The time is quickly approaching when health insurers must file the rates and forms they will need to put in place for 2014.  The Department of Health and Human Services is rapidly releasing the final rules that insurers will need to determine the coverage and price of those plans, and that the states and exchanges will need to approve or disapprove them.  On February 22, 2013, HHS released the final market reform regulations, which establish the ground rules under which insurers will market their products in the reformed health insurance market.  (The fact sheet is here.)

Whereas health insurance underwriting in the individual and small group market is currently based heavily on health status and gender, health insurers in the reformed market will only be able to consider age, tobacco use, geographic area, and family unit size in setting premiums for individual insureds and small groups.  Insurers will also have to guarantee the availability and renewability of coverage.  Proposed rules implementing these reforms were published on November 26, 2012 and were covered by this blog.  This post discusses the final version of these rules.

On February 22, 2014, the Department of Labor also issued interim final regulations on procedures for addressing complaints by employees that they have suffered retaliation from their employers because they reported violations of the ACA’s consumer protections, or because they have received advance premium tax credits. (See the press release here.)

Affordability.  The proposed market reform rules  launched a heated debate about “rate shock,” with an Oliver Wyman study claiming that rates for young participants in the individual market would increase 45 percent, and a survey of insurers conducted by the conservative American Action Forum claiming that rates could go up for young, healthy individuals by 189 percent.  Other analysts noted, however, that although premiums for some young and healthy individuals were likely to go up, “rate shock” claims ignored many of the features of the ACA that make insurance more affordable — including premium tax credits and Medicaid, and the availability of catastrophic coverage to young individuals, as well as the fact that the coverage available under the ACA would be more valuable than that which covers many Americans in the individual market today.

The final rules acknowledge that insurance premiums will increase for some, but note that they will also decrease for others.  Moreover, millions of Americans currently excluded from health insurance by the cost or by health status underwriting will gain access to health insurance, while many insured Americans will receive more comprehensive coverage with lower cost sharing.

Tracking the proposed rule on age rating and rate review.  Although HHS received approximately 500 comment letters on the proposed rule, the final rule by and large reaffirms HHS’s earlier proposals.  Indeed, arguably the most striking thing about the final rule is that it does not bend on some issues where there had been tremendous push back from insurers, such as 1:3 maximum premium spread for age rating (which is, after all, statutory) or the requirement that insurers submit all rate increases to HHS and not just “unreasonable” rate increases.  But the final rule does in fact make some important modifications in the proposed rule, as well as clarifying some issues that had been left open.

The ACA provides that the only rating factors that can be used to vary premium rates in the individual and small group market are 1) family size; 2) geographic rating area; 3) age (within a 3:1 ratio for adults); and 4) tobacco use (up to 1.5:1).  As noted, HHS has concluded that it has no discretion to vary or delay the application of these requirements.

Except in states with community rating, premiums for each family will be determined by adding the rate for each covered family member over 21 and for the oldest three covered children under age 21.  Premiums will be adjusted for each family member for age and tobacco use. States with community rating that do not allow rating based on age or tobacco use, however, may use standard family tiers (couple, couple with one child, etc.) for rating.  States will have the discretion to define family composition, including, for example, same or opposite sex domestic partners or grandchildren under the care of grandparents.

Small-group rates are also calculated for employee and dependent coverage on a per-member basis, taking into account, again, age and tobacco use.  States may require, however, that insurers charge premiums based on the average amount for each employee, and employers have flexibility as to how to allocate employer contributions.

Geographic rating areas.  The final rule liberalizes requirements for geographic rating areas.  The proposed rule had limited states to no more than seven rating areas based on counties, three-digit zip codes, or metropolitan statistical areas unless HHS permitted a different actuarially justified approach.  The final rule expands state discretion, continuing to require rating areas to be based on counties, three-digit zip codes, or MSAs, but permitting states to use geographic rating areas legally established by January 1, 2013, or after January 1, 2013, as long as the number of rating areas does not exceeding the number of MSAs in the state plus one. States may still establish more geographic rating areas with HHS approval.

States may establish different geographic rating areas for the individual and small-group markets, but rating areas may not vary by insurance product (such as PPOs or HMOs).  The regulation does not require geographic rating areas to align with plan service areas, but the states are encouraged to align the two to promote competition and avoid cherry picking.  If a state fails to establish rating areas, HHS will designate one rating area for each MSA in the state plus one rating area for all non-MSA portions of the state.

The final rule recognizes for all states and markets a single age band for children 0 to 20, one-year age bands for adults 21 through 64, and a single age band for adults 64 and older.  Requests to raise (to 26) or lower (to 19) the threshold for adult age rating were rejected, as were requests for a separate age band for newborns. Age will be determined only once a year, at the time of policy issuance or renewal.  States may adopt their own age rating curve, but for states that fail to do so HHS will adopt the default rating curve found in the proposed rule and a rating factor of .635 for children.

Tobacco use. The final rule offers important clarifications as to how tobacco rating will be handled.  Consumer advocates (and the tobacco industry) have noted that the 1.5:1 rating provision may leave many tobacco users without access to affordable insurance.  The rule attempts to offset the impact of tobacco rating by requiring small-group plans to offer tobacco cessation wellness-program discounts to reduce the tobacco surcharge.  Since wellness programs do not yet exist in the individual market, this does not help individuals.

The final rule defines “tobacco use” as the use of any tobacco product (including, presumably, smokeless tobacco) four or more times a week on average (other than for religious or ceremonial purposes) within the last six months.  States can enact more consumer protective definitions or look-back periods, or reduce or eliminate the tobacco surcharge altogether.  Insurers cannot rescind or deny coverage based on misrepresentations of tobacco use, but can recoup premiums that should have been paid based on tobacco rating since the beginning of the policy year.  The tobacco surcharge does not apply to persons under 18 years of age, since they cannot legally use tobacco.

States who wish to establish age or tobacco rating bands more protective than the federal requirements, their own geographic rating areas or age rating curves, family tiers and multipliers (for states with community rating), or requirements that premiums be based on average enrollee rates, or to merge their individual and small-group risk pools, must report these decision to HHS within 30 days of the publication of the final rule.

The ACA guarantees the availability of insurance coverage.  That is to say, it requires insurers to accept any individual or employer that applies for coverage through a product approved for sale in the applicable market.  The final rule interprets this provision to require insurers to accept any applicant for otherwise “closed” blocks of business, but does not require insurers to actively market closed blocks.  The proposed rule would have allowed insurers to impose minimum contribution or participation requirements on small-group employers.  The final rule, however, does not permit this, in part out of a concern that larger small employers might be subject to an employer responsibility penalty if they cannot get coverage for their employees.  The final rule does, however, permit insurers to limit small groups that do not meet minimum participation or coverage requirements to a one month open enrollment period annually between November 15 and December 15.

Adverse selection. The final rule does not otherwise adopt strategies for combating adverse selection, nor does it limit the ability of individuals to purchase insurance after having previously been terminated for nonpayment, but it does promise future guidance on permissible approaches to these problems.  The final rule clarifies that guaranteed availability prohibits insurers from employing marketing practices or benefit designs that discriminate against or discourage applications by applicants or enrollees with high cost health needs.

Open enrollment periods. The ACA authorizes HHS to prescribe open enrollment periods both in and outside of the exchange in the individual market.  The final rule requires an annual, end of the year, open enrollment period, but does recognize a one-time 30-day special enrollment period for 2014 for individuals whose policy years are not on a calendar year basis.  States are permitted to establish more frequent open enrollment periods.

Individuals can also enroll in coverage if they experience one of the “qualifying events” that would qualify them for COBRA coverage (such as loss of group coverage due to the death or termination of an employee).  HHS also exercises its regulatory discretion to establish open enrollment periods to recognize a number of “limited open enrollment periods,” which are equivalent to the special enrollment periods recognized in the exchange rule.  Limited open enrollment periods of 60 days can be triggered by an individual’s loss of minimum essential coverage; an individual gaining or becoming a dependent through marriage, birth, adoption, or placement for adoption; errors in enrollment; violation of a material provision of the insurance contract by the insurer; eligibility or ineligibility for premium tax credits or changes in eligibility for cost-sharing reductions; or an individual’s permanent move.  Insurers need not inform enrollees of their right to a special enrollment period.

The ACA also guarantees the renewability of coverage in the individual or group market, subject to certain exceptions such as for nonpayment of premiums or the enrollee moving out of the area.  The final rule addresses a number of situations in which insurers might be able to refuse renewal, including loss of eligibility for a particular form of coverage (such as catastrophic coverage) or exit of the insurer from a particular market, such as group coverage.

The final rule recognizes that the states are primarily responsible for enforcing the market reforms; HHS only will step in if a state advises HHS that it does not have authority to enforce, or substantially fails to enforce, a provision.  The preamble further notes, however, that “our approach to implementation is marked by an emphasis on assisting (rather than imposing penalties on) issuers and others that are working diligently and in good faith to understand and comply with the law.”  One hopes that insurers do not read this as a signal that HHS lacks the willingness and capacity to enforce the law where there is a lack of diligence and good faith.

Rate review. The final rule contains a number of provisions regarding rate review.  As noted earlier, the provision of the proposed rule requiring insurers to submit to HHS all rate increase proposals, and not just those that exceed a “reasonableness” threshold, is made final.  All rate increases will be submitted to HHS using a common “unified rate review” template, although states are not required to use this template.

HHS will continue to defer to states with an “effective rate review program.”  The final rule modifies the requirements that a state must meet in order to demonstrate that it has an effective rate review program to include taking into account the effects of changes brought about by the 2014 reforms.

Risk pools.  Beginning in 2014, insurers must, for purposes of developing rates and premiums, consider all individual enrollees to be part of a single individual risk pool and all small-group enrollees to be part of a single small-group risk pool, except in states that choose to merge the risk pools where all enrollees will be part of a single merged risk pool.  Insurers must develop a market-wide index rate, which they must adjust market-wide for risk-adjustment and reinsurance payments and charges.

The single risk pool is maintained at the state-licensed insurer, not holding company, level.  Premiums can only vary for any given plan offered by an insurer because of the plan’s actuarial value, cost-sharing structure, provider network, delivery system characteristics, utilization management practices, and benefits in addition to the essential health benefits, or because of the expected impact of specific eligibility categories on catastrophic plans.

Exchange user fees will be pooled market wide and thus be borne by plans inside and outside of the exchange.  Insurers may make actuarially justified adjustments to the index rate at the plan level, however, to account for distribution (marketing) and administrative costs.  Plan-specific adjustments may not be made for health status or induced demand.

Student health plans are not subject to the single risk pool requirement.  Premiums for student health coverage can be set on a school-specific group community rate, and can be offered without rating for age and tobacco use.  The special and open enrollment period requirements of the ACA do not apply to student health plans.

Catastrophic plans.  Under the ACA, catastrophic plans are available to individuals who are certified by the exchange as exempt from the individual responsibility requirement because they cannot afford coverage, or who are under 30 at the beginning of the plan year.  This is true of catastrophic coverage offered both inside and outside of the exchange.  Catastrophic plans must cover at least three primary care visits in addition to the preventive services that all plans, including catastrophic plans, are required to cover.

Association health plans and MEWAs.  Coverage through association health plans or multiple employer welfare arrangements (MEWAs) has been used by insurers in some states to avoid guaranteed issue and community rating requirements.  The final rule adopts unchanged a proposal that for purposes of the ACA reforms, association coverage that is not offered in relationship to employment is individual coverage while association coverage offered to employee groups is group coverage.  The final rule also does not exempt bona fide association plans from the guaranteed availability requirements.  Insurers who sell insurance through associations cannot limit enrollment to association members, although they can limit renewability to association members and may be able to limit enrollment for some products based on limited network capacity.

The final rule reserves the application of the market reforms to expatriate plans for further guidance.  States may continue their high-risk pools after the end of 2013, although enrollees in those pools will be guaranteed availability for any other form of coverage they may desire.

Protecting Complaining Employees Against Retaliation

On February 22, as mentioned above, the Labor Department also published interim final regulations. These rules provide protections for employees — of health insurers and other employers — who may have been subject to retaliation for 1) reporting violations of the ACA’s consumer protections, or cooperating in the investigation or prosecution of such violations, or 2) receiving premium tax credits, thereby exposing their employer to liability for failing to provide adequate and affordable health coverage.  The rule includes procedures and time frames for employees to make complaints to the Occupational Safety and Health Administration (OSHA) and for investigations by OSHA, appeals of OSHA determinations to an administrative law judge (ALJ), review of ALJ decisions by the Administrative Review Board (ARB) (acting on behalf of the Secretary of Labor), and judicial review of the Secretary’s final decision.

The ACA provides that employees of employers who fail to provide health coverage to their employees, or who provide inadequate or unaffordable coverage, may apply for premium tax credits and cost-sharing reduction payments.  Large employers whose employees take this course of action are subject to penalties.  This may in turn cause the employer to retaliate against the employee.

Employers (including insurers) may also retaliate against employees who complain to the employer or to the state or federal governments alleging that the employer has violated the ACA’s consumer protections, who testify at or otherwise cooperate in proceedings against the employer, or who refuse to take illegal action required by the employer.  The ACA provides that such retaliation is a violation of the Fair Labor Standards Act.  This provision has been in effect since the enactment of the ACA, but its importance will be enhanced when the employer responsibility provisions come into effect in 2014.

Employees (including former employees and employment applicants) who believe themselves to be subject to retaliation must make a complaint to the Department of Labor within 180 days of the alleged retaliation.  The statute is enforced by OSHA, which generally handles retaliation complaints for the DOL.  OSHA will give the employer notice of the complaint and conduct an investigation.  If OSHA finds reasonable cause to conclude that retaliation has occurred, it may serve the employer with an order to reinstate the complainant in his or her former position with back pay, and also to pay the complainant compensatory damages as well as the cost and expenses of the proceeding, including reasonable expert witness and attorney’s fees. Where reinstatement is inadvisable, the employer can be ordered to pay the employee without reinstatement.

A party dissatisfied with the results of the investigation can seek a hearing before an administrative law judge (at which point any preliminary remedy is stayed except for reinstatement), followed by review by the ARB and ultimately, if the parties pursue it, judicial review.  A prevailing employer can seek reasonable attorney’s fee, not exceeding $1,000, if the DOL finds the complaint was brought frivolously or in bad faith.

Other ACA-Related Actions  

In other actions during February 21 and 22, 2013, HHS released a report on federal and state innovations in the Medicaid and CHIP programs and announced the award of $300 million in state innovation grants.  HHS also released further guidance and aids to assist the states in translating their Medicaid and CHIP eligibility requirements to a modified adjusted gross income (MAGI) basis.  Finally, HHS published a report documenting a slowing of premium increases in the individual market since the implementation of the ACA’s rate review requirements.