United States: Final Market Stabilization Rules – How Stable Is Stable?

The Department of Health and Human Services released the final Affordable Care Act marketplace stabilization rules ("Final Rule") on April 13, 2017. The Final Rules become effective on June 19, 2017 and will, accordingly, apply to the 2018 state and federal Affordable Care Act health insurance exchanges. The Final Rule is available here.

The Final Rule is substantially the same as the proposed rules that were released on February 10, 2017 (available here), and are intended to, as the name of the rules suggest, "stabilize" the federal and state health insurance exchanges for the 2018 calendar year and going forward.

The press release accompanying the Final Rule cites the following evidence to support the government's view that the federal and state health insurance exchanges require intervention to stabilize the exchanges (reprinted from the press release, available here):

  • Approximately one-third of the counties in the United States had only one insurer participating in their exchange for 2017.
  • Five states have only one insurer participating in their exchange for 2017.
  • The premium for the benchmark second-lowest cost "silver plan" on Healthcare.gov increased by an average of 25 percent from 2016-2017.
  • Approximately 500,000 fewer Americans selected a plan in the exchange open enrollment in 2017 than in 2016.
  • Many states saw double digit increases in their insurance premiums including: AZ -116%; OK – 69%; TN – 63%; AL – 58%; PA – 53%.

The press release further makes clear that the Final Rule is not indicative of an evolution of the Trump administration's view of the Affordable Care Act. The press release quotes Ms. Seema Verma, the Administrator of the Centers for Medicare and Medicaid Services (CMS), as saying: "While these steps will help stabilize the individual and small group markets, they are not a long-term cure for the problems that the Affordable Care Act has created in our healthcare system."

The most notable provisions of the Final Rule include the following:

Guaranteed Availability

The Affordable Care Act includes a mandate guaranteeing the availability of insurance products to consumers—specifically that insurers must offer coverage to any consumer during the open enrollment period or any special enrollment period for which the particular consumer qualifies based on life events.

Under the pre-Final Rule regulations ("Former Regulations") that give definition to this mandate, a health insurer is required to give a consumer a three-month grace period to pay past due premiums prior to terminating the consumer from an insurance product.

Further, the Former Regulations require that an insurer cannot deny a consumer coverage during an enrollment period solely because the consumer owes a debt of past due premiums to an insurer for health insurance, provided that the consumer is not re-enrolling in the same product in respect of which the consumer owes a debt.

Insurers have claimed that, because of the Former Regulations, some consumers stopped paying premiums late in the year because the consumers knew that he or she could, first, assure himself or herself of eligibility for insurance the succeeding year and, second, pay past insurance premiums during the three-month grace period in the event the consumer incurred meaningful healthcare costs.

The Final Rule addresses this issue by allowing insurers to deny enrollment to any consumer who has outstanding debt for coverage under any of its products (or that of its affiliates) during the previous twelve-month period. Nevertheless, the Final Rule allows insurers to deviate from their newfound right to deny enrollment if they decide to compromise overdue premium debts, such as accepting an installment payment plan for past due premiums while enrolling a consumer for an insurance product for the successive year.

It is important to note that state-specific laws and regulations may have more restrictive requirements relating to an insurer's ability to deny coverage due to a default on overdue payment obligations. In that case, the more restrictive state law or regulation will govern. However, the Final Rule includes language encouraging state lawmakers to adopt law or rules that are comparable to the Final Rule.

Open Enrollment Period

The Final Rule shortens the open enrollment period for 2017 to 45 days, which will run from November 1, 2017 to December 15, 2017.

The shortening of the open enrollment period has been discussed and debated since the first year the Affordable Care Act exchanges opened. In 2014, the first year of the exchanges, when the need for enrollment was arguably the most critical, the open enrollment period lasted six months, from October 1, 2013 to March 31, 2014. In the second year of the exchanges, the open enrollment period was shortened compared to the first year, and lasted from November 15 to February 15. In each year since through 2017, the open enrollment period began on November 1 and ended on January 31.

The shortening of the open enrollment period is intended to mitigate opportunities for consumer gamesmanship:

  • Consumers are required to enroll for the entirety of 2018 rather than a stub year period, thus increasing the aggregate premiums paid to the insurers for 2018.
  • The shorter enrollment period reduces the opportunities for adverse selection by consumers who would otherwise not enroll, but enroll in January because the consumer learns of an adverse health event in late December or January.
  • The shortened enrollment period encourages continuity of insurance care by requiring that the new exchange insurance policy be effective immediately following the expiration of the coverage period of a previous calendar year end policy.

Some commentators have asserted that the shortened enrollment period may result in reduced enrollment, in particular with respect to young consumers and generally healthier consumers, given a constrained period and consumer distraction during the end of the calendar year (in the midst of the holidays).

Special Enrollment Periods

The Final Rules impose additional restrictions on special enrollment periods, which are periods of time other than the open enrollment period, prompted by certain life events of the consumer, during which a consumer may enroll in an exchange insurance product. Common examples of such life events are the loss of insurance coverage due to the loss of a job, the birth of a child or relocation.

Insurers have complained over the last number of years that consumers have fraudulently claimed qualifying special circumstances and accessed insurance products through special enrollment periods when they were not eligible to do so. The result, according to insurers, is that the risk pools acquire through the special enrollment process a disproportionately sick and costly patient mix.

To address these concerns, the Final Rule includes the following changes:

  • Beginning in June 2017, in states served by the HealthCare.gov platform, all consumers enrolling in a special enrollment category will be required to be verified as eligible for special enrollment prior to the effectiveness of the insurance coverage. Consumers will be given 30 days from the date of the insurance application to provide requested verifying information. Eligibility will then be verified using the information provided and existing electronic government records wherever possible. Once approved, the insurance coverage will be retroactive to the initial application date. If verification takes two or three months, the consumer will not be required to pay the insurance premium for the first month of coverage.
  • The Final Rule further limits the ability of exchange plan enrollees to change from one metal level—i.e., the platinum, gold, silver and bronze levels—to another metal level. For example, if the event resulting in special enrollment eligibility is a new dependent for an existing enrollee (i.e., the birth of a child), the existing enrollee can only enroll the dependent in the level of plan in which the primary enrollee is then enrolled.
  • Consumers enrolling in respect of a special enrollment period will no longer have the option to choose a later effective date if the enrollment is delayed due to verification issues. Instead, the consumer is required to pay the insurance premiums for the retroactive coverage period of the plan (subject to, in some circumstances, not paying for the first month of coverage, as discussed above).
  • The Final Rule imposes substantive limitations on special enrollment categories. For example, consumers who are eligible for a special enrollment due to loss of insurance are ineligible if the enrollee loses his or her coverage due to non-payment of premiums unless and until the past due premiums are paid in full.

The tightening of the verification requirements and substantive special enrollment criteria are intended to diminish fraudulent enrollment and adverse selection for the exchange plans.

Actuarial Value

As is well known, the Affordable Care Act requires that the exchange plans issued by insurers fit into four categories identified by metal—platinum, gold, silver and bronze.

One distinguishing criteria for each category is the required "actuarial value" for each metal level. The actuarial value refers to the percentage of healthcare expenses for a population that are paid by the insurance as compared to the consumers. For example, the required actuarial value for a platinum plan (the highest level plan) is generally 90, which means that the insurer must pay 90% of the health care expenses for the relevant population.

Recognizing that it is difficult to target an exact actuarial value, the Former Regulations allow de minimis variations from the target actuarial value. Through 2017, the allowable de minimis variations have been +/-2 percent, meaning that the insurance plan complies with the actuarial value requirement so long as the plan remains within +/-2 percent of the required actuarial value with respect to the relevant population.

The Final Rule increases the allowable de minimis variations effective for 2018 to -4 to +5 percent for bronze plans and -4 to +2 percentage points for all other plan levels (with exceptions with regard to certain silver plans, which are not changing under the new stabilization rules).

The intent of this rule change is to enhance the ability of the insurers to design a greater variety of products that can be offered on the exchanges, thereby enhancing patient choice on the exchanges. Critics contend, however, that increasing the allowable de minimis variations will result in increased out of pocket costs for the consumer.

Network Adequacy

The Affordable Care Act includes a variety of rules to ensure physician network adequacy for each health plan offered on the exchanges, including rules intended to ensure a sufficient choice of physicians and current information available to consumers about in-network and out-of-network providers. Historically, these rules have been established and monitored by federal government agencies, which have used quantitative metrics to assess compliance. The Final Rule shifts the authority to state regulators and, where a state does not have such a function under applicable state law, the insurer's accreditation body to establish network adequacy rules and monitor compliance with those rules.

Reactions to the Final Rule

All-in-all, the reactions to the Final Rule have not been uniformly positive (read as understatement). For example, many in the insurance industry expressed immediate and significant concerns regarding the instability – not stability – that may be instigated by the Final Rule. Some insurers have said that the Final Rule will result in lower enrollments and, in turn, lower revenue as people confront the Final Rule's additional hurdles to enrollment – hurdles which may turn people away from the exchanges and plan coverage altogether. This result, many surmise, could result in participating plans becoming non-participating plans due to increasing financial distress caused by decreasing enrollment. In addition, others have conjectured that the Final Rule's implementation will leave hospitals on the hook for more uncompensated care.

From the consumer perspective, many consumer advocates have said that the negative impacts of the Final Rule will fall squarely on the low-income population. As recently noted in a Modern Healthcare article,1 Emily Evans, a health policy analyst at Hedgeye Risk Management, has said that, of the 9.2 million people who selected plans on Healthcare.gov during the most recent enrollment period (2016-2017), 6.5 million had incomes between 100% to 250% of the federal poverty level. Therefore, the Final Rule provisions that make enrollment more challenging will disproportionately hit the low-income population and will result in lower enrollment levels – a significant stressor on participating plans and the Affordable Care Act program as a whole.

Footnote

1. "Market stabilization rule could collapse the ACA exchanges," by Virgil Dickson, Modern Healthcare, April 14, 2017

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