The U.S. Department of Health and Human Services (HHS) is adding "administrative costs," including distribution costs, to the list of factors a health insurer can consider when setting individual and small group rates under the new rules that are set to take effect Jan. 1, 2014.
HHS also is:
- Telling states with their own "risk pools" for residents with health problems to let the pool members shift to other plans, if that's what the pool members want to do.
- Letting student health plan sponsors separate the risk pools for students from their risk pools for the general population.
- Promising to say something about expatriate plans later.
- Suggesting that it will try to give states ideas later about tools the states, and insurers, can use to keep people from waiting until they are seriously ill to buy health insurance.
- Indicating that it's still working on guidance relating to the state rating method update schedule, state rating program reporting requirements, and the age rating curve it will apply in states that fail to either establish their own age curve or give HHS data that HHS can use to create age curves for those states.
HHS has addressed those topics in an advance version of a final rule implementing health insurance market rule and rate review provisions (CMS-9972-F) in the Patient Protection and Affordable Care Act of 2010 (PPACA).
HHS intends to publish the final rule in the Federal Register Feb. 27.
Most provisions in the final rule will take effect 60 days after the official publication date and start to apply to individual and small group health insurance in plan years beginning on or after Jan. 1, 2014.
PPACA opponents are still trying to repeal the law or block implementation of part or all of the law, and HHS or other agencies could move to postpone implementation.
If the law takes effect on schedule and works as drafters expect, it will create a new system of exchanges, or health insurance supermarkets, starting Oct. 1.
PPACA will require all carriers selling non-grandfathered coverage inside or outside the exchanges after Jan. 1, 2014, to sell the coverage on a mostly guaranteed-issue basis, without considering personal health information.
Any non-grandfathered individual or small group health insurer will have to sell producuts that the cost of a specified percentage of the actuarial value of a standardized "essential health benefits" (EHB) package." The cheapest, "bronze level" plans must cover 58 percent to 62 percent of the actuarial value of the EHB. The most expensive, "platinum level" plans must cover 88 percent to 92 percent of the EHB's actuarial value.
PPACA already requires health insurers to spend 80 percent of individual and small group premium revenue on health care and quality improvement efforts or else make up the difference by sending enrollees rebates.
Other PPACA provisions and HHS regulations based on those provisions already require health insurers to post public explanations of any rate increases that exceed 10 percent.
PPACA will let an insurer charge the oldest insureds up to 3 times as much as it charges the youngest insureds, and it will let insurers charge up to 50 percent extra for enrollees who use tobacco. A plan also may be able to use increases or decreases in premiums in connection with wellness programs. Outside of tobacco use penalty programs and other wellness programs, plans will not be able to consider an individual's health status when setting rates, officials say.
Two temporary risk-adjustment programs and a permanent risk-adjustment program are supposed to use cash from insurers with unusually healthy enrollees to help support insurers with unusually sick enrollees.
HHS released a draft version of the new regulations in November and received about 500 comments.
From the perspective of insurers and producers in the commercial health insurance market, some of the most interesting provisions dealt with any flexibility insurers will have when setting coverage rates.
In the draft regulations, HHS proposed that an insurer should develop a "market-wide index rate" based on all EHB-type claims for all enrollees in the insurer's individual, small group or merged risk.
Once the insurer has come up with the market-wide index rate and factored in any PPACA risk-adjustment payments and charges, the insurer could then adjust the premium rate for a specific plan by taking the following factors into account:
- Actuarial value.
- Cost-sharing provisions.
- The provider network.
- The delivery system.
- Utilization management.
- Any extra, non-EHB benefits offered.
"The index rate, the market-wide adjustment to the index rate, and the plan-specific adjustments would have to be actuarially justified and implemented transparently, consistent with federal and state rate review processes," officials said.
Commenters suggested that letting insurers include distribution costs and other administrative costs in a specific plan's price would promote administrative efficiency, HHS officials said in a preamble to the final rule.
HHS agrees that insurers should be allowed plan prices to reflect administrative costs, and the list of allowable pricing factors in the final rule includes administrative costs, officials said.
"This will allow pricing to vary among individual plans by administrative costs reasonably allocable to those plans, ensuring that administrative efficiencies are priced accurately and promoting market competition," officials said.
State risk pools
Some states have been using state-subsidized programs called risk pools to pay for health care for people who cannot qualify to buy medically underwritten individual health insurance.
Enrollees in the state risk pools will be eligible to get exchange coverage or other individual coverage on a guaranteed-issue basis after Jan. 1, 2014, without going through a medical underwriting process, HHS officials noted.
Some states provide risk pools through arrangements with insurers, but others fund the risk pools directly, and federal law does not classify the state-funded risk pools as insurance, officials said.
"Individuals enrolled in state high risk pools will have the same rights as others to guaranteed availability for any products offered inside and outside of the state exchange, and states may not prevent individuals from moving to other products or to a state’s exchange," officials said. "States will continue to have the discretion to determine whether each state continues to have a high risk pool in order to ease the transition of enrollees to other products."
When asked about the concern that seemingly healthy families could use the new PPACA guaranteed-issue to rules to avoid paying for coverage until they knew they needed expensive care, HHS officials said they would address that topic later. Some commenters asked, for example, if they could allow late enrollment penalties or surcharges.
"We appreciate the various strategies suggested by commenters and agree that states have flexibility to implement policies to address adverse selection," officials said in their response. "We encourage states to consider approaches to discourage adverse selection while ensuring consumers' guaranteed availability rights are protected since state policies that limit guaranteed availability are preempted by this law. We intend to address permissible strategies to limit adverse selection in future guidance
Also in the preamble to the final rule:
- HHS officials said student health plans can use student-only risk pools, to prevent the possibility that combining young, healthy students with the risk pool for the general population could make student health insurance unaffordable.
- HHS said it will address how the PPACA rate rules and other rules apply to expatriate plans later.