Early on Friday morning, February 10, 2017, the Senate approved Tom Price as Health and Human Services Secretary by a straight party-line vote. And early on the morning of February 15, HHS released its first notice of proposed rulemaking (NPRM) of the Price era. (press release) Although Congress continues to debate repeal and replacement (or repair) of the Affordable Care Act, the proposed rule is not intended either to repeal or replace the ACA, but rather to shore up the individual health insurance markets pending a possible repeal. It is also the first step taken by HHS to fulfil President Trump’s agenda announced by executive order on Inauguration Day to unwind ACA regulatory requirements.
The proposed rule can to a considerable degree be understood as a response to series of demands presented by America’s Health Insurance Plans (AHIP) and the Blue Cross Blue Shield Association of America to the administration. The Trump administration realizes that it is dependent on private insurers for avoiding collapse of the nongroup insurance market during 2017 and 2018. The insurers see an opening for a rollback in ACA regulations and a response to their long-standing complaints of alleged gaming of ACA consumer protections. The NPRM responds to these complaints.
The administration’s concern regarding marketplace stabilization received added emphasis on February 14, when Humana announced that it would not be returning to the individual market for 2018. Humana had pulled back from the marketplaces already and is not a large player for 2017, and its reaction could well have been related to its recently rejected merger, but it asserted that it would be losing $45 million on the individual market this year. Aetna’s CEO joined the chorus on February 15 complaining that the marketplaces were in a “death spiral.”.
If the Trump administration is really serious about stabilizing the individual insurance market the proposed rule changes will not be enough. The government must also make good on billions of dollars owed to marketplace insurers. In particular it must ensure the payment of the cost sharing reduction payments currently threatened by the House v. Burwell litigation and the remaining 2016 reinsurance payments, which some Republicans believe should be redirected to the Treasury. Payment of at least part of the risk corridor payments, which a court of claims judge held this week are due insurers that participated in the marketplaces during 2014 and 2015, would also go far toward calming insurer concerns about the future.
The administration must also continue to enforce the ACA’s individual responsibility provision, which is intended to ensure that healthy and well as unhealthy individual participate in the market. On February 15, the IRS reported on its websites for consumers and tax professionals that it had decided in early February, pursuant to the Trump ACA Executive Order, not to proceed with a program it had intended to implement for 2017; the program would have rejected electronically filed “silent returns,” which fail to check the box on the 1040 indicating continuous coverage, file a form 8965 justifying lack of coverage, or pay the penalty. The IRS had earlier communicated this policy to tax preparers, who are reportedly modifying their software to allow consumers to file “silent returns.”
Of course, as the IRS has now affirmed, the ACA is still in effect and uninsured consumers must still purchase coverage, qualify for an individual responsibility exception, or pay the penalty. Consumers who fail to do so may hear from the IRS and may have the penalty they owe withheld from future refunds. The IRS ACA home page states, “Taxpayers should continue to file their tax returns s they normally would,” presumably in compliance with the law. But if consumers are able to file “silent returns” electronically without complying with the requirement, they are far more likely to do so. The direct effect of this will be fewer young and healthy people in the market, precisely what Humana and Aetna have feared.
The NPRM is of course only a proposed rule. The public will have 20 days to comment on it and HHS will have to consider the public comments before it issues a final rule. This is a remarkably short comment period—the usual minimum is 30 days—but HHS apparently wants to get a final rule out in March, allowing insurers to take it into account as they finalize their forms and rates for 2018. The proposal states that HHS intends to issue guidance delaying 2018 filing deadlines, which likely will give insurers additional time to adjust to the new rules, but deadlines cannot be delayed long.
The first issue addressed by the NPRM is guaranteed availability. The ACA provides that if consumers who are receiving advance premium tax credits fall behind on their premium payments, their coverage cannot be terminated until the end of a three month “grace period.” During the first month the insurer will pay provider claims, but after the first month, the insurer pends claims rather than paying them. If the consumer catches up on premium payments during the three-month period, the insurer will reinstate coverage and pay the pended claims. If the consumer fails to catch up, the insurer may terminate coverage as of the end of the first month and not pay subsequent claims. The insurer will receive advance premium tax credits (APTC) for the three months, but will have to refund the payments received for the second and third month. It can keep the first month’s APTC, but the consumer will need to repay that APTC to the government at the time of tax credit reconciliation unless he or she pays the premium to the insurer for that month.
The ACA’s insurance reforms include a “guaranteed availability” provision, which requires that insurers offer coverage to any consumer who applies during open enrollment or during a special enrollment period for which the consumer qualifies. HHS has interpreted this to mean that individuals cannot be denied coverage simply because they owe a debt to an insurer for a previous year’s coverage as long as the consumer is not reenrolling in the same product from which the consumer was terminated for nonpayment. The insurer can pursue collection efforts for past-due premium, but cannot condition coverage for a new coverage period under a different product on payment of the amount due.
Insurers have complained that this arrangement has encouraged gaming and undermined the risk pool. They claim that some consumers stop paying their premiums late in the year, catching up if they incur health care costs, but leaving the premiums unpaid if they remain healthy, starting all over again the next year with a clean slate. In fact, low-income individuals do in fact often fall behind on their marketplace premiums. They usually catch up, but many do not. Many terminate coverage during one year and return the next, perhaps because they got employer coverage or Medicaid in the interim, perhaps because their ability to pay fluctuates. CMS has not, however, found evidence of gaming in enrollment patterns.
Under the proposed rule, an insurer would not violate the federal guaranteed availability requirement if it attributed payments from a consumer or employer reenrolling with the insurer to outstanding debt for coverage in the individual or group market under the same or a different product from the same insurer during the previous 12 months. The insurer could also refuse to effectuate further coverage until outstanding premiums were paid. Insurers could be prohibited from doing this under state law, but HHS encourages the states to follow the federal approach. Individuals terminated for nonpayment after the grace period expired would normally owe the premium for the first month of the grace period minus the amount of APTC the plan received.
The insurer would have to apply this policy uniformly and in a nondiscriminatory manner to all individuals and employers. The rule change would not prohibit individuals or employers from enrolling in coverage with a different insurer (if more than one insurer was available in the market), nor would it affect the ability of an individual not contractually responsible for payment of a premium to purchase coverage. Because of operational constraints it will not apply in the federally facilitated SHOP program. HHS asks for comments on whether insurers should be allowed to adopt a policy of accepting partial payment and whether insurers that adopted a debt payment requirement should have to give notice regarding their policy.
Open Enrollment for 2018
The NPRM proposes reducing the open enrollment period for 2018. During the first year of the ACA marketplaces, open enrollment ran for six months from October 1, 2013 to March 31, 2014. In the second year open enrollment ran from November 15 to February 15, and during the third and fourth years from November 1 to January 31. HHS had earlier proposed that the open enrollment period for 2018 would run from November 1, 2017 to January 31, 2018, and that beginning with 2019, the open enrollment period would run from November 1 to December 15.
The proposed rule would move the change up a year, cutting the open enrollment period for 2018 to 45 days, from November 1 to December 15, 2017. This is similar to the length of the Medicare open enrollment period (October 15 to December 7). It would allow insurers to collect a full year’s premium for 2018 from all regular enrollees and reduce opportunities for adverse selection by individuals who learn that they have health problems during December or January. HHS states in the preface, “We would intend to conduct extensive outreach to ensure that all consumers are aware of this change and have the opportunity to enroll in coverage within this shorter time frame.” Such an intensive effort would clearly be necessary. If enrollment was in fact reduced, the change could undermine rather than reinforce the stability of the risk pool.
Special Enrollment Periods
The lengthiest and most detailed provisions of the NPRM target special enrollment periods (SEPs). To encourage continuous coverage and discourage consumers from waiting until they become sick before enrolling, the ACA requires consumers to enroll during an annual open enrollment period. Recognizing that consumers often experience changes that cannot be anticipated during the open enrollment period—such as the loss of employer coverage or the birth of a child—the ACA, like other insurance programs, recognizes special enrollment periods (SEPs) for life changes. Situations that qualify for SEPs are generally defined by regulation, although some have been established by guidance.
Insurers have long complained that consumers have been enrolling through special enrollment periods who in fact do not qualify, and that this has both increased claims and decreased revenue for insurers. Insurers have in response increased their premiums, discouraging enrollment by healthy enrollees.
HHS took a number of steps during 2016 to address insurer complaints, including eliminating some minor SEPs, redefining the SEP for consumers who experience a move to only apply to those who were covered before the move, requiring documentation for some SEPs, and revising the risk adjustment formula to recognize higher plan costs for partial year enrollees. At the end of 2016, the Obama administration announced that beginning in the summer of 2017 it would initiate a pilot program requiring verification for enrollment for some SEPS before enrollment.
HHS proposes to tighten up SEPs, both to incentivize consumers to maintain continuous coverage and to discourage adverse selection and inappropriate use of SEPs. The NPRM takes a four-pronged approach to this end. First, it would require pre-enrollment verification of eligibility for all SEP categories for all new applicants in states served by the HealthCare.gov platform as of June 2017, expanding the previously announced pilot project that would have required pre-enrollment verification for 50 percent of new SEP applications. Consumers would be able to submit an application and select a plan, but the application would then be pended until eligibility was verified. HHS estimates that about 650,000 individuals will be subjected to increased verification procedures.
Consumers would be given 30 days to either upload or mail documentary verification. HealthCare.gov would use automated electronic means where possible to verify eligibility, for example for the birth of a child. Once approved, coverage would be retroactive to the date of plan selection. If verification takes more than two or more months, an enrollee could choose not to pay for coverage for the first month. State-based marketplaces that do not already verify SEP eligibility are encouraged to do so.
Whether the proposed tightening of SEPS will in fact stabilize the risk pool remains to be seen. Although insurers maintain that SEPS are being abused, there is evidence that the real problem with the risk pool is that too few rather than too many eligible individuals are enrolling through SEPs. Only a tiny fraction of individuals who lose employer coverage—most of whom would be expected to be relatively healthy—enroll in marketplace coverage through SEPs. It would seem that additional paperwork burdens could be more likely to discourage young people than sick people who really need coverage.
CMS found that when it began requiring documentation for SEP enrollment in 2016, the number of SEP enrollments dropped 20 percent over 2015. But younger consumers were disproportionately less likely to complete the verification process than older applicants, with 73 percent of applicants age 55-64 completing the process but only 55 percent of those 18 to 24. This would seem to support the view of some consumer advocates that the best course for stabilizing the risk pool is to make it easier rather than harder for eligible consumers to get SEP coverage. The goal of the originally announced pilot project was to see if increased verification requirements in fact improved or undermined the risk pool. The immediate move to 100 percent verification makes this experiment impossible.
Metal-Level Coverage Upgrades
The second set of SEP changes in the NPRM would limit the ability of existing marketplace enrollees to upgrade from one metal level to another during the coverage year by using an SEP. When an individual enrolled in coverage marries or has a child, for example, the enrollee and new spouse or child qualify for an SEP. Under the proposed rule, the enrollee would have to add the new dependent to the enrollee’s QHP, or, if that was not possible, to another QHP in the same metal level (or in an adjacent metal level, if no QHP in the same metal level was available). If an enrollee was not enrolled in a silver-level plan, however, and adding the dependent would make the unit eligible for cost-sharing reductions, the enrollee could move to a silver-level plan.
Enrollees would also be prohibited from changing metal levels for most other SEPs, including the permanent move SEP. The upgrade prohibition does not apply to some SEPs, however, where the qualifying event may have prevented the applicant from applying for the applicant’s preferred plan to begin with (such as an error or misconduct by the marketplace) and it does not apply to Indians who qualify for an SEP. This rule change would apply across the individual market on and off the marketplace but not in the group market (and possibly not in state-based marketplaces). The changes also do not apply to the SHOP marketplaces.
Third, HHS is considering further limits on eligibility for certain SEPs. It is considering allowing insurers to reject SEP enrollments for loss of minimum essential coverage where the applicant earlier lost coverage for non-payment of premiums unless the applicant pays premiums due for previous coverage. HHS is also considering collecting and storing information on terminations for nonpayment to ensure that consumers who lose coverage for non-payment do not subsequently gain coverage through an SEP for loss of minimum essential coverage.
The NPRM would limit the marriage SEP so that it only is available if at least one partner had minimum essential coverage or lived outside the United States or in a United States territory for one or more days during the previous 60 days. Consumers claiming eligibility under the permanent move SEP would also have to show coverage for one or more days during the previous 60 days or a move from outside the U.S. or from a U.S. Territory. The applicant would have to submit documentation of both the previous and new addresses and of previous coverage. These rules would apply in the individual but not in the group market, and would not apply to the SHOP marketplace.
Limiting The Exceptional Circumstances SEP
Fourth, for the remainder of 2017 and for future years, HHS proposes to significantly limit the use of the exceptional circumstances SEP. Exceptional circumstances will have to be “truly exceptional” and verified by supporting documentation where practicable. HHS will provide further guidance on when the more rigorous test applies. HHS also proposes to formalize previous guidance eliminating several SEPs based on temporary errors, processing delays, or misinformation listed in the NPRM preface.
The NPRM preface asks for comments on establishing continuous coverage requirements to discourage adverse selection and encourage continuous coverage. This could take the form of requiring 6 to 12 months of prior coverage (subject perhaps to a short gap of up to 60 days) where an SEP requires evidence of prior coverage or imposing a 90 day waiting period or late enrollment penalty where an applicant cannot establish prior coverage but is otherwise qualified for a special enrollment period.
Prior to the ACA, the Health Insurance Portability and Accountability Act provided that a consumer who maintained continuous “creditable” insurance coverage without a significant break could not be subjected to preexisting condition requirements by an employer-sponsored plan, and under certain conditions could transition from employer coverage to individual coverage. There seems to be considerable support among congressional Republicans and insurers at this point for using a continuous coverage requirement as a way of attracting healthy consumers to the individual market risk pools and keeping them there.
The Affordable Care act opted for an individual mandate rather than a continuous coverage requirement to accomplish the goal of encouraging healthy individuals to maintain coverage. The individual mandate penalizes people who refuse to get insured without an excuse while they remain uninsured, but continuous coverage requirements only penalize uninsured consumers when they try to get insured. The penalty imposed by the continuous coverage requirements now being considered by Congress, in terms of excluding preexisting conditions or permitting health status underwriting, may potentially be much more onerous than the individual mandate penalty for uninsured individuals with health problems.
As long as the ACA remains in place, however, it is hard to see how HHS can impose continuous coverage requirements. The ACA simply does not contemplate waiting periods or late-enrollment penalties. The NPRM does not contain a specific proposal, and thus the final rule will likely not contain such a requirement.
The ACA requires insurers in the individual and small group market to issue plans that fit into one of four metal levels—platinum, gold, silver, or bronze—based on actuarial value (AV). Actuarial value refers to the percentage of the total cost of health care expenses of a standard population borne by the plan rather than the enrollee. The AVs of these categories are 90, 80, 70, and 60 percent. Silver plans with AVs of 73, 87, and 94 percent must also be made available to low-income individuals that qualify for cost-sharing reductions. The ACA also permits plans to sell catastrophic policies under certain circumstances.
The ACA allows de minimis variation in AV, recognizing that it is difficult to hit an exact AV and allowing plans to market a greater variety of products. De minimis variation also allows insurers to retain the same plan design from year to year while staying at the same metal level as costs change. De minimis has been previously defined as +/- 2 percent. As of 2017, bronze plans are also allowed to have actuarial values as high as 65 percent if they offer at least one major service before the deductible or qualify for a health savings account.
The proposed rule would allow a variation from -4 to +2 percentage points (except from bronze plans, which could vary -4 to +5 percentage points). Thus a silver plan could have an AV ranging from 66 percent to 72 percent. This would allow insurers to market plans with higher cost sharing but lower premiums. HHS estimates it could lower premiums by 1 to 2 percent.
Lower-premium, higher-cost-sharing plans could be attractive to healthy higher-income consumers. But if a low AV plan became the second-lowest cost silver plan, premium tax credits would be reduced. Consumers who qualified for premium tax credits would have to choose between paying more out-of-pocket for premiums or for cost-sharing. The Center on Budget and Policy Priorities estimates that the proposed rule could require a family of four with an income of $65,000 to either pay $327 more a year in premiums for a plan with a 68 percent AV (the current minimum AV silver plan) or face a $550 increase in their deductible if they purchase a 66 percent AV plan (the new minimum A silver plan).
Some consumers now use their APTC to buy bronze plans for a $0 or nominal premium. If the benchmark plan premium, and thus premium tax credits, are reduced, consumers may have to get lower-AV bronze plans to take full advantage of this. (Under certain market conditions, however, premium tax credits might not necessarily be reduced, as David Anderson explains.)
The changes in the definition of de minimis will not affect be applied to the 73, 87, and 94 percent silver plan cost-sharing variations, which may only vary by +/- 1 percent. They may also require the implementation of an up-to-now ignored ACA provision that requires QHPs to reduce out-of-pocket limits for consumers with incomes not exceeding 400 percent of the federal proverty level as long as this does not increase the AV of plans covering consumers with incomes between 250 and 400 percent of the federal poverty level to above 70 percent.
One of the most common criticisms of the ACA is that health plans available through the marketplaces tend to offer narrow provider networks. Although narrow networks can reduce the cost of health insurance, and generally seem to provide adequate care, they can result in inadequate coverage for some conditions and interfere with continuity of care for some consumers. They can also result in confusion if provider directories are inadequate or outdated and in burdensome balance billing if consumers receive services unwittingly from out-of-network providers.
Under the ACA, HHS must require health plans as a condition of QHP certification to, “ensure a sufficient choice of providers” and to provide information on the availability of network and out-of-network providers. HHS has taken a number of steps toward this end. Under current rules, QHP insurers must make network provider directories accessible and keep them up to date. CMS is piloting an approach that would classify networks by breadth and make the information available to consumers.
Since 2017, CMS has applied quantitative standards similar to those applied to Medicare Advantage plans to ensure the availability of adequate network providers. HHS rules also impose continuity of care requirements on insurers, requiring them to continue coverage of treatment by providers who are terminated from a network for 30 days and to provide 90 days of coverage for a terminated provider if a patient is in active treatment at the time of termination. Finally, 2018 rules would offer some protection from surprise balance bills.
The NPRM states that it is the intention of HHS to, beginning with the 2018 plan year, rely on state regulators to ensure network adequacy as long as the state has authority to ensure reasonable access to providers and the means to assess network adequacy. In states where the state lacked authority or means to ensure network adequacy, HHS would rely on an insurer’s accreditation (commercial or Medicaid) from an HHS-recognized accreditation body. Non-accredited insurers and standalone dental plans would need to submit a network adequacy access plan that would demonstrate the insurer’s maintenance of an adequate network consistent with the National Association of Insurance Commissioner’s model act. This approach would apply to both the federally facilitated and state-based marketplaces.
States have traditionally regulated provider networks, but have often only regulated certain types of plans, and many states do not apply quantitative standards. Although the NAIC adopted a network adequacy model act in late 2015, few states have taken steps since then to tighten up network requirements.
It might make some sense to avoid redundant regulation where states are in fact actively regulating network adequacy. Accreditation is not, however, a comparable substitute for governmental oversight. Accreditation network adequacy standards are not publicly available but are reportedly procedural rather than quantitative in nature. Accreditation agencies cannot resolve consumer grievances and cannot take action against an insurer with an inadequate network other than to downgrade accreditation. It is ironic that with all the complaints one hears from consumers and politicians about the inadequacy of network coverage, that this would be an issue where HHS would decide to withdraw from its regulatory role.
Essential Community Providers
The ACA requires QHP insurers to “include within health insurance plan networks those essential community providers, where available, that serve predominately low-income, medically-underserved individuals.” Essential Community Providers (ECPs) are community health centers, family planning clinics, safety-net hospitals (including children’s hospitals), Ryan-White AIDS providers, Indian Health Services Centers, and other providers that serve predominantly low-income, medically underserved communities.
Under current requirements, QHPs must include within their network at least 30 percent of ECPs in their area and must make a good faith offer to contract with any Indian health facility and with at least one of six categories of ECPs in their service area. Insurers that cannot achieve the 30 percent standard can offer a narrative explanation as to why they are unable to do so. Until 2017 QHP insures could write in additional ECP providers in addition to the list provided by the federal government, but ECPs have, beginning with 2017, been required to apply themselves to be recognized as ECPs.
HHS proposes that for 2018, it would require plans to include only 20 percent of ECPs within their network rather than 30 percent. It claims that this would “substantially lessen the regulatory burden on issuers while preserving adequate access to care provided by ECPs.” It notes that in 2017, 6 percent of insurers had to submit narrative explanations, which HHS estimates took 45 minutes each to prepare—apparently an intolerable regulatory burden. Insurers will also be allowed to write-in ECPs again for 2018, as long as the ECPs that are written in apply for ECP status. And insurers who cannot even meet the 20 percent standard can still offer a narrative explanation.
Under President Trump’s Reducing Regulation and Controlling Regulatory Costs Executive Order of January 30, executive agencies must identify two regulations to be repealed for each new “significant regulatory action that imposes costs.” It was apparently concluded that the NPRM was not such a regulation, and thus the NPRM identifies no other rules for repeal.