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Implementing Health Reform: Informing Consumers



August 18th, 2011
by Timothy Jost

One of the most important innovations of the Affordable Care Act (ACA) is that it dramatically increases and improves the information that consumers have available about health insurance and health care.  HHS has already implemented provisions of the ACA requiring insurers to disclose information regarding their medical loss ratios and to publicly justify unreasonable rate increases. 

A plethora of information about health plans is now available at healthcare.gov. The Medicare program continues to provide more information about health care quality.  Once the exchanges are in place in 2014, they will provide even more information about qualified health plans to facilitate informed shopping for health insurance and to increase competition.

On August 17, the Departments of Health and Human Services, Labor, and Treasury released two sets of proposed regulations (NPRMs) — here and here – that will, once implemented next year, dramatically expand the information available to consumers shopping for health insurance and increase the utility of that information.

These NPRMs will implement the provisions  of section 2715 of the Public Health Services Act (added by section 1001 of the ACA) requiring HHS to develop standards for use by a group health plan and a health insurance issuer offering group or individual health insurance coverage, in compiling and providing to applicants, enrollees, and policyholders or certificate holders a summary of benefits and coverage (SBC) explanation that accurately describes the benefits and coverage under the applicable plan or coverage.

Section 2715 also requires HHS to develop standard definitions of insurance and medical terms used in defining health insurance coverage.  Some of these terms, such as “co-insurance,” “co-payment.” “durable medical equipment,” or “emergency medical transportation” are listed in the statute.

Section 2715 called upon HHS to consult with the NAIC and a working group of stakeholders to devise the SBC.  In fulfillment of this mandate, the NAIC convened a Consumer Information Subgroup,  which met for well over one hundred hours between June of 2010 and July of 2011. The group painstakingly crafted a draft of the SBC, instructions for completing the SBC for both individual and group plans, the glossary of insurance terms required by the section, and three “coverage examples,” referred to as “coverage facts labels” in the ACA. 

The coverage examples provide concrete illustrations of  the costs that would be covered and those that would not be by the insurance plan if the insured contracted a common medical condition.  The NPRMs provide for up to six such examples, but the three worked up by the NAIC included the birth of a child, breast cancer, and diabetes.  The consumer can, using these examples, see clearly how comprehensively a particular insurance plan would cover particular conditions that the consumer might encounter.

When The Summary Of Benefits And Coverage Must Be Provided

Section 2715 clearly states that the SBC must be made available by individual plans and by insured and self-insured group plans, including grandfathered plans.  Insurers had argued that large group plans should be exempted because plans tend to be custom made for specific employers and compiling an SBC for each plan would be too burdensome.  But the insurers obviously have the information needed to fill out the form in the contract, and in the age of computers populating a form is not that big a deal.  They are not setting type. 

The ACA makes no exception for large group plans, and the NPRMs apply to them (although it requests comments as to whether large group plans should be exempted from the rule).  The NPRMs also apply somewhat different rules to group and individual plans, and the NPRMs ask for comments on whether rules should differ further for different markets.

Under section 2715, plans must provide the SBC not later than 24 months after the adoption of the ACA, that is by March 23, 2012.  The regulation was supposed to be out in March of 2011, however, and recognizing that the rule is five months late, the NPRMs ask for comments on whether the effective date should be delayed as well, or perhaps phased in.

Section 2715 requires that the SBC must be four pages long.  The NAIC began with a four page form, but then added two pages for the coverage examples.  The NPRMs take the creative approach of interpreting the statute to mean four double-sided pages, which leaves two more pages for additional explanations.  (I just hope my students never figure out this approach to page limits).  

Within these pages, however, the SBC packs a lot of information—descriptions of premiums, cost-sharing, in- and out-of-network coverage, limitations and exclusions.  The SBC not only provides information, but also explains why particular provisions matter.  The NAIC committee spent hours patiently debating how to define the terms in the four page glossary accurately and plainly, and did an admirable job.   The form was consumer-tested by both Consumers Union and America’s Health Insurance Plans (AHIP) and actually makes health insurance comprehensible.

The Functions Of The Summary Of Benefits And Coverage

The SBC could serve three purposes.  First, it should allow individuals to comparison shop to find the plan best suited to their needs and pocketbooks.  With all insurance carriers using the identical format to describe each of their plans and benefit packages, consumers should be able to select a limited number, line them up page by page, and easily compare the advantages and disadvantages of each plan.  The SBC could function much like nutrition labels on foods, which allow consumers to look for the low-calorie or low-sodium options, or like a Consumer Report buying guide.

Second, the SBC should give consumers who decide to purchase a particular plan a much better idea as to what they have in fact purchased than they might have in the current market.  No longer will consumers have to dig through pages of fine print to figure out what they are actually buying.  Third, the SBC should give consumers who purchase a plan a reference point to return to once the need for coverage arises to determine the extent of their actual coverage.

The NPRMs serve each of these purposes imperfectly.  Group health plans or insurers must provide an SBC to plan participants for each benefit package for which the participant is eligible as part of the plan’s initial or special enrollment package.  This should facilitate choice for employees of employers who offer multiple benefit packages.  Upon renewal, however, plans or insurers need only provide the SBC that describes the package in which the participant is enrolled unless SBCs on additional plans are requested, making plan switching less likely. 

Insurers in the individual market must provide SBCs regarding particular policies on request, either on paper or electronically.  Insurers can meet this requirement, however, by posting the information required by healthcare.gov, which uses a similar but less comprehensive format for comparing information.  Beginning in 2014, the ACA requires the exchanges to provide comparative plan information using the SBC format.  Unless HHS upgrades the healthcare.gov requirements in the meantime, however, the full comparative information provided by the SBC will not be available for comparison shopping in the individual market for some time.

Health insurers must provide an applicant for a particular plan with the SBC that describes that plan. The SBC will not replace the ERISA requirement that ERISA plans provide a  “summary plan description” or SPD, but the SBC should prove much more consumer-friendly.   The NPRMs also include some common sense rules for group plans.  Only one SBC is required per address for insured families.  An employer does not need to provide an SBC to plan members if its insurer does so.

Although section 2715 does not include the premium as an element that must be disclosed in the SBC, it is obviously not possible to compare the value of alternative plans without knowing how much they cost, and the NPRMs include the premium (or cost of coverage for self-insured plans) as a required element.  Employers must also inform employees as to their share of the premium.  As long as health insurance is underwritten based on health status, the premium for individual and small group policies will continue only to be an estimate prior to the final processing of the application, but after 2014 insurers should be able to give an accurate projection of the cost of a particular plan.

Section 2715 states that insurers and group plans must provide an SBC that “accurately describes” a plan’s coverage, but it also requires the SBC to disclose that it is only “a summary of the policy or certificate and that the coverage document itself should be consulted to determine the governing contractual provisions.”  The form included in the NPRMs warns the consumer clearly that the SBC is not the insurance policy.  Consumers will no doubt understand that no health insurance policy could be four pages long, and that there must be some fine print that will limit their coverage somewhere, but some will certainly be disappointed when that fine print is used against them.

The NPRMs do not prohibit insurers from changing the terms of a plan if they are otherwise legally entitled to do so.  The plan must, however, give the enrollee 60 days notice before any “material modifications” in the plan can be made, a vast improvement over the current ERISA regulation, which permits notice to be given up to 210 days after a plan modification in some instances.

A Restrictive Approach On Requiring The SBC In Languages Other Than English

The statute requires the SBC to be presented in a “culturally and linguistically appropriate manner.”  The NPRMs, following the recently amended appeals rule, interpret this provision very restrictively.  As long as the language you speak is English or, in some parts of the United States, Spanish (or if you are a Filipino fish canner in the Aleutian Islands), you will be fine.  If you speak any other language, you will just need to learn English to read your health insurance policy.  It would seem that insurers ought to at least provide the SBC in any language in which they market their policies.  Because the language of the SBC is standardized, providing translations in common languages should not be that burdensome.

The NPRMs preempt any state law that requires less disclosure than it does.  State laws that require more information are not preempted.  Although this preemption rule preserves state consumer protections, it could undermine the ACA’s attempt to arrive at a common form for all insurers and plans to use throughout the United States.

Finally, the NPRMs specify the sanctions that apply to insurers or plans that fail to provide the SBC when required.  These vary depending on which department is enforcing the requirement, but can be as high as $1,000 per violation for willful violations under the Public Health Services Act or $100 per person per day if Treasury enforces the regulation.

Benefits And Costs Of The Proposed New Requirements

Section 2715 was intended to change the way in which health insurance is sold in the United States.  Insurers and employers are already complaining that the cost of this change will be high.  The departments estimate that compliance might cost as much as $50 million a year. 

But implementation also brings substantial benefits in terms of enhancing consumer choice and maximizing the value that consumers gain from their health insurance.  When the provision is at last fully implemented by the exchanges, it will also improve competition, bringing down cost.  This is a major step forward for American health insurance consumers.  The NPRMs could be improved, but it is most important that they not be weakened in response to what is likely to be considerable pressure from the insurance industry.

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