The first week of November, 2013, was a very bad week for the health care reform project. Healthcare.gov continues to stumble. Although the Department of Health and Human Services continues to insist in daily briefings that the performance of the website is improving, and that it will be fully operational by the end of November, improvement is frankly not yet visible. Full functionality in time for millions of Americans to enroll in coverage in time for the premium tax credits becoming available on January 1, 2104, looks increasingly unrealistic.
The news of the week, however, focused not only on the website woes, but also on millions of Americans in the individual and small group markets who have received notices that their current coverage is not going to be available in 2014 and that the policies that are available are going to cost them more, and in some instances impose higher cost-sharing obligations. The media have characterized these notices as “cancellation” notices, but in fact in most instances they are not terminating coverage as such, but rather changing the form of coverage that is available. In any event, enrollees receiving these notices are understandably upset and are complaining loudly to the media and to their congressional representatives.
Both HHS Secretary Sebelius and Center for Medicare and Medicaid Services Administrator Tavenner testified before Congressional committees, facing hostile questions (indeed demands for resignation in the case of Sebelius) from Republicans, who have long fought against the legislation, and anxious pleas from Democrats, who have long stood by it. At the end of the week, President Obama, apologized to those whose premiums were increasing, saying, “I’ve assigned my team to see what we can do to close some of the holes and gaps in the law,” and suggesting that there might be some sort of “administrative fix” that could help those whose costs were increasing but who would not be eligible for the premium tax credits.
Analyzing Events In The Individual Market
A steady stream of bills were introduced in Congress over the week as members came up with their own fixes. Congressman Upton’s “Keep Your Health Plan Act of 2013” would allow insurers throughout 2014 to continue to offer outside of the exchanges any policy that they had offered in 2013 without complying with ACA requirements that go into effect in 2014, such as the ban on pre-existing condition clauses, the essential health benefits, or actuarial value tiering. Senator Landrieu’s “Keeping the Affordable Care Act Promise Act” would go further, allowing individuals who had coverage in the nongroup market in 2013 to keep that coverage indefinitely and prohibiting insurers from terminating it unless the insurer left the market altogether. Other proposed legislation would delay the individual responsibility requirement for a year.
It should have been clear from the beginning to anyone who was paying attention that the President’s promise, “If you like your plan, you can keep your plan,” did not apply to plans that people may purchase at any time in the future, but to plans that were in existence at the time the ACA became effective, March 23, 2010. That is what the statute says. Moreover, that is the way grandfather clauses work. New laws generally apply prospectively, and do not change existing arrangements. They do not protect noncompliant practices that are initiated after the law is enacted.
The individual market has always been volatile, and it was known from the beginning that few plans would retain grandfathered status by the time the 2014 reforms went into effect, as I noted in my Health Affairs Blog post on the grandfathered plan regulation in 2010. Moreover, the ACA only provided that the law itself would not terminate grandfathered status; it did not prohibit insurers from terminating grandfathered policies. Apparently, as the number of enrollees in grandfathered plans has steadily diminished, and presumably their risk experience deteriorated, a number of insurers have decided that now is the time to terminate those policies. True grandfathered coverage is thus disappearing.
A bigger problem, however, is that individual coverage is simply becoming more expensive, at least in many markets for many insureds. This is in part, no doubt, due to coverage improving. Existing plans in the individual market often have very high deductibles and out-of-pocket limits that are no longer legal under the ACA. They have also historically often excluded benefits such as maternity or mental health coverage, now required as essential health benefits. In some extreme cases, very cheap plans excluded hospital coverage. Of course, if individuals are satisfied with high deductible plans, it may be difficult to convince them that a lower deductible plan is in their own interest (or that it may protect others from having to pay for their care if they cannot ultimately afford cost sharing that they incur). Convincing older individuals that they need maternity coverage is an even harder sell.
But a larger share of the premium increase is likely not attributable to changes in coverage but rather to the changing nature of the risk pool. Insurers in the individual market have traditionally been able to underwrite based on health status, age, gender, or virtually any other factor they may consider relevant to risk. After January 1, 2014, they may only consider age (with a 3 to 1 variation), tobacco use, geographic area, and family size. Individuals who have long been denied coverage or charged very high premiums because of their medical condition will have access to coverage at standard rates. But individuals who have benefited in the past from low premiums attributable to their age, health, or gender will inevitably see higher premiums. Moreover, since insurers are undoubtedly projecting that more unhealthy than healthy individuals will enter the market, this is not simply a zero-sum game. Premiums are going up across the market.
This is the inevitable result of moving from health status underwriting to modified community rating with guaranteed issue and no pre-existing condition exclusions. It was clear from the beginning that this would happen. But it was hoped that the individual responsibility requirement and the availability of premium tax credits (plus the reinsurance, risk adjustment, and risk corridor programs) would stabilize the risk pool and make insurance affordable for all. The biggest problem right now is that healthcare.gov is not working, so that individuals who will be helped by the premium tax credits cannot see what they will really be paying. But it also seems that insurers have set their rates based on projections that the 2014 risk pool is going to be pretty expensive, and that state regulators have allowed them to do so.
In any event, the proposed solutions may simply make matters worse. Allowing insurers to offer or to continue 2013 coverage into 2014 (or worse, indefinitely) will simply segment the risk pool, making 2014 coverage even less affordable to those who have been excluded from coverage or would be excluded under 2013 underwriting rules. Of course, many insurers have already extended 2013 policies into 2014, increasing 2014 premiums, but the Upton and Landrieu legislation would simply make matters worse. Moreover, insurers have already set their 2014 rates. If they were allowed (or required) to continue 2013 coverage, they would have to recalculate their 2014 rates, and then have these rates approved by state insurance departments. This is not a simple matter and would greatly add to the cost of exchange coverage and federal subsidies.
I cannot imagine what, if any, administrative fix the President has in mind. The administration cannot simply dole out money to individuals who are seeing premium increases but who do not qualify for premium tax credits (unless there is a special FEMA fund that covers this sort of political emergency). We have already seen the administration delay enforcement of a number of ACA requirements, most notably the employer responsibility penalty. Perhaps the administration could delay enforcement of the essential health benefits requirement or the ACA cost-sharing limits to reduce the cost of coverage, but insurers would again have to redo their 2014 forms and rates, and the states would have to approve them.
Allowing insurers to continue to underwrite based on health status for 2014 could bring down premiums for some, but would turn the exchanges into high risk pools, dramatically driving up 2015 rates and possibly causing insolvencies among the CO-OP plans and other 2014 new entrants. Even delaying the enforcement of the individual responsibility requirement beyond March 31 (which is already a month and a half delay) or open enrollment beyond that date would have serious consequences for the risk pool and insurers.
In sum, HHS needs to get healthcare.gov working and enroll as many people as it can as quickly as it can. In the long run, more Americans will benefit from the reforms than will be hurt by them. But, as has been noted, those who are being hurt the most are often individuals who were already ideologically opposed to the law, and all of their beliefs are being confirmed. And moderate Democrats running in red states have every reason to fear the anger of these individuals.
A forgotten group. It must also be remembered that the biggest losers as 2014 approaches are low-income individuals in states that have refused to expand Medicaid. Millions of Americans with incomes below the poverty level in these states are not simply facing increased premiums, but being denied coverage altogether. But no one in Congress, or in the affected states, seems to be scrambling to fix this truly urgent problem.
Mental Health And Substance Abuse Parity
In the midst of this turmoil, HHS together with the Departments of Labor and Treasury, released on November 8, 2013, final rules implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). The agencies released with the rule a set of Frequently Asked Questions, as well as a study of large employer compliance with the law.
Congress adopted the original Mental Health Parity Act (MHPA) in 1996, prohibiting large group health plans that offered mental health benefits from imposing higher aggregate lifetime or annual dollar limits on mental health benefits than on medical/surgical benefits. The MHPAEA, adopted in 2008, strengthened parity protections; it extended parity protections to substance-use disorder benefits and provided that financial requirements (such as copayments or coinsurance) and treatment limitations (such as visit limits) that group health plans impose on mental health and substance-use disorder benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that the plans apply to substantially all medical/surgical benefits.
The Affordable Care Act extended these parity requirements to the individual and small group markets. Indeed, the ACA required non-grandfathered health plans in the individual and small group market to cover mental and substance-use disorder benefits as essential health benefits and applied mental health parity requirements to qualified health plans. The ACA also made other changes that affected the parity requirements, such as eliminating annual and lifetime dollar limits for essential health benefits generally, including mental health and substance use disorder benefits, and requiring coverage of preventive services.
The three agencies published interim final regulations implementing the MHPAEA in February of 2010, effective July 2010. The Departments have also issued a series of frequently asked questions clarifying the interim final rules. The final rule adopts these interim final rules and clarifications with some further changes and extends and modifies their coverage as required by the ACA. It is effective July 1. 2014.
What the final rules say. The final rules define mental health and substance-use disorder benefits as benefits with respect to items and services for mental health conditions or substance use disorders as defined by the terms of the plan in accordance with federal and state law and classified consistently with general recognized standards for current medical practice. The basic rule is that where plans or issuers offer mental health or substance use disorder benefits in one of six classifications, they cannot impose financial requirements or quantitative treatment limitations on those benefits that are more restrictive than the predominant requirements or limitations that apply to substantially all medical surgical benefits in the same classification. The six classifications are in-network inpatient, out-of-network inpatient, in-network outpatient, out-of-network outpatient; emergency care, and prescription drugs. Plans or issuers are required to perform the parity analysis annually in years when a change in benefit design, cost-sharing structure, or utilization affects the analysis within a classification.
A financial requirement or quantitative treatment limitation is considered to apply to “substantially all” medical/surgical benefits if it applies to at least two-thirds of the medical/surgical benefits in a classification. A type of financial requirement or quantitative treatment limitation is considered “predominant” if it applies to more than one half of the medical/surgical benefits in a classification that are subject to the requirement or limitation. For example, if two thirds of the medical surgical benefits in a classification were subject to a coinsurance obligation, and more than half were subject to a coinsurance obligation of 30 percent, mental health benefits could be subject to a coinsurance obligation, but it could not exceed 30 percent.
Where different financial requirements or treatment limitations apply within a classification, plans may combine levels until the combination of levels applies to more than one half of the medical/surgical benefits subject to the requirement or limitation, and apply this requirement or limitation to mental health benefits. The portion of medical/surgical benefits subject to a financial requirement or quantitative treatment limitation is based on dollar amounts for plan payments for the benefits expected to be paid under the plan, before enrollee cost-sharing requirements are applied. So, for example, if 20 percent of payments for medical/surgical services were for services in a classification with a 10 percent coinsurance level, 40 percent for services with a 15 percent coinsurance level, and 40 percent for services with a 20 percent coinsurance level, the plan or issuer could apply a 15 percent coinsurance level to mental health and substance abuse disorder services. If plans offer coverage through separate insurers for mental health or substance use disorders on the one hand and medical/surgical services on the other, parity calculations must apply to combined coverage as a whole.
Outpatient benefits can be further sub-classified as office visits and all other outpatient items and services, but other sub-classifications, such as separate categories for generalists and specialists, are not permitted for parity analysis. Where plans or insurers have tiered networks in which different levels of financial requirements or treatment limitations apply to different tiers of providers, the parity analysis may also be applied within each tier as a sub-classification, as long as the tiering is based on reasonable factors and without considering whether a provider is a mental health/substance use disorder provider or medical/surgical provider.
Cumulative financial requirements, such as deductible requirements or out-of-pocket limits, and cumulative treatment limits (such as annual or lifetime visit limits) cannot be applied separately to mental health and substance use disorder and medical/surgical benefits. The large employer compliance study found that in fact virtually all large employers have eliminated separate mental health and substance abuse disorder deductibles in compliance with the law.
The 1996 MPHA prohibited plans and issuers from imposing annual and lifetime dollar limits on mental health benefits that were not imposed on medical/surgical benefits. The ACA eliminates lifetime dollar limits and, as of 2014, annual dollar limits on all essential health benefit items and services. The final rule continues to include dollar limit parity requirements, but these now only apply to mental health and substance abuse disorder services that are not essential health benefits, which will be a limited set of services.
The ACA does not require large group plans to provide mental health services. It does, however, require all plans and issuers to provide specific preventive mental health services, which include certain mental health or substance use disorder services, including alcohol misuse screening and counseling, depression counseling, and tobacco use screening. The final rule clarifies that large groups that cover these preventive services are not thereby considered to cover mental health services and required to cover the entire range of mental health and substance use disorder services.
The MHPAEA prohibits plans and issuers from imposing nonquantitative treatment limitations, “with respect to mental health or substance use disorder benefits in any classification unless, under the terms of the plan as written and in operation, any processes, strategies, evidentiary standards, or other factors used in applying the NQTL to mental health or substance use disorder benefits in the classification are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, or other factors used in applying the limitation with respect to medical/surgical benefits in the same classification.” The final rule includes a nonexhaustive list of NQTLs, including:
- Medical management standards based on medical necessity or medical appropriateness, or based on whether the treatment is experimental or investigative;
- Prescription drug formularies;
- Network tiers;
- Standards for provider admission to participate in a network, including reimbursement rates;
- Plan methods for determining usual, customary, and reasonable charges;
- Step therapy protocols;
- Exclusions based on failure to complete a course of treatment; and
- Restrictions based on geographic location, facility type, or provider specialty.
Plans and issuers must disclose medical necessity criteria to plan enrollees and contracting providers and must provide on request the reason for any denial based on medical necessity. Disclosure may also be required under ERISA or the ACA.
The final rule removes a provision from the interim final rules that authorized the application of NQTLs specific to mental health or substance use disorder treatments based on “recognized clinically appropriate standards of care.” Plans and insurers can still, of course, consider clinically appropriate standards of care, but must apply them to mental health and substance use services comparably and no more stringently than they are applied to medical/surgical services. Disparate results, however, do not alone mean that NQTLs are being applied improperly.
A difficult issue addressed by the final rules is whether plans and issuers must cover the full range of mental health and substance use disorder services within a classification or only services that are comparable to covered medical/surgical services. This is a particular issue for “intermediate services” such as residential treatment, partial hospitalization, or intensive outpatient services. The final regulation does not require coverage for these services, but if plans and issuers cover similar medical/surgical services such as rehabilitation or home health services, they may also be required to cover intermediate services.
The MHPAEA does not cover small employers. For ERISA plans and other plans regulated by Labor and Treasury, this means employers with 50 or fewer employees. For non-Federal governmental plans regulated by HHS, small employer is defined as an employer with 100 or fewer employees. The MHPAEA does not require large employers to offer mental health or substance abuse services. Indeed, it does not require plans and insurers that do provide such services to cover all mental health conditions or substance abuse disorders.
Under the ACA, however, non-grandfathered small group plans are subject to the MHPAEA and must cover mental health and substance use disorder benefits to the extent these benefits are required under the benchmark essential health benefits plan. Under the ACA and amendments to the MHPAEA, moreover, grandfathered and non-grandfathered individual plans must comply with the MHPAEA. The MHPAEA does not apply directly to Medicaid and CHIP managed care plans, but its principles apply to these plans through separate regulations. The law does not apply to retiree-only plans.
Under the MHPAEA, plans and health insurers that experience a cost increase of more than 2 percent the first year and one percent in subsequent years are excused from compliance for years beginning after July 1, 2014. This exemption may only be claimed every other year, since in years that plans are excused from compliance their compliance costs should not increase. The final rule sets out a formula and procedure for calculating increased costs. Plans that claim this exemption must give notice to their enrollees, the applicable federal department, and appropriate state regulators, and must on request make available to their enrollees at no charge a summary of the information on which the exemption is based.
State insurance laws regulating mental health and substance abuse coverage are only preempted by the MHPAEA to the extent that state laws prevent the federal law’s application. If state laws require mental health or substance abuse disorder services, those services must be provided in compliance with the federal law.
Finally, the final rule contains a technical correction clarifying the scope of the federal external review process.
Large employer compliance. The large employer study published with the rule found that most large employers have come into compliance with parity requirements with respect to inpatient, emergency, and prescription coverage. However, as late as 2011, a significant number of plans still required larger copayment or coinsurance rates for mental health services. The study also found that a very small percentage of employers — fewer than 2 percent — dropped mental health coverage in the wake of the MHPAEA. Small group coverage is estimated at 95 percent.
The preface to the rule, however, notes that currently about one third of individual policies do not cover substance abuse disorder services and nearly 20 percent have no mental health coverage. These plans will have to change for 2014. The MHPAEA should however, reduce out-of-pocket expenditures in the individual market, from 47 to 26 percent of mental health and substance use disorder costs. Even so, CMS estimates that implementation of the MHPAEA will expand health care costs only by 0.6 percent.
Finally, there have been a number of Paperwork Reduction Act notices published in recent days as HHS puts in place various forms and reporting requirements. These include program integrity reporting requirements , qualified health plan reporting requirements, and marketplace enrollee satisfaction survey forms. The satisfaction survey forms are available in Chinese, English, and Spanish.