eligible. 

Third, the requirement that an applicant have a pre-existing condition could be problematic if it were interpreted to mean that an applicant had to be denied conventional insurance because of a pre-existing condition to be eligible (as is true with some state high risk pools).  Guaranteed issue requirements in seven states assure that coverage cannot be denied because of preexisting conditions, even though rates charged for persons with poor health status may well be unaffordable.

Fourth, the standard premium for standard population requirement imposed by the statute will be lower than the premiums charged by current state high risk pools (complicating the situation for states that will offer both state and Affordable Care Act risk pools) and will require substantial subsidization from federal funds.  On the other hand, the premiums — and the cost sharing required under the statute — will be unaffordable for many lower income Americans. The statute offers no assistance to those who cannot afford its coverage.

Few Surprises In The Regulations

Section 1101 gives HHS broad discretion to impose “appropriate” requirements on the PCIP program.  The rule issued yesterday, however, contains few surprises, primarily tracking and elaborating on the statute.  The regulation’s definitions are by-and-large taken from the statute and add little other than an impressive list of categories of immigrants who are lawfully present in the United States and a definition of “pre-existing condition exclusions” (which are not permitted under the program) that cross-references the HIPAA definition.  The rule on administration recognizes the possibilities of federal or state administration and provides for transitions from federal to state administration or visa versa.

The eligibility provisions of the regulation elaborate somewhat on the statutory provisions, adding to the citizenship, six-month gap in coverage, and preexisting condition requirements a state-residency requirement.  The interim rule recognizes that if an individual participating in a state PCIP program moves to another state, it is not necessary to meet the six month coverage gap requirement in the new state.  States may verify citizenship or immigration status through the Social Security Administration and the Department of Homeland Security’s U.S .Citizenship and Immigration Services Systematic Alien Verification for Entitlements program or through an alternative method approved by HHS.  Applicants must generally have gone six months without creditable coverage, as defined by HIPAA, before enrolling but HHS is working on guidance as to how to handle infants less than six months of age. 

The preexisting condition requirement can be met by demonstrating:

  • A health-related refusal of insurance coverage,
  • An offer of coverage with a preexisting condition exclusion,
  • The existence or history of a medical condition specified by HHS, or
  • Other criteria as developed by a PCIP program and approved by HHS.

Only the first two criteria will be used in federally-operated programs except in guaranteed issue states.

PCIP enrollment processes must be approved by HHS, but will usually be the same as those used in the state’s own high risk pool programs.  Once enrolled, individuals can only be disenrolled if they leave the service area, die, obtain other creditable coverage, or don’t pay their premiums (after notice and a reasonable grace period of up to 61 days from the date a premium payment is due). Enrollment can also be terminated if a PCIP program terminates.  

In what may well prove the most important of the regulatory provisions, the interim rule states that, to deal with funding shortfalls:

[A] PCIP may employ strategies to manage enrollment over the course of the program that may include enrollment capacity limits, phased-in (delayed) enrollment, and other measures as defined by the PCIP and approved by HHS.

Abortion Coverage Is Prohibited By The New Rule

The statute does not specify the benefits that a PCIP program must cover.  The list of covered services in the rule largely tracks the list of essential services found in section 1302 of the statute, omitting pediatric oral and vision care and adding non-custodial skilled nursing services.  The rule excludes cosmetic surgery, custodial care, assisted reproduction services, experimental care except as part of a clinical trial, and, most significantly abortion except in instances of rape, incest, or the endangerment of the mother’s life.

The abortion issue blew up when right-to-life groups noted that HHS had received state PCIP applications that appeared to cover abortions for which funding would have been prohibited under federal law.  A July 23 CRS report offered the opinion that neither the Affordable Care Act, the Hyde Amendment, nor the President’s Executive Order prohibited PCIP abortion funding.  HHS has clear authority under the Affordable Care Act to bar abortion funding by rule and did so, explaining that its position was consistent with that taken by other federal programs, including the Federal Employees Health Benefits Program. 

Finally, the regulation bans pre-existing condition exclusions and coverage waiting periods after enrollment (although the regulation earlier seems to countenance delayed enrollment if necessary to conserve funds).

The regulation tracks the statutory language on premiums and cost sharing.  It recognizes that the standard rates charged by PCIPs are likely to be lower than the rates charged by most state high risk pools and may vary considerably from state to state.  The interim rule requires PCIP networks to provide a sufficient number and range of providers and to cover emergency services out of network if the enrollee “had a reasonable concern that failure to obtain immediate treatment could present a serious risk to his or her life.”  PCIPs must offer internal appeals of eligibility determinations and internal and external appeals of coverage or payment determinations.  The rule is intended to allow states to use existing review and appeal mechanisms provided under state law.  Affordable Care Act insurance reform provisions do not apply to PCIP plans, since they are not individual or group plans subject to the statute.

The regulation operationalizes the requirement of section 1101 of the Affordable Care Act that health insurance issuers and group health plans must be held responsible for medical expenses incurred by a PCIP with respect to an individual that they “dump” from coverage due to health status.  PCIPs are supposed to in particular be on the lookout for situations where individuals are provided financial incentives to drop coverage or disincentives to remain enrolled, or where a plan or issuer increases premiums above the cost of PCIP premiums with no explanation.  Insurers or group health plans that dump enrollees into the PCIP will be billed for coverage and referred to federal or state authorities for other enforcement actions. 

PCIP funding can be used for allowable claims and administrative costs, but administrative costs may not consume more than 10 percent of available funds.  Funds will be allocated to the states using a methodology like that used by the Children’s Health Insurance Program, considering state population, the number of insured individuals under age 65, and geographic health care costs.  Funds that are not used by a state may be reallocated to other states.  States are required to maintain current high risk pool funding to participate in the PCIP, but this requirement can be met by states maintaining the same level of per capita funding, the same funding formula, or the same absolute level of funding.  

When the money is gone, the program is over and will be terminated.  In the interim, HHS is authorized to adjust program requirements to stretch the money as long as possible.  In any event, the PCIP program will end January 1, 2014.

An Important Unanswered Question: How Many People Will Participate In The PCIP?

One huge unknown is how many people will participate in the PCIP.  One study found that 5.6 to 7 million Americans would potentially be eligible. , but projected that 200,000 would participate.  The CMS Actuary report projected that 375,000 could be participating in the program this year.  The CBO projected that potential enrollment, were the program fully funded, could grow from 400,000 in 2011 to 600,000 or 700,000 in 2013.  HHS estimates that enrollment will be between 200,000 and 400,000.  HHS projects that at this level of enrollment funding will be adequate. This opinion is not widely held.

Although much has been made of the underfunding of the program and other coordination and access problems noted at the outset, one thing remains true.  Several hundred thousand Americans with serious health problems who otherwise would have lacked health insurance will be covered by the program for as long as the funding lasts.  For many of these individuals, coverage will mean the difference between life and death.  For many more coverage will mean reduced morbidity and better functioning.  The PCIP program will allow many others to avoid bankruptcy.  It will also reduce the burden of uncompensated care borne by providers and ultimately shifted to insured Americans or to state and local governments. 

It is easy to criticize the PCIP program.  But for many Americans it will be the most important opportunity offered by the Affordable Care Act.