On July 11, 2017, the Centers for Medicare and Medicaid Services announced that the Departments of Health and Human Services and Treasury have approved Alaska’s application for a 1332 state innovation waiver for its reinsurance program. (fact sheet). The approval was no surprise. It had been pending since December of last year and has received very broad support. The HHS Secretary sent a letter to state governors in March encouraging similar waiver applications and HHS issued a checklist in May to assist states in applying for 1332 waivers which encouraged reinsurance waivers.
The program will be administered by the state and by the Alaska Comprehensive Health Insurance Association (ACHIA). Alaska will reinsure insurers for individuals with one or more of 33 high-cost conditions. Insurers will cede to the reinsurance program both premiums received for individuals with these conditions and claims they would have paid had the individuals remained enrolled with the insurer. Insurers and the ACHIA are responsible for truing up any risk adjustment payments received by or owed by covered insurers under the federal risk adjustment program to avoid duplicate federal payments from the two programs.
It is expected that because of the program premiums will be 20 percent lower in 2018 than they would otherwise be, and that 1,460 additional individuals will gain coverage. The program is expected to reduce the cost of the benchmark silver plan, and the federal government will pass through funds to Alaska that it otherwise would have spent on premium tax credits had the benchmark premium not been reduced.
During 2017, the $55 million Alaska spent on the program kept its sole remaining insurer, Premera, in the individual market, and reduced expected premium increases from 42 percent to 7 percent. HHS expects the program to cost $59 million for 2018, of which CMS will provide $48.4 million on a quarterly basis and Alaska the rest. Over the five-year life of the program, HHS expects to pay $322.7 million to Alaska under the waiver program.
The main objects of the program from the perspective of both Alaska and the federal government were to stabilize Alaska’s individual insurance market and reduce premiums. To accomplish this, Alaska needed access to the pass-through funding it gained through the waiver. But a 1332 waiver also requires that some requirement in the ACA be waived. The requirement that is waived under Alaska’s waiver allows insurers to take reinsurance contributions into account in determining their single risk pool index rate, thus reducing premiums.
The Alaska’s legislation authorizing the program currently only lasts through 2018, and the approval is contingent on Alaska’s legislature extending the program through the five years of the waiver. The approval includes a provision allowing the departments to amend the approval to take into account any changes in applicable federal laws—something the Trump administration obviously hopes for—without requiring a new application. Alaska must file annual reports demonstrating compliance with 1332 requirements and hold public forums six months from the waiver’s effective date and annually thereafter to receive comments on the progress of the waiver program.
HHS currently has another reinsurance program 1332 waiver application pending from Minnesota and expects more in the future. The Alaska waiver is the second 1332 waiver program to be approved by HHS. Hawaii’s application was approved in 2016.
CMS To Cease Premium Outlier Reviews
The ACA and implementing regulations require the exchanges, including the federal exchange, to ask health plans seeking qualified health plan (QHP) certification to justify premium increases. An exchange is supposed to post such justifications on its website. Exchanges are also supposed to consider recommendations from states as to rate increases and to analyze the excess of premium growth outside the exchange as compared to that inside the exchange.
Since the federally facilitated exchange opened in 2014, CMS has required plans to file QHP rates, but has depended primarily on the states for rate review. It has, however, conducted outlier review, identifying proposed rates that were relatively high or low compared to rates of other plans in the same rating area, analyzing the reasons for the outlier status, and notifying state regulators of the discrepancy
On July 11, 2017, CMS posted at its REGTAP.info website a frequently asked question dated July 6, 2017 stating that it will cease outlier reviews beginning with plan year 2018. CMS considers that its outlier review has duplicated state rate review efforts and is unnecessary. This is one more step in reducing federal oversight of QHPs, deferring instead to state regulation.
Risk Corridor Litigation Developments
While Congress continues to consider replacing or revising the Affordable Care Act, two dozen lawsuits are underway challenging the failure of the Department of Health and Human Services to fully compensate insurers for amounts allegedly due them under the ACA’s risk corridor program. On July 10, 2017, HHS filed its initial appeal brief in the Federal Court of Appeals in Moda Health Plan v. United States. Moda prevailed in its claim that it is due additional payments in the Federal Court of Claims in February.
HHS argues in the brief that it has neither a statutory nor an implied contractual obligation to pay Moda more than Moda’s share of the payments that were made into the program, which Moda has already received. Judges in the Court of Claims also entered orders on July 11, 2017 staying further action in the Health Republic risk corridor class action case and in another risk corridor case brought by HPHC pending decisions by the Federal Court of Appeals in risk corridor cases it is now hearing on appeal.