On May 16, 2014, the Centers for Medicare and Medicaid Services released a final rule on Exchange and Insurance Market Standards for 2015 and beyond. The rule was accompanied by a fact sheet and a set of Frequently Asked Questions.

This is a lengthy rule, running to over 400 pages including the preface. This is remarkable, given that the notice of proposed rulemaking on which it is based was published less than two months ago, in mid-March. I blogged about it here. The rapid turnaround on this rule indicates the urgency CMS has felt to lay down the rules that insurers must play by for 2015, as they are even now deciding whether or not to offer coverage through the exchanges and establishing their rates for 2015.

The rule not only establishes exchange and insurance market rules for 2015, however; it also addresses a range of issues that had been left unresolved by earlier rulemaking. Some of these are very technical, but others are quite important.

This post will address five of the most important and controversial issues addressed by the final rule: the regulation of navigators; changes in the premium stabilization programs; the regulation of fixed-indemnity plans; provisions for state regulators to veto employee choice in the SHOP exchange for 2015; and procedures for enrollees to obtain an exception to formulary restrictions in exigent situations. A subsequent post will analyze the remaining issues addressed by the rule. The second post will also discuss the FAQ and guidance released by the IRS on May 16.

One other authority released on May 16, 2014, is also worth noting. Some commentators have claimed that an employer can, in lieu of establishing a group health plan for its employees, simply pay for individual coverage for its employees in the exchange or in the outside individual market with pre-tax dollars. An IRS FAQ notes that this cannot be done with pre-tax dollars, however, as such an arrangement would be considered a group health plan that does not comply with the ACA. The FAQ specifically observes that an employer who offers such an arrangement is subject to an excise tax of $100 per day, or $36,500 per year per employee.

Navigators And Other Consumer Assistance Personnel

Recognizing that enrolling millions of eligible individuals in qualified health plans through the exchanges was going to be a massive job, Congress created the navigator program. Under the ACA, navigators are supposed to educate the public as to the availability of coverage under the ACA, to provide fair and impartial information about ACA programs, and to “facilitate enrollment in qualified health plans.” By regulation, CMS has also created two additional programs–certified application counselors (CACs) and non-navigator assisters to assist consumers with enrollment. All three categories supplement traditional agents and brokers, as well as web-brokers and insurers that directly enroll applicants, who also help individuals obtain ACA coverage. The federal regulations and guidance impose training and testing requirements on navigators, assisters, and CACs.

Preemption of state restrictions on consumer assistance personnel. A number of states have attempted to restrict the operation of navigators and CACs. About a third of the states require navigators to be licensed. Restrictive state laws also require navigators and CACs to fulfill specific background check, education, testing, and financial responsibility requirements beyond those required under the federal law and regulations, and attempt to limit their communications with enrollees. Navigator restrictions have been challenged by litigation in at least two states, and earlier this year a federal court in Missouri enjoined that state’s navigator restrictions, holding that they were preempted by the ACA. There is some indication that restrictive navigator laws may have reduced enrollment activities in some states.

The navigator provisions of the final regulation are the most lengthy and complex. The regulations clarify situations under which state regulations of consumer assistance personnel (navigators, assisters, and CACs) are preempted, but also impose new federal restrictions on the consumer assistance personnel and authorize civil money penalties (CMPs) for consumer assistance personnel who violate their federal obligations, breach the confidentiality of patient information, or assist in enrollment fraud.

In general the ACA and implementing regulations preempt state laws that “prevent the application” of the ACA. State laws regulating or restricting the activities of navigators, assisters, and CACs, therefore, are preempted insofar as these laws prevent them from carrying out their responsibilities under the ACA. Earlier federal regulations stated this principle but did little to clarify what it meant. The proposed rule attempted to clarify the application of the rule by drawing brighter lines. Unfortunately, the final rule is significantly vaguer and provides less protection against hostile state laws than the proposed rule.

The final rule, like the proposed rule, recognizes that states may regulate consumer assister personnel to protect consumers — they may license or certify consumer assistance personnel and require them to undergo fingerprinting and background checks, for example — as long as the state regulations do not prevent them from carrying out their federally required responsibilities or conflict with federal law. The regulation also identifies, however, certain requirements states may not impose.  It makes clear that the list is non-exhaustive — state requirements that unduly restrict consumer assistance programs may be preempted even though they are not specifically identified in the regulations. The preface to the regulation states that HHS is committed to continuing to monitor state regulatory activities to ensure that they do not prevent the application of federal consumer assistance requirements.

The biggest change from the proposed rules concerns state restrictions on who may serve as a consumer assister. One of the proposed restrictions on state regulation would have prohibited states from “imposing standards [in a federal exchange] that would prohibit individuals or entities from acting as Navigators that would be eligible to participate as Navigators under standards applicable to the Federally-facilitated Exchange.” In the final rule, CMS concluded that this provision could be construed as unduly restricting state regulation, and therefore eliminated it.

The final regulations, rather, prohibit specific state restrictions on who may serve as consumer assisters. States may not require that navigators, non-navigator assisters, or CACs maintain their principal place of business in an exchange’s state (since some are national organizations). States may require that navigators and non-navigator assisters (but not CACs) maintain a physical presence in the exchange service area (although navigators and assisters are not required necessarily to be physically present to every consumer they serve in every instance). States may also not interpret conflict of interest restrictions to prohibit providers from operating assistance programs simply because they receive consideration from health insurers for health care services that they provide.

Under the proposed rule, some of the restrictions on state regulation of consumer assistance programs applied to both state and federal exchanges and some only to the federal exchange. The final rule applies the preemption provisions to all exchanges, state and federal. The final rule also extends the preemption provisions in most instances to protect CACs and non-navigator assisters, as well as navigators.

On the other hand, the rule clarifies that CACs and non-navigator assisters may be regulated by the states and must meet state requirements that are not preempted by federal law. HHS specifically does not adopt the position of the court in the Missouri litigation that states may not regulate CACs unless the state operates its own exchange.

The final regulations preempt five specific types of state consumer assistance program restrictions. First, the regulation preempts state laws that require navigators to refer consumers “to other entities not required to provide fair, accurate, and impartial information.” This preemption provision seemed to be aimed at laws in some states that require consumer assistance personnel to refer consumers to agents and brokers. The preface to the final rule clarifies that this rule is not intended to prohibit referrals to agents and brokers in situations where the advice and assistance of an agent or broker would be helpful to the consumer.

Indeed, the preface suggests that state laws that required a referral to agents and brokers who are required by state law to provide information in “a fair, accurate, and impartial manner,” would not be preempted. Of course, no state is going to admit that agents and brokers do not provide fair, accurate, and impartial advice, even though they may only be appointed by certain insurers and may receive larger commissions from some insurers than others. The preface, therefore, would seem to vitiate any effect this preemption provision may have had on state laws that can substantially undermine consumer assistance programs by limiting their ability to act independently to assist consumers, and that transparently serve to protect the business interests of agents and brokers.

The preface does, however, identify as specifically preempted state laws that require consumer assistance personnel to refer consumers who were previously insured, or had a previous relationship with an agent or broker, back to that agent or broker for service. It also rejects the argument that consumer assistance personnel are supposed to serve only the uninsured and must not assist consumers who already have health insurance. It seems to me to leave the scope of preemption of state mandated-referral laws wholly unclear.

The final regulation attempts to draw a line between providing advice regarding the substantive and comparative benefits of different health plans — which is the proper role of navigators, non-navigators assisters, and CACs — and advising consumers to choose a particular plan, which they are prohibited from doing. Consumer assistance personnel must provide fair, accurate, and impartial advice and “facilitate” plan enrollment; they may not tell consumers which plan to choose or which plan is best for the consumer.

Consumer assisters may, however, provide comprehensive information to consumers about the substantive benefits and features of plans, clarifying similarities and differences among plans, and assist consumers in making informed decisions consistent with the consumers’ expressed interests and needs. The final regulation specifically allows consumer assisters to give “advice” to consumers, despite requests from commenters that they be limited to giving “information”; state laws that would prohibit them from giving advice are preempted.

If asked to recommend a specific plan, consumer assistance personnel must say they are prohibited by federal law from doing so, and may then refer the consumer to an agent or broker who can make a recommendation. The assister must not, however, refer to the consumer to a specific agent or broker, but rather to a listing of agents and brokers, which is available for the federal exchange on its website and call center and may be available from agent and broker trade associations. Consumer assisters may not fulfill their consumer assistance obligations generally, including to SHOP exchange enrollees, by simply referring consumers to agents and brokers, but CACs are not required to assist employers with SHOP enrollment, and states that operate SHOP-only exchanges can permit navigators to fulfill their responsibilities through referrals to agents or brokers.

The proposed regulation would have preempted state laws requiring navigators to hold errors and omissions insurance. The proposal was based on the reasoning that the ACA prohibits states from requiring navigators to be agents and brokers (since it requires at least two navigator programs in each exchange, only one of which may be run by agents and brokers), and that errors and omissions insurance is agent and broker insurance. Commenters asked that this provision be extended to cover surety bonds and other financial responsibility requirements, and to protect other consumer assistance personnel.

The final rule contains the prohibition against state laws that would require navigators to be agents and brokers, but drops the prohibition against requiring errors and omissions insurance, based on the premise that such insurance is in fact not available only to agents and brokers. The final regulation would also allow states to require non-navigator assisters and CACs to be licensed as agents and brokers, although this could significantly impair the operations of these programs and their ability to supplement the assistance offered by agents and brokers. The preface notes, however, that if financial responsibility requirements would prevent consumer assistance personnel from fulfilling their federal duties, such requirements may be preempted.

Finally, the final regulations generally preempt state laws or regulations that would, as applied, prevent the implementation of a navigator program. Recognizing that state licensure conditions, such as fingerprinting, background checks, or additional educational requirements, may be facially permitted, it notes that if these requirements or other conditions such as credit checks or high school diplomas are imposed in such a way that consumer assisters cannot meet federal requirements or exchanges cannot implement their consumer assistance programs, such state laws are preempted. This applies to both the federal exchange and the state exchanges. This final preemption provision is quite vague, and it is difficult to see how it will be enforced, but presumably states must understand that laws and regulations adopted simply to harass consumer assisters or to protect the business interests of agents and brokers are not permitted under federal law.

Federal restrictions on consumer assistance personnel. While preempting some state consumer assister restrictions, the final rule also imposes new federal restrictions on consumer assistance personnel and extends existing requirements. All consumer assistance personnel must obtain consumer authorization before accessing a consumer’s personally identifiable information (and the authorization must be retained for six years). No consumer assisters may charge an applicant or enrollees for application or other assistance, or request or receive any remuneration from or on behalf of an applicant or enrollee for providing these services. They are also prohibited from receiving remuneration from health insurers or stop-loss insurers with respect to the enrollment of any individual. Consumer assisters must complete required training and be recertified on at least an annual basis.

New restrictions require navigators and non-navigator assisters (but not CACs) to maintain a physical presence in their exchange service area. This does not prohibit the use of remote communications, such as the telephone or internet, to communicate with some consumers. New regulations also provide that federal exchange consumer assistance personnel may not be compensated on a per-application, per-individual assisted, or per-enrollment basis. Consumer assistance personnel may not provide applicants with gifts, including gift cards or cash, unless they are of nominal value (under $15); they also may not offer promotional items from third parties to any applicant or potential applicant in connection with or as an inducement to apply or enroll in a qualified health plan. They are additionally prohibited from going door-to-door or from making unsolicited direct contacts with consumers, including robocalls, to provide application or enrollment assistance, unless the consumer initiates the contact.

The final rule, however, meliorates somewhat the restrictions that had been proposed. While consumer assistance personnel may not charge for application or enrollment services, they may charge for unrelated services, such as medical care or legal services, that they also provide. State exchanges may compensate consumer assistance personnel on a per-application, per-individual assisted, or per-enrollment basis. Some state exchanges are already doing so, and although CMS does not regard this as a best practice, it is not going to force the states to change, but will rather just prohibit these practices in the federal exchange.

The final regulation clarifies that the prohibition against provision of promotional items that might be of value to consumers only applies if these items are provided to induce enrollment. Diabetic testing supplies, for example, could perhaps be provided as part of an outreach campaign. Reimbursement for legitimate consumer expenses, such as travel or postage, is also permitted. The use of exchange funds to purchase gifts or promotional items by navigators or non-navigator assisters, however, is clearly prohibited.

Door-to-door or robocall outreach efforts — as opposed to enrollment efforts — are not prohibited, and in-home enrollment assistance that has been requested by the consumer is permitted (although the preface suggests that two personnel should go for home visits rather than just one for security reasons). Finally, more scope is permitted for contacts with consumers with whom a relationship already exists, such as the use of robocalls by a health center to remind consumers of appointments.

The final regulation also permits CMS to impose civil money penalties (CMPs) on consumer assistance personnel within the federal exchange who violate federal obligations, including regulatory requirements and contractual or grant terms and conditions. CMS will not exercise this authority with respect to state exchanges. CMPs can amount to $100 per day for each individual directly affected. Where CMS determines, based on a preliminary investigation, that a potential violation exists, it will provide a notice to the consumer assistance entity, giving it 30 days to refute the allegations. The entity can request an extension if necessary.

Depending on various factors, such as the gravity and frequency of the violation, the harm incurred by consumers, and the culpability of the consumer assistance entity, CMS may enter into a corrective action plan rather than impose a CMP. CMS also will not impose a CMP if the entity did not know or, exercising reasonable diligence, could not have known of the violation, and the violation is corrected within 30 days of the time the entity knew or should have known of the violation. A six-year statute of limitations applies to CMP actions. CMP assessments can be appealed.

The final regulation also creates CMPs for improper use and disclosure of personally identifiable information or the provision of false or fraudulent information to an exchange. Penalties for providing false information can be imposed whether false information is provided negligently or willfully, and they apply to consumer assisters and agents and brokers who encourage or facilitate the provision of false information. The rule lists factors that should be taken into account in determining the amount of the penalty, such as the nature and extent of the harm resulting from the violation or whether the person received compensation associated with the violation. No penalty will be imposed if CMS concludes that there was reasonable cause for a failure to provide correct information or that the person acted in good faith.

Penalties of up to $25,000 per application can be imposed for negligent provision of false information or for improper use and disclosure of personally identifiable information; penalties of up to $250,000 can be imposed for knowing and willful provision of false information. HHS must send a person on whom it intends to impose a penalty a notice of the factual basis and reason for the penalty and the amount of the penalty. The person subject to the penalty then has 60 days to appeal the imposition of the penalty. HHS can offer a corrective action plan in lieu of a penalty or settle or compromise a penalty.

Premium Stabilization Programs

The second issue addressed by the regulation is the parameters for the 2015 premium stabilization programs. There are three of these: the temporary reinsurance program, which collects fees from insurers and self-insured plans to reinsure high-cost cases in the individual market; the temporary risk-corridor program, which transfers funds from qualified health plans that make higher-than-expected profits to those that lose money in the exchanges; and the permanent risk-adjustment program, which moves resources from insurers with a favorable risk pool to insurers with worse risks. The premium stabilization programs are closely related to the minimum medical-loss-ratio program, which requires insurers that pay too small a proportion of their premium revenues in claims to pay rebates to their enrollees.

The basic rules for the premium stabilization programs were set in 2012.  Two sets of “benefit and payment parameter” rules have subsequently set the ground rules for 2014 and 2015. The medical loss ratio rules were established in 2010. The exchange and market standards rule further modifies these rules for 2015.

There is little new about these programs in the final rule. CMS does not intend to make major modifications in the risk-adjustment program for 2015, although it will recalculate the weights for high-cost conditions for 2016. In the event of a shortfall for collections for the reinsurance program, CMS intends for 2014 and 2015 to allocate contributions first to the reinsurance payment pool, and only once its obligations there are satisfied to administrative costs or to payments to the Treasury. The preface to the rule states that CMS intends to lower the attachment point for reinsurance for 2015 from $70,000 to $45,000, although it is not clear where the funding for this increase will come from.

The biggest change in the final rule relates to the risk-corridor program. For 2015, CMS intends to increase the ceiling on administrative costs and the profit margin floor each by 2 percentage points, thereby increasing potential risk corridor payments. This change will apply to all states, not just those that have allowed transitional renewal of 2013 health plans, as was true for 2014. Increased payments under this approach will not be counted for calculating medical loss ratio rebates.

CMS reaffirms in the preface its commitment to budget neutrality in the risk-corridor program, articulated in a guidance issued on April 11, 2014, but recognizes that if there is a shortfall in contributions for 2015 it may have to find other sources of payments, “subject to the availability of appropriations.” Budget neutrality will be enforced on a national rather than state-wide basis.

Fixed-dollar Indemnity Policies

The third issue this post will address is fixed-dollar indemnity policies. This is an issue few have been paying much attention to. Before the ACA, “mini-med” policies were quite common. This coverage looked like health insurance but offered very limited and inadequate coverage for medical expenses. Mini-med policies often limited reimbursement to a fixed-dollar amount for specific covered services.

The 2010 ACA reforms abolished lifetime limits and restricted annual dollar limits, and required plans to cover preventive services without cost sharing. The 2014 reforms completely abolished annual dollar limits, required plans in the individual and small group market to cover the essential health benefits, and put a cap on out-of-pocket expenditures.

The ACA reforms do not apply, however, to coverage identified under the prior Health Insurance Portability and Accountability Act as “excepted benefits.” Excepted benefits include forms of coverage like Medicare supplement, vision, or dental policies that are clearly not medical coverage. But they also include “fixed dollar hospital or other indemnity coverage.” Excepted benefit plans can, that is, have dollar limits. They are not, however, “minimum essential coverage,” under the ACA. If an individual has only excepted benefit coverage and not medical coverage that complies with the ACA, he or she must pay the individual responsibility penalty unless an exception applies.

The problem becomes, therefore, distinguishing between ACA individual medical coverage and excepted benefit fixed-dollar indemnity coverage. In guidance issued earlier this year, HHS stated that the difference is that indemnity coverage is intended to cover non-medical expenses of illness, such as lost income. It must, therefore, be paid on a per-period rather than per-service basis — e.g. $500 per day of hospitalization rather than $500 per hospitalization.

The final rule allows indemnity coverage to be sold on a per-service basis (or per diem), but only if certain requirements are observed. Specifically, the benefits may only be provided to individuals who otherwise have minimum essential coverage, benefits under the indemnity policy may not be coordinated with benefits under other health coverage or cover exclusions under other coverage, benefits must be paid on a fixed dollar basis regardless of actual expenses incurred or covered by other coverage, and the consumer must be provided with a prominent 14-point notice must be provided informing the consumer that:


These provisions provide some protection for consumers who might be led by unscrupulous marketers to believe that fixed indemnity coverage is an adequate substitute for medical insurance that complies with the ACA, but they are subject to major weaknesses. First, the insurer or agent marketing indemnity coverage has no obligation to verify or document that the consumer has minimum essential coverage, or even to explain what minimum essential coverage is, but can merely rely on the consumer’s attestation that the consumer has such coverage. Moreover, the consumer need only attest to coverage at the time of the initial sale, not upon subsequent renewal. Given the complexity of the minimum essential coverage requirement, this requirement is frankly illusory.

Second, the notice is only required to be placed on the application for coverage, not on the policy contract itself or any other document. Given the nature of insurance sale transactions (“sign here, here, and here”), the notice will often be illusory as well.

The final regulations do not limit the sale of indemnity policies to consumers who have actual coverage of the ten essential health benefits. Presumably it can be sold to individuals with large group “skinny coverage” that is technically minimum essential coverage but offers very little actual protection. The final regulations also allow the same insurer to sell both indemnity and medical coverage. The new requirements, including the notice requirement, only apply for policy years beginning on or after January 1, 2015.

CMS did resist requests that it permit indemnity policies to be sold to healthy or young or low-income individuals in lieu of minimum essential coverage (although it can be sold to residents of the territories, who are treated as having minimum essential coverage). It also refused to allow indemnity policies to be sold simply as “supplemental coverage.” But unscrupulous agents and insurers that sell indemnity policies to consumers as real medical insurance will face few barriers to their continued practices under this regulation, and consumers who buy indemnity coverage may be in for a rude surprise when they need medical care or when they find out they have to pay the tax penalty for not having real health insurance. This regulation is a major disappointment.

Employee Choice In The SHOP

Fourth, CMS reaffirms in the final rule its commitment to permit employee choice and provide premium aggregation in the federal SHOP exchange beginning in 2015. Recognizing, however, that employee choice has the potential to destabilize small group insurance markets if there is significant adverse selection in employee choice, the final rule provides for 2015 only that:

if the State Insurance Commissioner submits a written recommendation to the SHOP adequately explaining that it is the State Insurance Commissioner’s expert judgment, based on a documented assessment of the full landscape of the small group market in his or her State, that not implementing employee choice would be in the best interests of small employers and their employees and dependents, given the likelihood that implementing employee choice would cause issuers to price products and plans higher in 2015 due to the issuers’ beliefs about adverse selection,

and the commissioner provides concrete evidence supporting this determination, HHS may delay employee choice in that state until 2016. The commissioner must make this recommendation by June 2, 2014, and HHS must make a decision based on it by June 10 to allow insurers to make an informed decision whether or not to participate in the SHOP. Of course, insurers that have 20 percent or more of the small group market in a particular state must participate in the SHOP if they want to sell coverage in the individual exchange.

Formulary Exceptions

Finally, the final rule provides an expedited exceptions process to allow enrollees in health plans in the individual and small group markets to obtain access to drugs that are not included in the plan’s formulary under certain circumstances. Under this process, an enrollee or an enrollee’s physician can request an expedited exceptions process when the enrollee is suffering from a health condition that may seriously jeopardize the enrollee’s life, health, or ability to regain maximum functioning, or when the enrollee is currently in a course of treatment using a non-formulary drug. This can include combination drugs considered first-line therapies and new drugs.

The insurer must make a decision on the request and notify the enrollee or prescribing physician within 24 hours of receiving the request. Insurers are not required to cover the drug while the request is pending. The insurer must make the drug available for the duration of the exigency.

The rule only addresses the availability of the drug, not cost-sharing requirements. Cost sharing requirements might, of course, make drugs practically unavailable even though they qualify for an exception.