Editor’s Note: This is the latest in a series of posts by Timothy Jost on the implementation of the Affordable Care Act. Earlier posts analyze provisions governing premium review, medical loss ratios, insurance exchanges, coverage for pre-existing conditions, appeals of coverage denials, coverage for preventive services, a patient bill of rights, grandfathered plans, tax-exempt hospitals, the small employer tax credit, the Web portal, reinsurance for early retirees, and young adult coverage.
2010 has been a banner year for Affordable Care Act rulemaking, perhaps the busiest there will ever be. The implementing Departments (led by Health and Human Services, but often in conjunction with the Department of Labor and the Department of Treasury) issued interim final regulations effectuating the ACA provisions requiring internal and external appeals, coverage of adult children up to age 26 and coverage of children with preexisting conditions.
Additional rules implemented ACA prohibitions or restrictions of lifetime and annual limits, rescissions, cost-sharing for preventive services, and restrictions on emergency room access. Regulations were also issued implementing the pre-existing condition high risk pool, early retiree reinsurance, the small employer premium tax credit, and the popular “healthcare.gov” web portal programs, as well as the medical loss ratio requirement. Finally, a proposed regulation was published late in the year for implementing the ACA’s prohibition against unreasonable premium increases.
But formal interim final and proposed rules were only part of the federal government’s 2010 ACA regulatory output. The implementing agencies have also issued a flood of regulatory guidance documents supplementing and interpreting the actual rules. The Department of Labor offers an entire page of links to statements, frequently asked questions, and fact sheets on the Employee Benefit Security Administration website. Similarly, the IRS has a couple of webpages (here and here) devoted to ACA implementation guidance. Finally, the HHS Office of Consumer Information and Insurance Oversight has its own page linking to regulations and guidance.
Agency guidance that has not gone through rulemaking procedures is in general not legally binding on third parties. It does indicate an agency’s understanding of the law, however, and regulated parties ignore it at their peril. Moreover, it often articulates agency enforcement policy, signaling that regulated entities are free to pursue approved behaviors with little fear of regulatory sanctions. While regulations tend to be reasonably well covered by the mainstream media, guidance is only followed by industry associations, the trade press, and regulated entities. Guidance is, therefore, not held up to the same level of public scrutiny as are formal regulations.
In the days immediately surrounding Christmas, when most Americans were consumed with shopping or with preparation for one of the biggest religious and family holidays of the year (or both), HHS, DOL, and the IRS were busy issuing ACA guidance. On December 22, the three agencies issued a series of frequently asked ACA implementation questions. Simultaneously, the IRS issued four ACA related notices. On December 27, the three agencies published a request for information regarding the use of value-based insurance design in connection with preventive care benefits.
Not surprisingly, these issuances received virtually no press coverage. Nevertheless, they are important both in their own right and for what they signal about the future of ACA implementation.
Answers To Frequently Asked Questions Set Forth A Collaborative Approach To Implementing Health Reform
The set of Frequently Asked Questions released on December 22 was the fifth set since the agencies began releasing FAQs in September. The philosophy the agencies expressed in the first FAQ release characterizes these issuances:
Our approach to implementation is and will continue to be marked by an emphasis on assisting (rather than imposing penalties on) plans, issuers and others that are working diligently and in good faith to understand and come into compliance with the new law. This approach includes, where appropriate, transition provisions, grace periods, safe harbors, and other policies to ensure that the new provisions take effect smoothly, minimizing any disruption to existing plans and practices.
This approach has indeed characterized the way in which the agencies have gone about implementation generally, most famously in annual-limit waivers and medical loss ratio adjustments granted to mini-med plans; but also in the extension they have granted to plans and issuers for compliance with the claims and internal appeal regulations until July 1, 2011; as well as in their specious and implausible interpretation of the ACA to exclude coverage of retiree health plans.
Coverage for preventive services. The December 22 FAQ contains 15 questions and answers and illustrates the nature and tone of the guidance that has been emerging from the Departments in recent months. The first question asks whether a health plan can impose a $250 copayment for preventive services received in an outpatient hospital setting if the service is offered without cost at an ambulatory surgical center. Section 2713 of the ACA, which prohibits cost-sharing for preventive services, permits value-based insurance design and the preventive services regulations permit reasonable medical management techniques to steer patients toward high-value settings; thus the question is answered “yes.” The $250 copay might well come as a shock, however, to a plan enrollee who had taken literally the promise that preventive services were going to be free of cost-sharing after September 23, 2010.
The December 27 request for information on value-based insurance design asks what other tools health plans and issuers use to steer and incentivize members regarding preventive services, as well as how members and providers are informed about these plan provisions.
Automatic enrollment. Questions 2 and 3 address ACA section 1511, which requires employers with more than 200 employees to enroll automatically their employees in an available health plan (from which the employee can voluntarily disenroll). The provision implements the “libertarian paternalism” approach made famous by Richard Thaler and Cass Sunstein’s book Nudge, and has worked successfully in other settings to increase participation in benefit programs. Section 1511 has no independent effective date, and thus was presumably effective upon the enactment of the statute. The FAQ notes, however, that the provision is to be implemented “in accordance with regulations promulgated by the Secretary [of Labor].” It, therefore, excuses compliance with the section until regulations are promulgated, which, it promises, will be completed by 2014. Thus the guidance puts off implementation of the provision effectively for four years.
Notice of plan changes. Question 4 deals with the requirement of section 2715(d)(4) of the Public Health Services Act, requiring a 60 day notice prior to material modifications to plan coverage. The answer to this question also delays implementation, in this instance until after the Departments issue rules regarding the 2715 summary of benefits and coverage explanation, which does not go into effect until 2012. Although this answer delays implementation of an important ACA protection, it is a plausible interpretation of the section, and is accompanied by a reminder that ERISA plans may already be required by existing law to give a notice of a material reduction in benefits.
Coverage for adult and minor children; grandfathered plans. The answer to question 5 authorizes plans to waive copayments for plan members 19 and under — despite a regulatory prohibition against offering more favorable benefits to minor child dependents than to adult children up to age 26 — as long as all plan members under age 19, not just dependents, are advantaged by the waiver. The answer to question 6 permits insurers to screen applicants for child-only policies for eligibility for other coverage as long as the screening is not limited to children with pre-existing conditions and does not delay coverage. The answer to question 7 affirms the ability of plans to retain grandfathered status, even though their deductibles and out-of-pocket limits increase beyond the caps permitted by the regulation, where the plan limits are based on a formula related to percentage of compensation. In each instance the Departments interpret statutory or regulatory requirements flexibility to maximize the discretion of the health plan or employer in implementing the statutory protection.
Questions 8 through 11 address the Mental Health Parity Act and will not be discussed here.
Wellness programs. Question 12 through 15 address issues that have arisen with respect to wellness programs. Despite limited empirical support for their effectiveness, wellness programs have been enthusiastically embraced by those who believe that rising health care costs are largely the fault of individuals who do not take care of their own health. Consumer advocacy groups, on the other hand, worry that wellness programs may provide a back door through which individuals with pre-existing conditions and poor health will be penalized for their health problems. The ACA, following the pre-existing Health Insurance Portability and Accountability Act, permits substantial reductions in cost-sharing and premiums for health plan enrollees who participate in wellness programs, but also provides that wellness incentives cannot be based solely on requirements that participants achieve specific health outcome standards unless allowance is made for individuals who cannot medically meet those standards. HIPAA allowed wellness incentives of up to 20 percent of premiums; the ACA allows incentives of up to 30 percent, effective 2014. The Departments state that they intend to implement the 30 percent maximum reward early under current regulatory authority, for once speeding up rather than delaying implementation.
The answers to questions 12 to 15 clarify that neither HIPAA nor the ACA restrict employer wellness programs that are not related to group health insurance (such as programs that pay for gym memberships or subsidize healthy food choices in the cafeteria), that premium discounts under HIPAA are not limited for wellness programs that are not based on satisfying a health standard, and that extra incentives can be offered for plans that are not based on achieving a health standard simultaneously with health standards-based incentives that meet the HIPAA and ACA nondiscrimination requirements. In sum, the guidance offers enthusiastic support for wellness programs as long as they do not violate the HIPAA and ACA nondiscrimination requirements.
IRS Notices Elaborate On Prohibition Against Favoring Highly Compensated Employees
The late December tax notices conform to the same pattern of maximizing compliance flexibility. Notice 2011-1 addresses compliance with section 2716 of the ACA, which prohibits insured group health plans from discriminating in favor of highly compensated individuals. This prohibition has long applied to self-insured plans but is extended to insured plans by the ACA. This is a very important provision of the reform law because it effectively requires employers to provide the same benefits to their lower-paid workers as are provided to their highest paid employees, and thus should discourage employers from simply dumping their low-paid employees into the tax credit program for those with lower incomes once it is established. Even prior to 2014, however, the provision is important because it assures that lower-wage employees get the same benefits as company managers.
Section 2715 has no independent effective date, and is thus presumably effective as of the date of enactment, but Notice 2011-1 provides that the provision will not be effective until “plan years beginning a specified period after issuance” of regulations or further guidance. The questions raised by the notice for comments suggests that the IRS might be open to an interpretation of the statute that requires only equality of insurance availability as opposed to an equality of benefits test, that equality of benefits might be interpreted very flexibly, or that the availability of tax credits after 2014 might in some way be relevant to the non-discrimination provision.
Notice 2011-2 clarifies and to some extent limits the applicability of ACA section 9014, which caps the deductibility of excessive compensation paid by health insurers to their highest paid employees, while Notice 2011-4 provides for changes in accounting rules for certain insurers who lose the benefit of a tax deduction because they fail to achieve an 85 percent medical loss ratio. Notice 2011-5 liberalizes the rules allowing the use of debit cards to purchase prescribed-over-the-counter drugs from Flexible Spending Accounts and Health Reimbursement Accounts. The ACA only allows the purchase of over-the-counter drugs using these accounts with a prescription. Each of these provisions seems to lessen the burdens imposed on businesses by the ACA.
A Delicate Balance: Reaching Out To Reform Foes And Skeptics Without Alienating Reform Advocates
In sum, recent guidances issued by HHS, DOL and the IRS in general reduce the burdens that the ACA imposes on insurers and employers, delay compliance deadlines, maximize flexibility, and signal openness to additional flexibility. This is certainly understandable—renascent congressional Republicans have signaled their intention to do everything they can do to repeal, defund, and generally undermine the implementation of health reform. The administration needs all the allies it can find to support implementation and has nothing to gain from antagonizing powerful constituencies, many of which are not inclined to be friendly to health reform in any event.
At the same time, the administration can ill afford to alienate its friends at this time either. There is considerable evidence that the Republican midterm victories were as attributable to apathetic Democrats, disillusioned by the performance of the Obama administration, as to energized Republicans convinced that the administration was driving the country toward socialism. Recent polling indicates that a quarter of those who oppose the ACA believe it did not go far enough.
In their eagerness to placate potential enemies of reform, the administration must be careful not to take for granted its strongest supporters. By the same token, reform advocates must continue to diligently follow not just the big regulations announced to great media fanfare, but also the notices and FAQs that slip out quietly, even those that slip out “when not a creature was stirring, not even a mouse.”