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Implementing Health Reform: Hobby Lobby Response, The ACA In The Territories, And More



July 18th, 2014

July 17, 2014 was a remarkably active day in an otherwise quiet week for Affordable Care Act implementation. First, the Departments of Labor, Treasury, and Health and Human Services issued their first response to the Supreme Court’s Hobby Lobby decision —a Frequently Asked Question (FAQ) guidance requiring ERISA plans to provide notice to their participants and beneficiaries if they do not intend to cover contraceptives. Second, the Department of Health and Human Services sent letters to the territories (the Virgin Islands, Northern Mariana Islands, Guam, American Samoa,  and Puerto Rico) informing them that insurers that market individual insurance policies in the territories are no longer required to comply with the ACA’s insurance market reforms.

Third, HHS released an enrollment bulletin at its REGTAP website describing how insurers in the federally facilitated exchange should handle enrollment for 2015 for individuals whose coverage was terminated in 2014 for non-payment. This post describes these issuances, as well as the May Medicaid enrollment report released on July 11, 2014 by HHS.

Hobby Lobby Response

The FAQ applies to all employer sponsored group health plans covered by ERISA (the Employee Retirement Income Security Act of 1974).   All employment-related group health plans are covered by ERISA unless they fall within specific exceptions, such as church plans or governmental plans. ERISA requires all group health plans to provide their participants and beneficiaries with a summary plan description describing coverage limitations and exclusions. Plans that cease to cover services that they previously covered must provide notice to participants and beneficiaries within 60 days of discontinuing coverage.

These notice requirements apply to coverage of preventive services, including contraceptives. Therefore, closely held corporations that intend not to cover or to discontinue covering of all or some contraceptive services under the Hobby Lobby decision because of their religious beliefs must give notice to their plan participants and beneficiaries of their decision. I would expect that this is not the administration’s final response to Hobby Lobby, but it is a start. At least employees will be informed as to their employer’s decision and the extent of offered contraceptive coverage.

The ACA And The Territories

Also on July 17, Marilyn Tavenner, the Centers for Medicare and Medicaid Services Administrator, sent a letter to the Insurance Commissioners of each of the United States territories informing them that the ACA insurance market reforms no longer apply to them. Many of the provisions of Title I of the Affordable Care Act, the private insurance reform provisions, apply within the 50 states and the District of Columbia and do not apply to the territories. This includes the individual mandate, the employer mandate, the exchange provisions, and the premium tax credit and cost-sharing reduction payments. In lieu of these provisions, Congress appropriated $1 billion to cover the period from 2014 to 2019 ($925 million for Puerto Rico and $75 million for the other territories) to fund the provision of health care by the territories, either through the establishment of exchanges and the provision of premium tax credits and cost-sharing reduction payments, or through Medicaid. The ACA also increased Medicaid funding for the territories.

The insurance reforms of Title I, however, were adopted as amendments to the Public Health Services Act. The PHSA defines “state” to include the territories. HHS initially interpreted the ACA market reforms to apply to the territories. This included the guaranteed issue, community rating, essential health benefits, rate review, and other market reform provisions.

This interpretation, however, put the territories in an untenable position. Without the individual mandate and with inadequate funding for premium tax credits and cost-sharing reduction payments, insurers were reluctant to participate in the individual market in the territories, which in most territories was small and fragile in any event. All insurers reportedly withdrew from the individual market in the Virgin Islands. The National Association of Insurance Commissioners, which represents the territories as well as the states, identified this as a serious problem requiring an urgent solution.

In the July 17 letters, HHS reversed course. On reconsideration, it determined that the definition of state in the ACA should trump the definition of state in the PHSA. It concluded, therefore, that the guaranteed availability, community rating, single risk pool, rate review, medical loss ratio, and essential health benefits provisions do not apply to individual or group health insurers in the territories, because the term “issuer” is defined in the PHSA as state-licensed insurers. Although the letter does not address them, it would appear that other provisions of the ACA enacted through amendments to the PHSA, including the prohibition on annual and lifetime limits and rescissions, as well as the preventive services coverage and internal and external appeals provisions, would also not apply in the individual market in the territories.

The letter notes, however, that group health plans and non-federal governmental plans are governed not by the PHSA but by ERISA and the Internal Revenue Code, which do apply in the territories. Although the market reforms do not apply to group health insurers in the territories, they do apply to group health plans, insured or self-insured, which must comply with them. The ACA protections, such as the prohibition on annual and lifetime limits and rescissions and the preventive services coverage, and the internal and external appeals provisions, will thus continue to protect residents of the territories who are insured as members of employee groups rather than individuals. The new HHS ruling applies only prospectively, so territories that received rate review or consumer assistance grants do not need to return the funds they have already spent, although they must return any unused funds. It also does not apply to individual plan requirements imposed by provisions of the PHSA that antedate the ACA.

Halbig case could leave 34 states sharing the territories’ dilemma. It should be noted that the situation in the territories is much like that which would prevail in the 34 states with federally facilitated exchanges if litigation currently challenging the ability of the federally facilitated exchanges to issue premium tax credits were to prevail. Two studies released on July 17, 2014 — one by Avalere Health and the other by the Urban Institute — illustrate the consequences of a ruling that would leave the market reforms in place but deprive residents of these states of federal premium tax credits.

A decision for the plaintiffs would deprive residents of these states potentially of $36 billion in tax credits by 2016. But the market reforms would continue to apply in those states, and no conceivable interpretation of the ACA could change that. This could lead to the collapse of the individual insurance market in these states, much like HHS’s prior interpretation of the ACA contributed to the collapse of the insurance markets in the territories. Clearly Congress could not have intended this consequence, and presumably the courts will so conclude.

2015 Enrollment For Those Whose Coverage Was Terminated In 2014 For Nonpayment

The July 17 REGTAP guidance is directed specifically at insurers but addresses a problem that is of importance to consumers. An insurer may terminate an individual enrolled in a qualified health plan after notice required under state law — usually a month’s notice — is provided. If the enrollee receives premium tax credits and has paid the initial premium, however, the insurer may not terminate coverage until the end of a three-month grace period. If the enrollee does not pay all premiums due by the end of the grace period, the insurer may terminate the enrollee, who may not reenroll during the coverage year unless the enrollee qualifies for a special enrollment period (SEP) other than the SEP for loss of minimum essential coverage.

During the next open enrollment period (currently 2015), however, the enrollee may reenroll. The insurer may not credit the initial premium payment, or any subsequent premium payments the enrollee makes during the new policy year, to payments due for the prior year. The Enrollment Bulletin discusses how insurers in the federally facilitated exchange should handle various complex situations that will arise when individuals terminated in 2014 for nonpayment reenroll in 2015.

As discussed in a recent proposed rule, individuals actively enrolled in health plans through the federally facilitated exchange for 2014 will be automatically reenrolled in their current health plan and have their eligibility for premium tax credits re-determined for 2015. Individuals who have failed to pay their premiums and are no longer in the grace period will not be reenrolled. They may, however, reapply for coverage, and — if they are found eligible and pay their first month’s premium — must be reenrolled, even if they have premiums unpaid for 2014.

Some enrollees, however, will be still be in the grace period at the end of the 2014 coverage year. These individuals will be automatically reenrolled in their current plan. Their insurer must terminate them when the grace period ends, however, if their premiums remain unpaid. But if the grace period ends and coverage is terminated before the 2015 open enrollment period ends (on February 15, 2015) the individual may reenroll for 2015 and begin coverage again by paying the first premium for 2015 coverage.   If the grace period ends after open enrollment closes, the individual will have to wait for 2016 unless he or she qualifies for a special enrollment period.

Finally, in some situations the grace period will end on December 31. In these cases, the federally facilitated exchange will automatically reenroll the individual, but the insurer can decline the reenrollment. If individuals in this situation enroll themselves for 2015 during the open enrollment period and pay their first month’s premium, however, the insurer must accept the enrollment, even if 2014 premiums remain unpaid.

May Medicaid/CHIP Report

On July 11, 2011, the Centers for Medicare and Medicaid Services released its May 2014 Monthly Medicaid Applications, Eligibility Determinations, and Enrollment Report. With the close of open enrollment, CMS has stopped publishing monthly exchange enrollment reports, but since Medicaid has continuing open enrollment, monthly reports will continue to be issued.

As has been true with earlier monthly Medicaid reports, this report is preliminary and incomplete. The total number of individuals enrolled in Medicaid and CHIP for comprehensive benefits as of the last day of May in all states reporting data for May was 65,922,768. These data do not include Maine and North Dakota, which did not submit data. Among the 48 states reporting numbers both for May 2014 and for 2013, this represents an increase of 6.7 million individuals, or 11.4 percent, over average enrollment in July to September 2013. This is in line with CBO projections of 7 million additional Medicaid enrollees under the ACA for 2014. It is also in addition to 950,000 individuals who gained coverage under the ACA through state early-option Medicaid expansions.

In states that expanded Medicaid under the ACA, enrollment increased on average 17 percent, with increased enrollment of 30 percent or more in 10 states. Enrollment in both Nevada and Oregon increased by about 50 percent. Non-expansion state enrollment has grown by only about 3 percent, with enrollment in Florida, Missouri, Mississippi, and Nebraska actually shrinking.

Medicaid programs enrolled an additional 920,628 individuals in May over adjusted data from April from states that reported in both months. This is a smaller increase than the original figures reported for April over March, and much smaller than the March over February increase, but it is to be expected that enrollment would slow after open enrollment closed for the exchanges.

For the first time, the monthly report gives Medicaid and CHIP child enrollment figures. The 38 states reporting this data gave total Medicaid and CHIP child enrollment as 26,364,955. Over half (56 percent) of this enrollment was in CHIP, making the debate over the future of CHIP when funding runs out in 2015 all the more urgent. Most states reported growth in their CHIP and Medicaid child populations month to month in 2014, averaging about 0.8 percent per month.

Finally the report discusses progress that states are making progress in real-time processing of Medicaid applications and implementing hospital-based presumptive eligibility determinations. The report highlights progress in Alabama, Colorado, Kentucky, New York, and Utah.

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1 Response to “Implementing Health Reform: Hobby Lobby Response, The ACA In The Territories, And More”

  1. John Says:

    “An insurer may terminate an individual enrolled in a qualified health plan after notice required under state law — usually a month’s notice — is provided.”

    If someone is not receiving a premium tax credit and is terminated after 30 days, does the insurance company pay for the medical services received during the 30-day grace period?

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