The ongoing saga of the cost-sharing reductions just got stranger. On August 10, 2017, the Centers for Medicare and Medicaid Services released at their REGTAP.info website a guidance on risk adjustment methodology and rate filing deadlines. The guidance states “At this time, there have been no changes regarding HHS’s ability to make cost-sharing reduction payments to issuers.” But “[m]any state departments of insurance (DOIs) have permitted issuers to increase rates for their silver metal level plans for the 2018 benefit year in order to account for uncompensated liability that issuers may face for cost-sharing reductions provided to eligible individuals.”
Because of this, CMS intends to modify its risk adjustment methodology in future rulemaking for marketplace insurers that increase their silver plan rates “to account for cost-sharing reduction payments in this manner.” Moreover, to allow states to permit insurers to modify their 2018 rates to account for this, HHS is delaying its deadline for rate filing modifications to September 5, with final determinations on qualified health plan rates due on September 20 and final QHP rate tables due September 25.
In other words, HHS may stop reimbursing insurers for reducing cost sharing for low-income consumers at some undetermined point in the future—it has not yet decided. This despite the fact that the ACA requires the payments; insurers, the National Association of Insurance Commissioners, the National Governors Association, consumer groups, even the U.S. Chamber of Commerce are urging HHS to continue the payments; and a court order instructing HHS to not pay pending an appropriation for the payments is stayed while on appeal.
Because of the uncertainty HHS has created, some states have instructed their insurers to assume the payments will not be made and increase their rates accordingly. Thus, HHS is now changing its risk adjustment formula and filing dates. But we still do not know if all of this is needed or not—the Trump administration has not made up its mind.
CMS’s risk adjustment methodology is designed to shift funds from plans that have lower claims costs to plans with higher claims costs, in part to create a disincentive for favorable selection. HHS has to date assumed that insurers are fully compensated by the cost sharing reduction payments for their obligations to reduce cost sharing, but also that CSRs will increase demand for services because they make the services less expensive to the user. The risk adjustment formula has included a CSR adjustment factor to account for this. The formula also includes an induced demand adjustment factor for various metal level plans, again recognizing that reduced cost-sharing for higher actuarial value plans increases demand.
What’s In The Guidance?
Insurers will not be compensated for CSRs by increased silver plan premiums rather than directly in states that require insurers to load the cost of CSRs onto silver plan premiums. CMS has decided, therefore, to treat 87 and 94 percent cost-sharing reduction variants simply as 90 percent AV platinum plans, and to use the platinum plan coefficients and induced demand adjuster instead of a CSR adjuster. CMS will apply the silver plan coefficients and transfer formula to 73 percent CSR variant plans.
The guidance is unclear as to where this policy will apply. In the first paragraph the guidance says it will apply in states where insurers increase their silver plan rates to accommodate the nonpayment of the CSRs. In the second paragraph, however, it says CMS will apply this policy to all states in which HHS operates risk adjustment in the individual market, which is to say all states. This would effectively mean that all states would have to require their plans to increase their silver plan rates to account for the possible termination of CSR payments.
To afford time for insurers to refile their rates based on the assumption that CSRs will be loaded onto silver plan premiums, CMS will allow insurers to file revised rates with the states and CMS using the Uniform Rate Review Template until September 5, 2017. These rates will then be reviewed by the states and CMS. The states or CMS will submit final determinations on qualified health plan rate filings that include QHPs by September 20, and final determinations on 2018 non-QHP only rate filings by October 10.
Insurers offering QHPs through HealthCare.gov will have until September 6, 2017 to submit revised rates, which will then be reviewed for finalization by September 25. Insurers must still submit final QHP signed agreements by September 27. Final rates will be posted by November 1, the beginning of open enrollment. States that do not intend to allow insurers to change their rates must notify CMS by September 5.
Although the guidance gives states and insurers more clarity on risk adjustment methodology and gives them more time to finalize rates, it further deepens confusion in other respects. Do the changes to risk adjustment only apply in states that require increasing silver plan premiums or in all states? What is the administration’s plan regarding CSRs, and why is it incapable of making a decision?
Assuming all states now require insurers to increase premiums for silver-level plans, must they do so for both on- and off-exchange plans? How does this work with the ACA’S single risk pool requirement? If CSRs are in fact paid, are insurers supposed to refuse the payments, or will insurers in some way be required to reduce their premiums? If Congress appropriates the money to cover the CSRs in September, must rates be revised again? Can this be done before open enrollment begins in November? How much will this approach increase total government expenditures by increasing premium tax credits?
Perhaps future guidance—or the 2019 benefit and payment parameters rule, for which a notice of proposed rulemaking is expected this month—will provide further clarity.