On May 11, 2012, the United States Department of Health and Human Services (HHS) issued a final rule that revises previous medical loss ratio (MLR) rules to establish consumer notification requirements with which insurers must comply when meeting applicable MLR requirements. In a previous December, 2011 final rule governing other aspects of the MLR amendments, HHS had required notification only when insurers did not satisfy their MLR requirements for a year. The final rule issued in May of 2012 requires notice when the MLR requirements are met, as well. Separate notice instructions issued by HHS provide guidance to insurers regarding the structure, content, and timing of the notices, which must be sent by August 1 during the year following the plan year for which the MLR is calculated.

The final rule notes that greater information transparency and “competition gains” that accompany transparency outweigh the burden on insurers of having to notify the public, regarding not only whether the MLR has not been satisfied, but also whether an issuer has satisfied its MLR requirements. Insurers had opposed the change because of both the additional burdens imposed and because of the fact that consumers, in receiving the notice, would assume that they were owed a rebate when, in fact, they were not.

Under the final rule, 45 C.F.R. §158.251, insurers in both the individual and group insurance markets will be expected to send a standard notice when their MLR requirements are met. The new regulation applies only to the 2011 MLR reporting year. The new standard notice governing when the MLR has been met reads as follows:

Medical Loss Ratio Information—The Affordable Care Act requires health insurers in the individual and small group markets to spend at least 80 percent of the premiums they receive on health care services and activities to improve health care quality (in the large group market, this amount is 85 percent). This is referred to as the Medical Loss Ratio (MLR) rule or the 80/20 rule. If a health insurer does not spend at least 80 percent of the premiums it receives on health care services and activities to improve health care quality, the insurer must rebate the difference.

A health insurer’s Medical Loss Ratio is determined separately for each State’s individual, small group and large group markets in which the health insurer offers health insurance. In some States, health insurers must meet a higher or lower Medical Loss Ratio. No later than August 1, 2012, health insurers must send any rebates due for 2011 and information to employers and individuals regarding any rebates due for 2011.

You are receiving this notice because your health insurer had a Medical Loss Ratio for 2011 that met or exceeded the required Medical Loss Ratio. For more information on Medical Loss Ratio and your health insurer’s Medical Loss Ratio, visit www.HealthCare.gov.

The Kaiser Family Foundation has estimated that consumers will receive $1.3 billion in rebates in August 2012 as a result of insurers’ failure to satisfy MLR requirements applicable to the group and individual market.^[1] The Foundation further estimates that the MLR rebates will vary significantly by state, with as many as 96 percent of all consumers in the individual insurance market expected to receive rebates, depending on the state.

On December 16, 2011, CMS released a Bulletin describing its intended approach in formal rulemaking to define the essential health benefit (EHB) provisions of the Affordable Care Act (ACA). The ACA requires that all plans sold in the individual and small group markets (both inside and outside state health benefit Exchanges) cover essential health benefits and further defines the “small group” market for purposes of essential health benefits as firms employing 100 or fewer employees (Section 2707 of the Public Health Service Act, added by PPACA §1201).

In February 2012, CMS issued a supplemental document entitled Frequently Asked Questions on Essential Health Benefits Bulletin. This supplement to the December 16th Bulletin provides answers to 22 questions arising from the December 16th Bulletin itself. Highlights are as follows:

• A single benchmark: States will be expected to select one benchmark plan as their EHB benchmark across both the individual and small group markets and both inside and outside their Exchanges. According to HHS, use of a single benchmark will reduce “administrative complexity” and will “result in a more consistent and consumer-oriented set of options.”
• Duration of a state’s initial EHB benchmark: HHS envisions an evolving benchmark, with states’ initial benchmark selected in 2012 to apply to plan years 2014 and 2015. The agency intends to “revisit this approach” for plan years starting in 2016.
• State benefit mandates; additional costs: States would need to defray the cost of state mandates that are in addition to the benefits included in state-selected benchmark plans. The largest small group plan operates as a state’s default benchmark plan which, CMS notes, typically complies with state mandates. CMS also indicates that it will revisit the question of state benefit mandates policy. Under the ACA, states must pay the full added premium cost of state mandates that are included in qualified health plans sold in state Exchanges and that exceed the scope of benefits classified as EHBs.
• State laws broadening benefit mandates applicable to the EHB benchmark: States cannot pass new legislation broadening their state benefit mandates as a means of expanding the scope of EHBs. HHS notes that state benefit mandates enacted after December 31, 2011 cannot be part of a state’s EHB benchmark in 2014 and 2015.
• State supplements to EHB benchmarks that are missing one or more of the federal EHB statutory categories of benefits: HHS indicates that it will propose rules that require states to supplement EHB benchmarks missing one or more statutory benefits. Under the proposed policy, a state would look first to the “second largest small group market benchmark plan”. If neither benchmark offers benefits in the missing categories, the state would be expected to look to the “FEHBP benchmark plan with the highest enrollment.” HHS indicates that three categories of statutory benefits – pediatric oral health, pediatric vision services, and habilitation services – typically are omitted from many health insurance plans.
• In the case of habilitation services, HHS is considering two options. Under the first, states would be expected to offer the same services covered under plans’ rehabilitation service category, and at parity. Under the second, the plan would decide which services to cover and would report this to HHS.
• In the case of oral care, HHS is considering that the state create a supplement for the EHB plan from either the Federal Employee Dental and Vision Insurance Program (FEDVIPP) with the largest national enrollment or the state’s separate Children’s Health Insurance Program plan. In the case of vision care, the frame of reference would be the FEDVIP.
• Distinguishing between plans and products: HHS notes that a “product” is the benefit package reported by an issuer in its insurance filing. By contrast, the “plan” is the benefits covered by the product, excluding all applicable riders. Where certain statutory benefits are available only as riders to a state’s EHB plan, the state would be expected to supplement the plan with its second most popular plan or the FEHBP.
• Actuarial equivalence: HHS indicates that in determining whether a plan’s coverage level is consistent with the EHB benchmark, a plan “could substitute coverage of services within each of the ten statutory categories,” so long as substitution were actuarially equivalent, as defined under CHIP regulation 42 C.F.R. §457.431. Thus, a plan could offer 10 PT services and 20 speech therapy services rather than vice versa, assuming actuarial equivalence.
• Substantial equivalence: HHS permits substantial equivalence, so that plans whose scope of benefits and coverage limitations were “substantially equivalent” to the benchmark would be permissible. Scope and duration limits would need to be consistent with federal law on matters such as annual and lifetime dollar cap prohibitions. Benchmarks including dollar limits would be incorporated into the EHB package without such limits. At the same time, plans could apply actuarial equivalence principles to create non-dollar-based limits in order to achieve “actuarially equivalent substitutions within statutory categories.”
• Self insured plans, large group plans, and grandfathered plans: CMS clarifies that these plans are not subject to the EHB requirements. HHS also notes that annual and lifetime dollar limits can apply under these plans, as long as they apply to benefits that do not fall within the statutory definition of EHBs. Thus, in large plans exempt from the EHB requirements, annual and lifetime dollar limits that apply to non-EHB categories of benefits will be permissible.
• Small group products offered to companies whose employees live in more than one state: CMS notes that the EHB benchmark would be determined by where the employer’s primary place of business is located.
• Preventive services: CMS clarifies that the federal preventive services benefit defined under the ACA (Public Health Service Act §2713) will be included as a federal EHB requirement, since the EHB benefit package includes preventive services.
• Mental health parity: CMS clarifies that mental health parity, as defined under the 2008 amendments to the parity act (known as MHPAEA), applies to the EHB benchmark.
• State-defined EHBs: CMS clarifies that states will be expected to select an EHB benchmark from the pre-existing benchmark choices outlined in the December 2011 bulletin, and will not be able to structure an EHB benchmark in a manner comparable to their ability to structure a CHIP benchmark with Secretarial approval.
• Sharing information: CMS indicates that it will provide states with information on the top three FEHBP plans, as well as the top three small group market products in each state and the largest small group plan (the default plan) based on data collected in the first quarter of 2012. States will be expected to select their benchmark in the third quarter of 2012, well ahead of the first year of plan enrollment beginning January 2014. HHS will issue guidance designed to standardize the collection of information from states regarding their EHB benchmarks. States may select their benchmark in accordance with the process that is appropriate in a given state (e.g., legislative, administrative, or a combination of the two depending on the state).
• Relationship between the Medicaid benchmark and the EHB benchmark: CMS notes that since 2006 states have had the option to offer benchmark or benchmark-equivalent coverage to certain categories of beneficiaries; in the case of Medicaid, the 2006 legislation allows states to choose among existing commercial insurance benchmarks. Alternatively, as in CHIP, states structure a benchmark equivalent requiring Secretarial approval. Under the Affordable Care Act, however, CMS interprets the amendments to the 2006 law made by the Act as requiring a state to select among possible reference plans, rather than creating its own benchmark equivalent package. If the selected EHB benchmark misses one or more of the statutory coverage categories applicable to EHBs, then CMS indicates that the state Medicaid agency would be expected to adjust the benchmark to reach all coverage categories, just as adjustments would be required in the Exchange or non-Exchange individual and small group markets. A state could, however, select a different benchmark for Medicaid from one selected for its individual and small group markets. In addition, the state could select its regular Medicaid benefit plan as its benchmark, so long as all ten statutory EHB categories are represented.

Background

The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively referred to as the ACA)^[1]; arms the federal government with significant new and enhanced tools to identify and pursue financial recovery for fraudulent, wasteful, and abusive healthcare practices. The cost of implementing other programmatic provisions of the ACA, such as coverage for the uninsured and increased fraud and abuse enforcement activities, will be paid for, in part, by monies recovered from prosecution of healthcare fraud and savings achieved from deterring fraudulent practices. Furthermore, reducing fraudulent and abusive practices is directly linked to the transformation of the health care system to a value-based system that rewards high-quality and efficient care delivery at lower cost. As the $4.1 billion recovered by the federal government in 2011 from fraud and abuse enforcement indicates, healthcare organizations, including providers (practitioners, hospitals, nursing homes), health plans, manufacturers (medical device, pharmaceutical), and suppliers (e.g., durable medical equipments companies), should expect continued aggressive enforcement in the coming years.^[2] The ACA heralds a new era of compliance in healthcare that will require these organizations to monitor their operations, implement robust compliance programs, report publicly a vast array of information about their business arrangements, and face significant penalties for violations.

Changes made by the Affordable Care Act, Public Law No. 111-148, §§ 1313, 6001, 6002, 6003, 6004, 6102, 6401, 6402, 6408, 6409, 6703, 7102, 10104, 10606

• False Claims Act (FCA). The FCA prohibits submission of fraudulent claims to the federal government, including for reimbursement from the Medicare program.
• Public Disclosure Bar. The ACA limits the scope of the public disclosure bar which prohibited FCA claims based on publicly available information by defining “publicly disclosed information” as only inclusive of information contained within federal reports and by granting the government the option to waive application of the public disclosure bar to claims based on publicly known information. Additionally, the ACA expands the scope of the original source rule by allowing a FCA whistleblower to pursue a claim if they have knowledge that adds materially to information already contained in government reports.^[3]
• Overpayments. Failure to return and report overpayments from a federal healthcare program within sixty days of identifying the overpayment now constitute a false claim and will result in penalties under the FCA.^[4]
• Health Benefit Exchanges. Payments made to state health insurance Exchanges once they are operational in 2014 with federal funds are subject to the FCA.^[5]
• Investigations. The ACA grants the Department of Health and Human Services Office of Inspector General (OIG) new authority to access information for healthcare fraud investigations from providers and suppliers as well as other organizations that provide, supply, or order medical services or supplies that are payable by a federal healthcare program even if the program does not pay. The ACA expressly authorizes the OIG to access patient medical records during such investigations.^[6]
• Anti-Kickback Statute. The ACA establishes that all violations of the federal healthcare program Anti-Kickback Statute “constitute a false or fraudulent claim” under the FCA.^[7]
• Anti-Kickback Statute (AKS). The AKS prohibits any organization or individual from giving, receiving, or soliciting remuneration in exchange for referrals of health care services or supplies paid for by the federal government.
• The ACA removes the specific intent requirement of the AKS so that a violation may arise regardless of whether an individual has actual knowledge of the AKS or specific intent to violate the statute.^[8]
• Physician Self-Referral (Stark) Law. The Stark Law prohibits physicians from referring patients for health care services paid by Medicare or Medicaid to a health care entity in which they have a financial (ownership or compensation) interest.
• Whole Hospital Exception. The ACA eliminates the Stark Law’s “whole hospital exception” that had allowed referrals, in limited circumstances, to hospitals owned by the referring physician (e.g., Specialty Hospitals).^[9]
• Self-Referral Disclosure. CMS, on behalf of the Secretary of HHS, has established a self-referral disclosure protocol (“SRDP”) for providers to report actual or potential violations of the Stark Law as required by the ACA. The ACA also gives the Secretary authority to reduce the penalties for self-reported violations.^[10]
• Ancillary Services Exception. Physicians may generally provide ancillary services (e.g., diagnostic testing, lab services) to their patients without violating the self-referral prohibition. However, the ACA now requires physicians to give their patients a written list of additional area suppliers before providing certain imaging services (e.g., magnetic resonance imaging, computer tomography, and positron emission tomography) services so that patients may make a fully informed decision.^[11]
• Compliance Programs and Requirements.
• Mandatory Provider Compliance Programs. All providers or suppliers participating in Medicare, Medicaid, or CHIP must establish a compliance program as a condition of their participation. The HHS Secretary is authorized to establish the “core elements” of the program as well as implementation timelines specific to “particular industry[ies] and category[ies].”^[12]
• Skilled Nursing Facility and Nursing Facility Compliance and Ethics Programs. All skilled nursing and nursing facilities must establish compliance and ethics programs for the purpose of detecting and preventing violations of the Social Security Act and promoting quality care. The HHS Secretary has authority to reduce penalties for self-reported violations.^[13]
• Provider Screening. The Secretary must establish regulations for screening providers of Medicare, Medicaid, and CHIP services.^[14]
• Pharmaceutical Manufacturer Compliance.
• The Secretary must establish additional requirements for compliance programs of pharmaceutical manufacturers and covered entities in order to prevent overcharging and improper discounting of medications. These requirements will permit the Secretary to review pricing information and establish civil monetary penalties for violations.^[15]
• Drug Sample Reporting. Pharmaceutical manufacturers and distributors must submit annual reports to the Secretary that contain the amount and type of drug samples requested in the preceding year, the name and address of the provider that requests the drug samples, and other information as specified by the Secretary.^[16]
• 340B Program Integrity. The Secretary must make various improvements to improve both manufacturer and covered entity compliance with 340B requirements, including creation of a system to verify ceiling price calculation, development of procedures for refunding manufacturer overcharges, creation of a system for reporting rebates and discounts to the Secretary and ensuring that covered entities receive “appropriate credits and refunds,” and imposition of sanctions.^[17]
• Transparency Reporting. “Covered drug, device, biological, or medical supply” manufacturers that pay or transfer any items of value to physicians or hospitals must report such payments or transfers to CMS on an annual basis beginning on March 31, 2013. The reports must identify whether the physician or hospital has an ownership interest in the manufacturer and explain the reason for making the payment or transfer.^[18]
• Federally Funded Long-Term Care Facilities. All long-term care facilities that receive at least $10,000 dollars must report any “reasonable suspicion” of crime against a facility resident to the Secretary and a minimum of one law enforcement agency. Failure to comply will subject the violator to a maximum civil monetary penalty of $300,000 and possible disqualification from federal health care programs.^[19]
• Penalties
• Fraud Sentencing Guidelines. The United States Sentencing Commission must, after consultation with interested stakeholders, amend the fraud sentencing guidelines so that the guidelines accurately reflect the seriousness of the crimes, provide mechanisms for mitigation, and are consistent with other federal sentencing guidelines.^[20]
• Intent. The ACA removes the specific intent requirement under the general health care fraud statute (18 U.S.C. 1347) which applies to any health care benefit program (public and private) so that an individual may now be held liable even if they acted without actual knowledge or specific intent.^[21]
• Medicare Advantage and Part D plans. The HHS Secretary may impose civil monetary penalties (CMPs) on Medicare Advantage and Part D plans that enroll individuals without their consent, transfer individuals without their consent in order to earn a commission, violate marketing restrictions, or employ or contract with an individual or entity that engages in prohibited conduct.^[22]
• Suspended Payments. The Secretary may suspend Medicare and Medicaid payments to providers or suppliers while investigating “credible allegations of fraud.”^[23]
• Program Exclusion. The Secretary may prohibit individuals and entities from participating in federal healthcare programs if such individuals and entities knowingly make false statements or misrepresentations while applying, bidding, or contracting with federal healthcare programs to provide services or supplies.^[24]
• Enhanced Penalties. Individuals or entities that knowingly make false statements in relation to false claims or unreasonably delay audits or investigations by the Inspector General may be subject to a penalty of $50,000 per false statement or $15,000 per day that the Inspector General is delayed.^[25]

Implementation

CMS has finalized regulations regarding Stark Law self-referral exceptions and provider screening requirements^[26] and has released a proposed rule for returning Medicare overpayments.^[27] CMS has not yet released a proposed rule relating to mandatory compliance programs. However, compliance experts anticipate that those regulations will closely track the OIG program guidance documents.^[28]

Key Issues

• Federalism. New York enacted a mandatory compliance law in 2009 that places further requirements on entities operating within the State.^[29] Will other States follow the lead of New York? How will the federal and state compliance requirements interact? How will differing requirements affect healthcare entities operating in multiple states?
• Effective Compliance Programs. The ACA requires all Medicare, Medicaid, and CHIP providers to implement “effective” compliance programs. However, the ACA does not define “effective” and CMS has not yet released regulations defining the term or expectations for compliance programs. Although there is well-established guidance from OIG, the absence of a final rule fosters uncertainty as organizations are working to refine or develop compliance programs.
• Overpayment. The ACA does not define “identified” for the purposes of returning overpayments within 60 days, so it is unclear when the sixty day period to avoid violating the ACA begins. CMS has proposed to define “identified” as occurring when a “person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the existence of the overpayment.”^[30] However, it is unclear whether this proposed definition actually clarifies the ambiguity.
• Reporting Requirements. The ACA includes a myriad of new reporting requirements ranging from physician disclosure of financial interests in imaging equipment to payments made to physicians and hospitals by pharmaceutical and device manufacturers. While these requirements are intended to ensure consumers are fully informed of any potential conflicts of interest a provider may have in making a referral or using a particular drug or device, it is unclear whether these requirements will truly deter fraudulent arrangements. Furthermore, the reporting requirements impose a significant burden on providers and manufacturers that may increase, rather than decrease, costs.
• Disclosure. The creation of the SRDP in the ACA means that entities must now make disclosures both to CMS and the OIG. CMS has made clear that the SRDP is only for actual or suspected violations of the Stark Law. If conduct may violate the Stark Law and give rise to Anti-Kickback liability, then the entity must disclose the conduct to the OIG rather than CMS.^[31] Given the commonalities of potential Stark and Anti-Kickback violations, the risk of significant penalties associated with self-reporting, and the related jurisdictional authorities of CMS and OIG, it is unclear how this separation of reporting systems will work in practice.
• Settlement. The ACA permits CMS to reduce penalties for Stark Law violations reported through the SRDP after consideration of factors such as the extent of harm and timeliness of reporting.^[32] Stakeholders will be closely watching whether CMS will be strict or lenient in applying these factors to future settlements. Either approach may under undermine the efficacy of the SRDP.

Authorized Funding Levels

The ACA allocated $100 million for health care fraud and abuse investigation efforts during the years 2011-2020 and the Reconciliation Act added another $250 million for such efforts during the years 2011-2016.^[33]

Background

This update to our March 2012 implementation brief reviews recent implementation efforts by the Administration in connection with coverage of contraceptives as a required element of required preventive services for all individual and (non-grandfathered) group health plans under the Affordable Care Act.^[1] The earlier brief reviewed the Administration’s final rules defining the scope of contraception coverage, as well as the scope of the religious exemption that would apply to employers that seek an exemption from this coverage requirement. Reflecting prior law on this matter, the final rule preserved the narrower religious exemption contained in the 2010 Interim Final rule governing employer obligations with respect to preventive services.^[2] As such, the exemption focuses on employers whose mission is the advancement and teaching of religion and does not cover religiously affiliated employers, such as hospitals or universities, that may be affiliated with religious institutions but whose activities are secular in nature. The final rule further indicated that the Administration would develop an implementation approach for non-exempt employers with religious or moral objections that attempts to accommodate these objections in the design of applicable federal contraceptive coverage standards.

In the case of employers that purchase group health insurance, the rule specifies that in order to avoid situations in which non-exempt employers with religious or moral objections are forced to purchase contraceptive coverage, issuers selling group health insurance products will be required to include coverage of contraceptives without cost-sharing as an employee benefit and at no cost to the employer. However, this approach does not work in the case of “self-funded” employers that act as their own insurers. Therefore, on March 21, 2012, the Departments of the Treasury, Labor and Health and Human Services (the Departments) issued an Advance Notice of Proposed Rulemaking (ANPRM)^[3] to begin the process of creating an approach that will work employers that self-insure.^[4]

March 2012 ANPRM

The ANPRM seeks comment on possible approaches in the case of non-exempt employers, as defined in the 2010 Interim Final Rule and seeks to balance two stated goals: 1) maintaining “the provision of contraceptive coverage without cost sharing for group health plan participants and beneficiaries covered under a plan sponsored by a non-exempt, non-profit religious organization that has religious objections to contraceptive coverage, in the simplest way possible;” and 2) protecting “such religious organizations from having to contract, arrange, or pay for contraceptive coverage.”^[5]

Consistent with the February 2012 final rule, the ANPRM proposes that that issuers of group health insurance products purchased by non-exempt, non-profit religious organizations simply include contraceptive coverage without cost-sharing free of charge. In the case of self-insured plans, the ANPRM suggests that one possible approach would be to have entities that act as third-party administrators (TPA) of self-insured group health plans (a function typically carried out for larger employers by the same companies that also sell insured products) offer such coverage free of charge to the self-insuring employer as part of the TPA product itself. In order to invoke this accommodation, a religious organization would have to self-certify that it meets the criteria to be eligible for the accommodation. Its self-certification in turn would trigger the TPA’s responsibility to provide contraceptive coverage with no cost sharing to the employees of the organization. In such a case, the contraceptive coverage technically would not be part of the plan sponsored by the employer but would be available through the TPA, and the TPA would be expected to both cover contraceptives without cost-sharing and notify participants of the availability of the coverage. The cost would be borne by plan savings from efficient administration or by other sources of funding.

Questions for Comment

Some of the key questions on which the Departments seek comment are:

• Which religious organizations should be eligible for the accommodation? Should for-profit employers be accommodated as well as non-profit employers?
• Should employers that provide coverage for some, but not all, forms of contraceptives be allowed to invoke the accommodation with respect to the forms they do not cover?
• How can the contraceptive coverage be funded without using funds from religious organizations? Suggestions include: drawing funds from the ACA’s reinsurance program designed to balance risk selection from 2014 through 2016; having the TPA arrange for contraceptive coverage separately through another independent entity such as an insurer; and having a private, non-profit organization pay for the contraceptive services for beneficiaries.
• How will the proposed regulations interact with state laws that may have a broader religious exemption?
• How many religious organizations, insurance issuers, TPAs, and beneficiaries will be affected and what are the average costs and savings of providing contraceptive coverage for affected beneficiaries?

A separate question is what happens to beneficiary and participant appeals and coverage rights? Under the Employee Retirement Income Security Act (ERISA), which governs health benefit plans operated by private employers, participants and beneficiaries have important protections in relation to benefits and services offered by their group health plans, such as the right to appeal the denial of coverage under the plan. Since the ANPRM suggests that this coverage technically might fall outside of the group health plan, what appeals rights would be available in the case of a coverage denial?

Background

On July 8, 2011 the Secretary of the Department of Health and Human Services (HHS) issued an Interim Final Rule with Comment Period (IFR)^[1] regarding the operating rules for two types of HIPAA transactions: eligibility for a health plan and health care claim status. The rules are in response to Section 1104 of the Affordable Care Act (ACA), which directed the Secretary to adopt certain operating rules for transactions to enable electronic health information exchange and create greater uniformity in the transmission of health information.

The ACA defines operating rules as “the necessary business rules and guidelines for the electronic exchange of information that are not defined by a standard or its implementation specifications as adopted for purposes of this part.”^[2] It also provides guidance on how the rules should work in relation to the health care system. HHS concluded the following about the operating rules: “They are business rules and guidelines; they are necessary for the electronic exchange of information; they are not defined by a standard; they do not conflict with existing HIPAA standards; they are consensus based; they are consistent with HIPAA and Health Information Technology (HIT) standards adopted by the Secretary; and together with the standards they encourage the use of electronic transactions by reducing ambiguities….”^[3]

The ACA instructed the Secretary to seek recommendations from the National Committee on Vital Health Statistics (NCVHS) regarding whether a nonprofit entity meets the requirements for developing operating rules, whether the proposed rules provide a consensus view of health care stakeholders, whether the rules are consistent with electronic standards, and whether the rules should be adopted.^[4] A subcommittee of the NCVHS reviewed the proposed rules and their authors, and recommended operating rules drafted by the Council for Affordable Quality Healthcare’s Committee on Operating Rules for Information Exchange (CAHQ CORE) and the National Council for Prescription Drug Programs (NCPDP). Based in part on the NCVHS recommendations, the Secretary published the Interim Final Rule summarized below.

Overview of the HIPAA Administrative Simplification Interim Final Rule

The IFR adopts several of the CAQH CORE operating rules relating to non-retail pharmacy eligibility for a health plan and health care claims transactions, including infrastructure rules and data content rules.^[5] The NCPDP-recommended operating rules relating to retail pharmacy transactions were not adopted because HHS found that additional operating rules were not needed to improve the transactions.^[6] With respect to the rules that were adopted, instead of listing in detail each operating rule, the IFR provides summaries of the rules it adopts and makes the content of the rules available on the CAQH CORE website.^[7] The CAQH CORE rules use a phased system with two phases. The Phase I operating rules focus on eligibility for health plans transactions, electronically confirming patient coverage information, and allowing providers access to patient information. Phase II operating rules expand on the Phase I rules and regulate the health care claim status transactions. Both phases must be implemented by January 1, 2013, and plans must certify to the HHS Secretary by December 31, 2013, that they are in compliance with HIPAA standards and associated operating rules.

Phase I Rules

• CORE 152: Eligibility and Benefit Real Time Companion Guide Rule^[8] – This rule creates a template to help standardize health plan companion guides that specify how the health plan implements HIPAA transactions. Standardization of companion guides should make it easier for providers to find information quickly. The template allows flexibility for health plans to incorporate their specific needs.
• CORE 153: Eligibility and Benefits Connectivity Rule^[9] – This rule addresses proposed usage patterns, creating a “safe harbor” that users can be sure will be supported by any CORE-certified trading partner. Following the same connectivity requirements for administrative electronic transactions will assure health plans and providers that trading partners can communicate. The rule is not intended to require trading partners to change their connectivity methods, but rather to provide a secure connection for those trading partners that do have one to better enable connectivity.
• CORE 154: Eligibility and Benefits 270/271 Data Content Rule^[10] – This rule specifies the minimum requirements for using the HIPAA-adopted 270 Eligibility Inquiry to inquire about health plan insurance coverage and to respond to such an inquiry using the HIPAA-adopted 271 Eligibility Response implementation guide. The rule regulates the determination as to an individual’s eligibility for a health plan and the individual’s financial responsibility information including co-pay, deductible, and coinsurance. It aims to help reduce the time it takes for providers to track down this information.
• CORE 155 and 156: Eligibility and Benefits Batch Response and Real Time Response Rules^[11] – These rules impose time-frame requirements for when a response must be submitted for a health plan inquiry. Real time transactions require a 20 second time limit and batch transactions submitted by 9:00 p.m. Eastern time require the response to be returned by 7:00 a.m. the next day.
• CORE 157: Eligibility and Benefits System Availability Rule^[12] – This rule requires that health plans make their eligibility systems available to conduct inquiries at least 86 percent of the time per calendar week and that health plans publish when their systems will not be available due to system maintenance. This takes into consideration the need of institutional providers to conduct health plan inquiries at any time and the need of health plans to take their systems offline for system maintenance.

Phase II Rules

• CORE 250: Claim Status Rule^[13] – This rule builds upon the Phase I CORE Rules 152, 155, 156, and 157. It requires health plans to follow the CORE Version 5010 Master Companion Guide Template, support the CORE “safe harbor” connectivity requirements, have real time response of 20 seconds or batch mode response by the following business day, and ensure system availability 86 percent of the calendar week.
• CORE 258: Eligibility and Benefits 270/271 Normalizing Patient Last Name Rule^[14] – This rule helps standardize the way providers and health plans identify individual patients in order to enhance the determination of eligibility.
• CORE 259: Eligibility and Benefits 270/271 AAA Error Code Reporting Rule^[15] – This rule simplifies the determination of health plan eligibility by giving providers specific patient identification information relating to the reasons for patient identification errors on health plan inquiries. It standardizes and improves the AAA error codes that tell providers what information might be missing and why there was an invalid match to the inquiry.
• CORE 260: Eligibility and Benefits Data Content (270/271) Rule^[16] – This rule builds upon the CORE Rule 154 enhancing the 271 transaction by requiring the provision of remaining deductible amounts for the 12 Phase I services type codes and an additional set of 39 other service type codes.
• CORE 270: Connectivity Rule^[17] – This rule expands CORE Rule 153 and applies both to eligibility for health plans and health care claim status transactions. It provides requirements for the message envelope metadata, the message envelope standards, and submitter authentication standards.

Compliance with the Interim Final Rule

The IFR states that covered entities must be in compliance with the operating rules by January 1, 2013.^[18] The IFR notes that covered entities do not need to achieve “CORE certification,” a status granted by CAQH-CORE for a fee.^[19] Provided that an entity complies with the Phase I and Phase II operating rules, it will be deemed to be in compliance with the rules.

Background

The Department of Health and Human Services (HHS), Center for Medicare and Medicaid Services (CMS) has issued a final rule^[1] addressing two previous proposed rules: “Establishment of Exchanges and Qualified Health Plans”^[2] and “Exchange Functions in the Individual Market: Eligibility Determinations and Exchange Standards for Employers.”^[3] The final rule addresses 1) minimum federal standards that States must meet to establish and operate exchanges, 2) the minimum standards that health insurance issuers must meet as Qualified Health Plans (QHPs), and 3) basic standards employers must meet to participate in the Small Business Health Options Program (SHOP) Exchange. CMS indicates that certain portions of the rule will be considered interim final, and the agency will accept comments on certain sections.^[4] CMS also indicates in the Preamble that additional details will be made available in future guidance and rulemaking, where appropriate. For information on the proposed rules, click here. This Update describes major changes made by CMS in the final rule.

Establishment of Exchanges and Qualified Health Plans

Key Definition Changes

The final rule keeps the majority of the proposed definitions relating to Exchange operation and eligibility largely unchanged, except in the following areas:

• Applicant: The final rule revises the definition of “applicant” to include individuals who are seeking coverage for themselves or their family, to clarify that certain requirements such as verification of citizenship and lawful presence apply only to individuals who are seeking coverage, and would not, for example, apply to an individual who is seeking coverage for a family member but not for himself. The agency notes that the term would apply to individuals seeking coverage regardless of whether they were ultimately determined to be eligible for Medicaid in a non-MAGI category, whether submitted directly to the Exchange, or through a state agency then transmitted to the exchange.

• Application filer: CMS redefined the term “application filer” to align with terms used in the Medicaid final rule and the tax code, and to include an adult in the applicant’s household or family as defined in the Internal Revenue Code (IRC), or if the applicant is a minor or incapacitated, someone acting responsibly on behalf of an applicant.^[5]

• Family: For purposes of administration of the premium and cost-sharing tax credits, the final rule defines and cross references section 36B of the IRC, and will be finalized in rules implemented by the Secretary of the Treasury. In addition, CMS states that an application filer must provide an attestation to the exchange regarding individuals in the household for purposes of Medicaid and Children’s Health Insurance Program (CHIP) eligibility.

• Qualified Employer: Although some commenters on the proposed rule requested an expansion of the definition of “qualified employer” to include multiple employer welfare arrangements (to be offered in the SHOP, but not the individual Exchange), and to restrict enrollment to specific industry members or organizations, the final rule requires Exchange participation standards to apply to any issuer seeking certification as a QHP. Other commenters sought to make Taft-Hartley plans and church plans available through the exchange. CMS indicated that issues related to multi-employer and church plans will be addressed in future guidance.^[6]

• Lawfully Present: Although commenters proposed expanded definitions of “lawfully present,” CMS indicated that the agency will maintain the definition used in the Pre-Existing Condition Insurance Plan, which was based on section 214 of the Children’s Health Insurance Program Reauthorization Act (CHIPRA).^[7]

• Medicare Secondary Payer rules relating to End Stage Renal Disease: The final rule clarifies that QHPs offered in the small group market fall under the definition of a group health plan subject to Medicare secondary payer rules under the Social Security Act, resulting in parity between SHOP and non-Exchange small group market.

Exchange Requirements and Approval^[8]

The final rule left largely unchanged provisions related to the establishment of state Exchanges, permitting states to establish Exchanges as governmental agencies or non-profit organizations. CMS indicated that it would make information available to allow states to leverage work done by other states, including a web portal that will permit information sharing among states. As included in the proposed rule, the HHS Secretary must determine by January 1, 2013 whether a state Exchange will be operational by January 1, 2014. Under the final rule, states will submit an “Exchange Blueprint” (the proposed rule used the term “Exchange Plan”) to HHS. States will be notified of approval, disapproval or conditional approval. If a state fails to submit a blueprint or if the blueprint is not approved, HHS will establish an Exchange in the state.

CMS provides timeframes for the approval of significant changes to the Exchange Blueprint, permitting changes to go into effect either upon written approval by CMS or within 60 days of submission to CMS (CMS may extend consideration for an additional 30 days for good cause). In addition, CMS clarified that a state insurance agency could function as an Exchange, and that an Exchange’s board must include at least one member who is a consumer representative. Since CMS does not intend to finalize the reinsurance program as part of the Exchange rule, there is no longer a requirement to perform responsibilities related to the reinsurance program. CMS made a technical change related to non-discrimination standards and indicated that the agency will provide future guidance on the oversight and enforcement of non-discrimination standards. CMS clarified that calculations and reporting of user fees must be consistent with HHS’s medical loss ratio rule under 45 CFR 158, and that states will not be required to announce Exchange user fees on an annual basis, as required in the proposed rule, permitting states to establish a notification process.

General Exchange Functions

The final rule made a number of changes related to Exchange function in the areas of eligibility determinations and appeals. First, because CMS intends to address the content and manner of appeals of individual eligibility determinations in future rulemakings, the agency indicated that appeals have been removed from the list of minimum Exchange functions, although the final rule includes a requirement that Exchanges provide eligibility notice, including notice of the right to appeal.^[9]

Consumer Assistance Tools^[10]

CMS revised the proposed regulations relating to consumer assistance tools, such as websites and call centers, to require call centers to meet meaningful access standards as defined in the regulation. Citing requirements under the rule that a call center “address the needs of consumers requesting assistance,” CMS declined to add additional requirements and responsibilities related to establishing key areas of competency, referral to other sources of information, referrals to state agencies, navigators, assisters, oral translation services, providers, or specific types of services. CMS declined to require call centers to meet performance measures, and is considering recommendations regarding development of a model Website template for future guidance, including privacy and security of patient information standards.

Furthermore, the final rule directs Exchange websites to display premium and cost-sharing information and summary of benefits and coverage for each QHP, but will permit Exchanges to decide whether to make consolidated provider directories or links to QHP websites in order to meet statutory requirements. CMS clarified the final rule to permit individuals to select a QHP on the exchange website to initiate enrollment, rather than having to complete the entire enrollment process on the site. The final rule also changes requirements relating to “plain language” communications to include auxiliary aids and services, both oral and written translation, and notices that information is available in languages other than English. In addition, the final rule notes that the “meaningful access standard” is applied to Exchange notices and QHP issuer notices, indicating that specific access standard guidance would be provided in the future. In addition, the agency indicated that the final rule was modified to direct Exchanges to provide education regarding insurance affordability programs.

Navigation Program Standards^[11]

In response comments on conflict of interest of Exchange Navigators, CMS requires Exchanges to develop and disseminate a set of conflict of interest standards to ensure appropriate integrity of Navigators, and defines conflict as “private or personal interest sufficient to influence or appear to influence, the objective exercise of his or her official duties.” In addition, CMS directs Exchanges to establish training standards that apply to Navigators, including both paid and unpaid staff of entities serving as Navigators. CMS indicated that the agency will issue model training standards. In response to comments, CMS clarified that Exchanges may not require Navigators to be licensed as agents or brokers. CMS also clarified that as third parties under the Exchange grant agreement, Navigators are subject to the non-discrimination standards that apply to Exchanges. The final rule requires that at least one entity serving as a Navigator be a community or consumer-focused non-profit organization, and provides a list of entitles that, among others, would meet the requirement. CMS includes in the final rule a prohibition against navigators receiving compensation from health issuers for enrolling individuals in QHPs, but clarifies that this would not preclude Navigators from receiving grants that are funded through insurance user fees, and does not preclude Navigators from receiving grants or funding from issuers for activities unrelated to enrollment. CMS clarified that subsidiaries of health insurance issuers and associations that include members or lobby on behalf of the insurance industry are prohibited from serving as Navigators.

Agents and Brokers^[12]

The final rule includes a new section, as an interim final rule subject to a comment period, codifying section 1312(e) of the ACA to give states the option to permit agents and brokers to enroll individuals and employers in QHPs. Under this option, Exchanges may display information about agents and brokers on its Website or in other publicly available information. Agents and brokers may assist individuals in applying for advance payments of premium tax credit and cost-sharing reductions. CMS also seeks comments on how Exchanges could work with Web-based entities and other entities with experience in health plan enrollment. The final rule clarifies that although nothing in the final rule prohibits a QHP issuer from selling QHP coverage directly or through an agent or broker, since enrollment is not through an Exchange, enrollees are not eligible for benefits that are tied to enrollment through the Exchange, such as premium tax credit and cost-sharing assistance. The final rule establishes minimum federal standards for the use of Web-based enrollment by third parties,^[13] and includes provisions to ensure that agents and brokers comply with an Exchange’s privacy and security standards and with applicable state law.

Standards for Exchange Notices^[14]

CMS clarifies that applications, forms and notices issued by an Exchange must comply with the readability and accessibility standards established under §155.205(c), removes the requirement that Exchanges must re-evaluate applications, forms and notices on an annual basis (instead permitting Exchanges to determine the appropriate timing), and removed the requirement that the Exchange consult with HHS. Finally, a notice must include the reason for the intended action.

Privacy and Security of Information^[15]

CMS made several modifications to the privacy and security provisions, including removing a definition of “personally identifiable information” (PII), since the term is used by all federal agencies and is defined in the Office of Management and Budget Memorandum M-07-16. CMS also indicated that the agency made significant changes to the Exchange privacy and security standards to give specific guidance to states and to ensure confidentiality for individuals who interact with the Exchange. The final rule limits the purposes for which an Exchange may use PII, prohibits the creation, collection, use or disclosure of PII unless the Exchange complies with privacy and security standards, sets expectations for the development of privacy and security protocols by an Exchange, and requires an Exchange to monitor, periodically access and update security controls. The final rule also removes references to the Health Insurance Portability and Accountability Act (HIPAA) privacy standards from proposed §155.260(b), which is now designated as paragraph (a) under this section of the rule. CMS states that this was done to avoid confusion and because the agency “believes that the privacy and security standards in the final rule are analogs of the HIPAA policies in the proposed rule, with similar standards and restrictions.” The final rule requires Exchanges to ensure that its workforce complies with requirements and applies civil penalties to each instance of knowing and willful improper use or disclosure of information.

Exchange Functions in the Individual Market: Eligibility Determinations for Exchange Participation and Insurance Affordability Programs

Definitions and General Standards for Eligibility Determinations^[16]

CMS included in the final rule a distinction between the use of the term “MAGI”–used for determining eligibility for premium tax credits and cost-sharing reductions–and the term “MAGI-based income,” used to denote household income for the purposes of determining Medicaid and CHIP eligibility. CMS also clarified that the term “minimum value” is used to describe coverage in an eligible employer-sponsored plan, and that the term means the plan meets the standards with respect to coverage of the total allowed cost of benefits under section 36B of the IRC, and that “insurance affordability program” includes Medicaid, CHIP and premium and cost-sharing tax credits.

Options for Conducting Eligibility Determinations^[17]

CMS proposed an interim final rule and seeks comments on eligibility determinations. Specifically, an Exchange my follow state Medicaid agency rules to conduct eligibility determinations and advance payment of premium tax credits, or an Exchange can make preliminary eligibility assessments, subject to certain standards, which it then turns over to the state Medicaid agency for the final determination. The Exchange has the option to determine eligibility for advance payment of premium tax credits and cost-sharing reductions, or enter into an agreement with HHS. CMS intends to provide future guidance on this issue.

Eligibility Standards^[18]

CMS revised the final rule to align residency standards with Medicaid and CHIP. CMS anticipates providing future guidance on what constitutes “reasonably expected” in regards to an applicant’s lawful presence, as well as guidance on eligibility and enrollment oversight tools and performance measurements. CMS revised eligibility criteria for advance payments on premium tax credits to align with the requirements in section 36B of the Internal Revenue Code. CMS has revised the proposed rule to include a provision on eligibility for cost-sharing reductions, and seeks comments on the proposal. Specifically, CMS adds a provision which clarifies situations where an individual with an expected household income of less than 100 percent of the federal poverty level for the benefit year in which coverage is requested would be eligible for both advance payments of premium tax credits and cost-sharing reductions; the time period for measuring income for cost-sharing reductions; and when cost-sharing reductions are available in situations where multiple tax households are covered in a single policy.

Eligibility Determination Process^[19]

In response to comments concerned about the collection of social security numbers (SSNs), the final rule clarifies that an Exchange must collect an SSN (to be validated by the Social Security Administration) from any applicant that has a social security number, including a “non-applicant” if the non-applicant is a tax filer, has a SSN, and has filed a tax return for the year in which the tax data would be used. CMS further clarifies in the final rule that in order for an Exchange to authorize advance payments of the premium tax credit, it must obtain certain attestations from the tax filer (further guidance will be provided). In response to comments regarding the employer notice of an employee’s subsidy eligibility determination, CMS revises the proposed rule — which only provided that the notice identify the employee — to require the notice to include the identification of the employee, that the employer may be liable for the shared responsibility payment, and procedures for appeals. Finally, based on comments, CMS is revising the final rule to include an interim final rule at 45 C.F.R. §155.310(e) requiring an Exchange to conduct an eligibility determination promptly and without undue delay, with the timeliness commencing from the time an Exchange receives the application or the transfer from the eligibility administering agency. CMS notes that it will provide future guidance on the timeliness standard.

Verification Process Related to Eligibility for Enrollment in a QHP^[20]

The final rule is revised to incorporate commenters’ suggestions that CMS specify the ways in which an applicant can submit documentation to an Exchange; thus, 45 C.F.R. §155.315(f)(2)(ii) provides that an Exchange is required to present the opportunity for an applicant to present satisfactory documentary evidence via the channels available for the submission of the application. CMS further revises this section of the final rule to specify that Exchanges “must examine” electronic records where applicable, as opposed to the “may examine” as existed in the proposed rule. The final rule allows Exchanges to have flexibility in their verification procedures by allowing Exchanges to accept an attestation of residency directly from an applicant or by examining HHS approved electronic data sources. CMS intends to provide future guidance on what documents may be used to support verification. Finally, CMS revises include as an interim final rule a new provision at 45 C.F.R. §155.315(g) allowing a case-by-case exception for applicants whose documentation does not exist or is not reasonably available (e.g., homeless individuals, victims of domestic violence or natural disasters).

Verification Process Related to Eligibility for Insurance Affordability Programs^[21]

Many commenters expressed concern about the proposed standard that would limit an Exchange’s ability to follow the alternative verification process to situations where an application filer attests to the tax filer’s annual income as decreasing or expecting to decrease by 20 percent or more. The concern was that this 20 percent threshold on household income was too high and would lead to a substantial group of tax filers being unable to obtain premium tax credits proportionate to their household income, whether they could substantiate a lower income or not. In response to this concern, CMS revised the final rule to specify that an Exchange must use information other than tax data to verify income in situations where an applicant attests that a tax filer’s annual income is “reasonably expected” to decrease from his or her tax data. In addition, the final rule clarifies that as part of the alternative verification process, the Exchange must rely on attestation without any further verification if an applicant attests to his or her projected annual household income as no more than 10 percent of his or her prior tax data. In order to align the final rule with the Medicaid Eligibility final rule, CMS adopts new language in 45 §153.320(c)(2)(i)(A) to describe verification of household size. Finally, the final rule clarifies that an Exchange is required to stop advanced payments of premium tax credits and cost-sharing reductions at the end of the required 90 day inconsistency period if there is no tax data available.

Eligibility Redeterminations during a Benefit Year^[22]

Exchanges may not require enrollees to report changes in income or access to minimum coverage, unless an eligibility determination is requested by the enrollee. In addition, Exchanges must notify standards for reporting changes to enrollees who request notification. The final rule gives Exchanges more flexibility to conduct data matching during the benefit year. Exchanges must notify enrollees of changes identified through data matches that will result in a change in eligibility, and allow enrollees up to 30 days to provide additional information. The final rule allows Exchanges to better align the effective dates for eligibility redeterminations and effective coverage dates by providing that changes which result from redeterminations during the benefit year must be implemented for the first day of the month following the date of the redetermination notice.

Annual Eligibility Redeterminations^[23]

In response to comments regarding timing of annual redeterminations, CMS aligns annual redetermination with annual open enrollment. The final rule promotes flexibility for the Exchanges by permitting Exchanges to adjust the timing and coordination of the redetermination notices starting on January 1, 2017, as long as the timing of the notice is not earlier than the notice for annual open enrollment. CMS notes, however, that redeterminations during the benefit year do not satisfy the annual redetermination for that enrollee. Finally, the final rule clarifies that an Exchange must obtain authorization from an enrollee to request his or her tax data to conduct eligibility determinations. The authorization may be used by the Exchange for a period of up to five years.

Administration of Advance Payments of the Premium Tax Credit and Cost-Sharing Reductions^[24]

The final rule adopts as an interim final provision a timeliness standard of “promptly and without undue delay” in which an Exchange must, among other actions, transmit eligibility and enrollment information to HHS. Many commenters raised privacy concerns in response to proposed rules prescribing the transmittal of information between the Exchange and HHS when an enrollee changes employers or when an enrollee receiving subsidies terminates coverage from a QHP. In response, CMS replaced Social Security Number with taxpayer identification number.

Coordination with Medicaid, CHIP, the Basic Health Program, and the Pre-Existing Condition Insurance Plan^[25]

The final rule requires Exchanges to provide information and explanation to the applicant in situations in which the tax filer’s household income is not eligible for premium tax credits and at least one of the tax filer’s household members is ineligible for Medicaid. The rule also clarifies standards for coordination to align with those outlined in the Medicaid final rule. Finally, to address the concern that individuals may not be aware of coverage available to them, the final rule clarifies that the Exchange will assess information provided by the applicant to determine Medicaid eligibility on factors other than MAGI.

Exchange Functions in the Individual Market: Enrollment

Enrollment of Qualified Individuals into QHPs^[27]

In the final rule, CMS clarified that Exchange websites must permit consumers to select a QHP. The final rule requires Exchanges to send enrollment information to both QHP issuers and HHS promptly and without undue delay, removing the requirement that Exchanges submit enrollment information to HHS on a monthly basis. Finally, The final rule requires Exchanges to reconcile enrollment information with QHP issuers and HHS on a basis of no less than monthly.

Initial and Annual Open Enrollment Periods^[28]

In the final rule, CMS extended the end of the initial enrollment period from February 28, 2014 to March 31, 2014. In response to concerns by commenters that proposed effective dates would lead to gaps in coverage, CMS offered a couple of options, one or both of which may be offered by an Exchange. The Exchange must receive a QHP selection by the 15th of the month in order for coverage to be effective on the first day of the following month, but Exchanges may make coverage effective earlier if all QHP issuers agree. The final rule clarifies that advance payments of the premium tax credit and cost sharing reductions will not begin until the first of the month. Exchanges must send notice of annual open enrollment no earlier than September 1 and no later than September 30th of each year. CMS also provided a new option for Exchanges to automatically enroll qualified individuals, as specified by HHS, if Exchanges can demonstrate good cause for those auto-enrollments.

Special Enrollment Periods^[29]

CMS will provide additional guidance relating to circumstances in which an Exchange might be required to notify individuals of the availability of coverage during special enrollment periods. CMS in the final rule modified the special enrollment period effective dates so that a QHP must receive a selection by the 15th of the month in order for coverage to be effective on the first day of the following month. As with the annual and initial enrollment period final rules, Exchanges have the flexibility to make coverage effective more quickly with the agreement of all QHP issuers, but again, premium and cost-sharing reductions will not begin until the first of the month. The same limitation regarding premium tax credit and cost-sharing reductions apply to individuals enrolling mid-month as a result of birth, adoption, or placement for adoption. In addition, CMS clarifies that loss of coverage includes those circumstances described in 26 CFR 54.9801-6(a)(3)(i) through (iii), which are regulations issued by the Department of Treasury for premium tax credits relating to special circumstances including loss of minimum coverage or dependent coverage.

Termination of Coverage^[30]

A number of changes were made in the final rule regarding termination of coverage from a QHP offered through an Exchange. The proposed rule specified that in instances in which an enrollee wished to terminate coverage because the enrollee obtained new minimum coverage, the last day of coverage would be the day requested by the enrollee, provided the enrollee gave “reasonable notice,” and commenters requested that CMS define the term. Under the final rule, CMS clarifies that reasonable notice is 14 days from the requested date of termination, although coverage may be terminated sooner at the request of the enrollee if the plan can terminate coverage sooner. CMS also clarifies that the grace period for non-payment of premiums is not the same 90-day grace period for non-payment of premiums for individuals receiving premium tax credits, permitting states to make the grace period consistent with existing state laws.

The final rule also broadens the reasonable accommodation requirement in terminating coverage for persons with disabilities to include anyone who meets the definition of disability in the Americans with Disabilities Act, rather than limiting the reasonable accommodation to individuals with mental or cognitive disabilities, as defined in the proposed rule. CMS removed a requirement that QHPs terminate enrollee coverage when the individual obtained other minimum essential coverage, based on comments that the rule seemed to conflict with guarantee renewability provisions in section 2703 of the Public Health Service Act. CMS removed the requirement in the final rule, noting that the individual would no longer be eligible for premium or cost-sharing reduction assistance. In response to concerns that gaps in coverage may occur if individuals are automatically terminated from Exchange coverage when they become eligible for Medicaid, the Children’s Health Insurance Program (CHIP) or a Basic Health Plan (BHP), the final rule clarifies that termination will not be automatic upon a finding of eligibility, but instead, specifies that the last day of exchange coverage is the day before Medicaid, CHIP or BHP coverage begins.

SHOP Exchanges

Establishment Standards^[31]

CMS finalized SHOP standards as proposed, and added a new definition of “group participation rule”, defining the term to mean a requirement relating to the minimum number of participants or beneficiaries that must be enrolled in relation to a specified percentage or number of eligible individuals or employees of an employer.”

Functions^[32]

The final rule expanded SHOP functions to require a premium calculator and to facilitate plan choice, and it indicated that CMS will provide a model computer code to assist SHOP Exchanges in meeting the requirement. CMS also clarified that individuals who become “qualified employees” should be permitted to enroll outside of the annual open enrollment period. This would apply to new hires, as well as to other employees who become qualified outside of the initial or annual open enrollment period. CMS also clarifies that a SHOP may permit employers to offer employees a single QHP.

Under the final rule, a SHOP is responsible for providing each qualified employer with a “single bill,’ which shows aggregate premium payments from employers. CMS indicated that premium aggregation decreases the burden on employers by permitting the employer to write a single check for the total premium amount due, and that premium aggregation will not increase the administrative burden on issuers, since they will no longer have to submit, track and support a large number of paper bills to individual employers. In addition, issuers will only need to reconcile discrepancies with a single entity, rather than employers. Further CMS requires bills provided by the SHOP to contain the total amount due by the employer, the portion of each employee’s premium for which the employer is responsible as well as the employee share.

Eligibility Standards^[33]

In response to multiple comments, CMS indicated that it did not have statutory authority to extend the definition of an employee to a sole proprietor, which would have allowed self-employed individuals to purchase coverage through the exchange. CMS also indicated that it is considering future rulemaking to address the method of determining employer size for purposes of deciding whether the employer is a large or small employer.

On March 16, 2012 the U.S. Department of Health and Human Services (HHS) released a Final Rule under the Affordable Care Act (ACA) regarding standards related to reinsurance, risk corridors and risk adjustment.^[1] A summary of the proposed final rule was previously posted here. The Final Rule, which takes effect May 22, 2012, addresses several issues that were raised in both the proposed final rule and the notice of proposed rulemaking (NPRM)^[2] issued by HHS on July 15, 2011 (the NPRM is described here). This Implementation Brief Update addresses Final Rule.

Background

The reinsurance, risk corridor and risk adjustment programs, established under the ACA at sections 1341, 1342 and 1343, respectively, were developed to mitigate possible health insurance adverse selection and to maintain stable premiums in the individual and small group markets as implementation of the ACA’s insurance market reforms and health insurance Exchanges begin in 2014. Under ACA section 1341, each state must establish a temporary reinsurance program for years 2014-2016 to help stabilize premiums for coverage of high-risk individuals in the private market.^[3] Section 1342 of the ACA requires the HHS Secretary to establish a temporary risk corridor program for years 2014-2016, which will apply to qualified health plans (QHPs) in the Exchange market in order to protect issuers of QHPs against excessive loss or gains. Finally, ACA section 1343 requires each state that establishes an Exchange to establish a permanent risk adjustment program to better spread an insurer’s financial risk; the program will apply to all non-grandfathered plans in the individual and small group markets both inside and outside of the Exchange. ACA section 1321(c) (1) authorizes the HHS Secretary to create and implement reinsurance and risk adjustment programs in states that do not do so.

Key Modifications made by the Final Rule

Definitions (42 CFR §153.20)

In response to comments, HHS modified several definitions proposed in the NPRM, such as: “attachment point”, to clarify that reinsurance is payable on all covered benefits, not just on essential health benefits, as proposed;^[4] “contribution rate”, to be a per capita amount each contributing entity pays with respect to reinsurance contribution enrollees who are residents of the state;^[5] and “risk adjustment covered plan”, to clarify that with the exception of Medicare Advantage plans, Medicare Prescription Drug plans, and coverage for excepted benefits (e.g., vision only plans) all health insurance coverage plans are regarded as risk adjustment covered plans, including Consumer Operated and Oriented Plans and multi-State plans.^[6] In addition, the final regulations add the defined terms “reinsurance contribution enrollee”, which is a plan beneficiary for which reinsurance contributions must be made; and “individual risk score”, to describe predicted health care costs for a specific type of enrollee.^[7]

State Notice of Benefit and Payment Parameters

The Final Rule clarifies [at 45 C.F.R. §153.100] when a state must publish a notice of benefit and payment parameters (e.g., when a state modifies HHS data requirements for reinsurance payments, collects contributions, utilizes more than one reinsurance entity, etc.) and adds a new provision that requires states operating a risk adjustment program to publish a notice of benefit and payment parameter that sets forth its risk adjustment methodology. Although there were comments requesting that a state should have to justify its modifications to HHS’s payment parameters, the final rules allow states to maintain flexibility in determining which parameters best suit the administration of the state’s reinsurance program.^[8] The final rules specify [at 45 C.F.R. §153.100(c)] that state notices must be issued by March 1 of the calendar year preceding the first benefit year to which the notice applies. Lastly, the final rules clarify [at 45 C.F.R. §153.110(e)(2)] that if a state modifies reinsurance parameters from those in the annual HHS notice of benefit and payment parameters, then it must apply the modifications uniformly throughout the state.

State Standards for the Transitional Reinsurance Program for the Individual Market

In response to many comments expressing concern over the requirement that a state establishing an Exchange operate a reinsurance program, the Final Rule [at 45 C.F.R. §153.210(a)] no longer requires states that choose to operate an Exchange to establish a reinsurance program. As HHS notes,^[9] this change appropriately gives the states more flexibility.

The Final Rule revises [at 45 C.F.R. §153.220(a)] the proposed rule such that a state has the option to collect contributions from fully insured plans while HHS will collect contributions from self-insured plans. However, the details on what methodology will be used for collecting reinsurance contributions will not be provided until HHS releases its notice of benefit and payment parameters (due out mid-October 2012).^[10]

Because of the anticipated workload states will have in establishing Exchanges, the Final Rule postpones [at 45 C.F.R. §153.220(b)] the deadline for notifying HHS of a state’s intention to collect contributions from fully insured plans to December 1, 2012, for the 2014 benefit year, and by September 1 of the calendar year that is two years prior to applicable benefit year for years after the 2014 benefit year.

The Final Rule removes [at 45 C.F.R. §153.230(a)] the requirement that reinsurance payments be linked to essential benefits as proposed in the NPRM and instead uses “covered benefits” as the basis for calculation of reinsurance payments.

Standards for the Risk Adjustment Program

The proposed timeframe for the risk adjustment process was finalized as proposed [at 45 C.F.R. 153.310(c)]; however, in response to comments, HHS added an annual deadline of June 30 (of the year following the benefit year) by which states must notify issuers of risk adjustment payments and charges owed. HHS also adds a provision to the Final Rule [at 45 C.F.R. 153.310(d)] requiring states operating a risk adjustment program to submit an annual risk program summary to HHS.

HHS notes that it will promulgate future guidance on the method in which a state will notify HHS of its choice to operate a risk adjustment program if it establishes an Exchange any time after 2014.^[11]

HHS received many comments expressing concern over privacy issues that may occur when the state is collecting data to support a determination of an individual’s risk score determination. In response to these comments HHS modified in the Final Rule the approach to risk adjustment data collection so that when HHS operates a risk adjustment program, it will use a distributed approach so that individual data remains with the issuer; however, HHS permits a state that operates a program to choose a data collection approach that is best suited for its program.^[12]

Health Insurer Issuer Standards Related to Transitional Reinsurance Program

The Final Rule clarifies [at 45 C.F.R. §153.400(a)] that all contributing entities must make reinsurance contributions on behalf of group health plans and health insurance coverage they represent with the exception of excepted benefit plans, private Medicare and Medicaid plans, and federal and certain state high-risk pools.^[13] HHS also added a provision [at 45 C.F.R. §153.400(c)] that requires each contributing entity to submit contributions to HHS on a quarterly basis starting on January 15, 2012; however, if the state elects to collect contributions it may set its own collection timeframe.^[14] Finally, HHS added a provision in the Final Rule [at 45 C.F.R. §153.400(d)] that specifies data submission requirements for states that elect to collect reinsurance contributions. In response to comments requesting clarification of standards issuers must use to request reinsurance payment and frequency of payments, HHS states in the preamble to the Final Rule [at page 17236] that its notice of benefit and payment parameters will provide further guidance on the reinsurance claim and payment process.

Issuer Standards Related to the Temporary Risk Corridor Program

In an effort to be consistent with the medical loss ratio rule, the final regulations [at 45 C.F.R. §153.500] modify and add certain defined terms such as the following: “allowable administrative costs” is revised to include a 20-percent-of-premiums-earned cap on administrative costs; “allowable costs” is revised to include incurred claims, quality improvement and health information technology expenditures; “direct and indirect remuneration” is revised to mean prescription drug rebates received by issuer; and “premiums earned” is added to mean monies paid by or for enrollees of a QHP as a condition of receiving coverage under the QHP.

Noting that the proposed rule did not address the issue of whether profits or taxes are included in the risk corridor calculations, HHS states that it plans to propose in the HHS notice of benefit and payment parameters that both profits and taxes be included within the administrative costs for purposes of calculations.^[15] In addition, the HHS notice of benefit and payment parameter will address risk corridor payment deadlines.^[16]

The Final Rule revises [at 45 C.F.R. §153.520(d)] the proposed rule regarding attribution of reinsurance payments to clarify that an issuer must attribute reinsurance payments and contributions as well as risk adjustment payments and charges to the benefit year to which the contributions, payments or charges apply, not the year the claim was submitted. HHS adds provisions in the Final Rule [at 45 C.F.R. §153.520(a) and (b)] to clarify that the attribution of items must be reasonably attributable to a QHP’s operations and reasonably allocated across the insurer’s plans (QHPs and non-QHPs).

In order to more clearly follow the ACA, the Final Rule revises [at 45 C.F.R. §153.530(b)] the proposed rule such that reinsurance and risk adjustment payments and charges are adjustments made to allowable costs instead of premium revenue.^[17]

Health Insurance Issuer Standards Related to the Risk Adjustment Program

The Final Rule modifies [at 45 C.F.R. §153.610(a)] the proposed issuer data submission standards by removing specific data collecting requirements and affording more flexibility to the states in collecting risk adjustment data. The Final Rule adds a provision [at 45 C.F.R. §153.610(b)] that requires issuers that offer risk adjustment covered plans to store all required risk adjustment data in accordance with the data collection approach established by HHS or the state. Finally, in response to a comment in support of submission deadlines, the Final Rule adds a provision [at 45 C.F.R. §153.610(e)] requiring issuers to pay net charges to the state (or HHS on the state’s behalf) within 30 days of the assessment of the charges.

On March 16, 2012 the Centers for Medicare and Medicaid Services (CMS) released a final rule regarding Medicaid eligibility under the Affordable Care Act. A summary of the final rule was previously posted here. This Update summarizes the key provisions of the final regulation, which also contains certain interim final rules on which further comment is sought.

The Final Rule, which takes effect January 1, 2014, addresses a wide array of issues raised in the 2011 proposed rule.^[1]

Medicaid enrollment bar for custodial parents or relatives whose children are without coverage under Medicaid, CHIP, or another source of minimum essential coverage

The final rule retains the bar against Medicaid coverage for Medicaid-eligible custodial parents or other caretaker relatives for a child under 19 whose child is not enrolled in Medicaid, CHIP, or other minimum essential coverage. CMS retained the final rule (at 42 C.F.R. §435.119(c)) “without modification” because the policy reflects longstanding Medicaid policy, because the income of a non-custodial parent is not taken into account in determining the child’s Medicaid eligibility, and because virtually all such children therefore would be eligible for Medicaid, even in cases in which a non-custodial parent is responsible for securing minimum essential coverage through, for example, a place of employment.

Coverage of persons with disabilities

In response to many comments, the final regulations clarify that persons with disabilities and long-term health care needs who may qualify for Medicaid both, as MAGI individuals (i.e., nonelderly low-income adults) as well as persons with disabilities under Medicaid’s traditional eligibility test, have the right to choose the eligibility category under which they apply. The proposed rule had required their enrollment as MAGI individuals and had directed states to resolve the eligibility category issue post-enrollment. While this approach might have speeded the enrollment process, it had the potential to deprive persons with disabilities and long-term health care needs of the full level of Medicaid coverage to which the traditional population remains entitled, in contrast to the “essential health benefit” coverage levels available to individuals whose eligibility is based on the MAGI test. This issue is discussed at greater length below.

Coverage of persons with MAGI-based income over 133% of the federal poverty level

The final rule (at 42 C.F.R. §435.218) establishes a new state option effective January 1, 2014 to extend coverage to this group, at state-defined income standards. For this group, states would have the option of enrolling individuals who meet the eligibility standards but may not otherwise qualify for full minimum essential coverage (e.g., persons covered only for family planning and related services under the family planning services option). The final regulation clarifies that enhanced FFP is not available for this group but that certain children who also meet the CHIP definition of optional targeted low-income child would be eligible for enhanced FFP.

Simplified eligibility rules for parents, caretaker relatives, pregnant women, and children using the MAGI financial eligibility standards and income valuation methods

A major change in Medicaid policy is the creation of a new financial eligibility standard based on modified adjusted gross income (MAGI). The standards and methodologies for evaluating “MAGI” are fixed in federal statute. In its proposed rule, CMS moved to modify many of the existing federal regulations governing financial eligibility for 4 existing categories of people (children, parents, caretakers, and pregnant women), all of whom, along with newly eligible adults, will be governed by the ACA’s MAGI standards. This move to consolidate certain categories of people under the MAGI banner creates significant change in the current program, some in a more generous direction, and some in a direction that will actually force states to tighten Medicaid eligibility standards.

The final rules (at 42 C.F.R. §§435.110, 435.116, and 435.118) retain CMS’ simplification approach to these existing coverage categories. CMS indicates that it may consider further simplification, as well as additional guidance explaining the relationship between the new MAGI-based eligibility groupings and the multiple categorical groups that still exist under the ACA but whose coverage may be subsumed into this new rule. The final rule retains the medically needy eligibility group as an independent eligibility category and without regard to MAGI. CMS notes that the option to spend-down to medically needy coverage remains part of the law.

The final rule also retains the requirement that states convert their existing eligibility standards and methodologies to comply with the MAGI requirements, even if this conversion results in a lower standard of eligibility for the affected groups because the MAGI standards and methodologies are less generous than the traditional Medicaid approach, particularly in the case of households with extended family members. This change has been finalized because, as CMS notes, the MAGI standards and methodologies are a mandatory replacement under the ACA for affected groups, and states do not have the option to establish more liberal standards for these groups. CMS also notes that under Medicaid’s maintenance of effort provisions, the new lower MAGI standard does not take effect until the MOE period is completed, by which time other forms of minimum essential coverage would be available in the event that MAGI standards and methods lead to a loss of Medicaid coverage. CMS further clarifies that states may continue to use their “standards and methodologies” flexibility under the statute to liberalize more restrictive standards and methodologies used for non-MAGI eligibility groups to reflect the MAGI test, where more liberal.^[2]

The final rule rejects a comment proposing to clarify that “pregnancy-related” coverage for pregnant women under the statute equates with full Medicaid coverage. At the same time, CMS notes^[3] that coverage during pregnancy is “necessarily comprehensive” given the scope of the term “pregnancy-related” which, along with “pregnancy,” defines the scope of pregnant women’s entitlement under Medicaid. CMS notes that although the scope of coverage may vary depending on whether a woman is pregnant, states do not need to track pregnancy to alter eligibility status among adults.^[4]

Definitions

The final rules define family size to include the number of children a pregnant woman is expecting (42 C.F.R.§435.603(b)).

Financial methodologies

Despite comments that the proposed rule was both too restrictive and confusing and too liberal and carried too many state budgetary implications, CMS retained its proposed definition of “financial methodologies” (42 C.F.R. §435.603(c)-(i)). This definition, required by statute in CMS’ analysis, revises current Medicaid methodologies to reflect the definitions found in the Internal Revenue Code. The rule also indicates^[5] that CMS will issue later guidance on how to reconcile these definitions with PERM reviews in forthcoming guidance.

CMS also notes that as a result of Pub. L. 112-56, MAGI calculations will now include Social Security benefits that otherwise are not taxed (42 C.F.R. §435.603(e)), and that it will retain its proposed policy to count lump sum payments only in the month in which they are received and not spread the amount over an entire benefit period. CMS notes that this approach is consistent with SSI policies and that

no commenter provided evidence and we are not aware of any evidence that this policy will have a significant impact on Medicaid eligibility We believe that the potential for individuals who receive large windfalls of money in a lump sum payment to become eligible for Medicaid under the rule is outweighed by the likelihood that many more low income individuals would lose Medicaid eligibility under the commenters’ proposal due to receipt of a small lump sum payment that ins not in fact available to purchase coverage through the Exchange throughout the year.^[6]

CMS also notes^[7] that loss of Medicaid for one month as a result of a lump sum payment would not trigger an obligation on the part of the individual to refile for Medicaid in the ensuing month, but the agency also does not bar states from requiring a refilling.

CMS notes that, as was the case with the proposed rule, the final rule does not change the requirement, first established in the 1996 welfare reform legislation (PWORA), that the income of a sponsor and the sponsor’s spouse be deemed available to certain sponsored non-citizens. The agency indicates that guidance on this issue will be forthcoming.^[8]

Household

The issue of what constitutes a “household” and the variations that arise under federal law elicited much commentary but little change. CMS notes that the concept of household is not uniform across federal programs, that states can use Express lane eligibility in order to cope with differences in the term definition under various federal programs, and that enhanced federal matching (90/10) is available for systems development changes needed to implement the new definition of household, which states cannot modify. For MAGI groups, 42 C.F.R. §435.603(f) now represents the fixed federal definition of household and cannot be revised by excluding certain individuals, such as stepparents or siblings with income. The Preamble to the final rule also reiterates the policy driver underlying the change, namely, adherence to tax filing units. CMS also clarifies states’ ability to count parental income in the case of persons ages 19 and 20 who are full-time students^[9] and clarifies how household income is to be considered for Medicaid purposes when a child lives with two unmarried parents, only one of whom claims the child for tax purposes (42 C.F.R. §435.603(i)).

In response to uncertainty about how households should be determined in cases in which a child is living with a custodial parent who may or may not be the parent claiming the child as a tax dependent (42 C.F.R. §435.603(f)(2)(iii)), the final rule provides that for purposes of Medicaid eligibility, the custodial parent is treated to be the household in which the child is living based on physical custody as laid out in a formal order or, in the absence of such an order, based on with whom the child spends more nights. CMS notes that this policy is consistent with the IRS policy on who may claim a child as a dependent.

Because all household income counts when determining financial eligibility under MAGI, CMS clarifies that states can no longer use their Medicaid “standards and methodologies” flexibility in the case of MAGI families (i.e., parents, children, pregnant women, and caretaker relatives) to establish more liberal standards for minor parents living with their parents. Thus to the extent that existing law allows states to, for example, disregard grandparents’ income in order to encourage minor parents to live with their own parents, such an approach no longer will be permissible when the new rules take effect.^[10] CMS also reiterates that asset consideration plays no role in a MAGI determination.

Budget period

A key definitional issue in the switch to MAGI and the use of a new financial evaluation system is the budget period. Under the Exchanges, the budget period is projected and annual, based on past annual income; in Medicaid’s case, budgeting is current and monthly. The question is how to avoid gaps in coverage. For example, on a projected basis an individual might have enough income, based on past earnings, to qualify for Exchange coverage, whereas in a particular month of application, the individual’s income may be too low to qualify for coverage through the Exchange. The question is what happens. CMS retains its proposed “point in time” approach to budgeting periods (42 C.F.R. §435.603(h)(1)) so that eligibility will be based on the current monthly income of applicants and new enrollees. At the same time, the agency amends the rule (42 C.F.R. §435.603(i)) to apply an annual income test when a gap in coverage would result were the Medicaid monthly income test to be applied in lieu of the annual test. In other words, the final rule provides for a multi-level determination of eligibility where the use of the monthly test would result in a break in coverage. CMS also reiterates the flexibility created in 42 C.F.R. §435.603(h) to allow states to take into account recurring income, structure regularly occurring income, and allow for continuing eligibility without redetermination over the course of a year.

Medicaid eligibility for individuals for groups to which MAGI methods do not apply

The ACA creates a new approach to grouping Medicaid eligibility categories. Financial eligibility determinations for certain categories, including pregnant women, children, parents and caretakers, and the new category of nonelderly low-income adults not previously eligible for coverage, are to be governed by a “modified adjusted gross income” financial eligibility test that more closely tracks the IRS approach for defining households and evaluating income. Other eligibility categories (e.g., Medicare beneficiaries, persons with disabilities, persons in need of long term care services and supports, women receiving coverage for breast and cervical cancer treatment) are governed by traditional eligibility standards. In addition, under the ACA, benefits and coverage for the Medicaid eligibility groups governed by the MAGI standards and methods will be governed by essential health benefit standards, which are expected to be more limited than traditional Medicaid coverage.

The reason for this new classification by CMS of Medicaid eligibility categories as either MAGI or non-MAGI groups is to assure greater alignment of the MAGI population with the Exchange population, in light of the potential for seamless eligibility determination procedures and enrollment in the correct “insurance affordability program” category. This issue is particularly important given the substantial financial churning among insurance affordability programs that is projected to occur in the case of lower income populations.^[11]

Under this bifurcated approach to evaluating income and coverage design in Medicaid, it may well be the case that applicants will qualify in both groupings. For example, an adult or a child may be both poor and a person with a disability. Because the financial eligibility criteria in fact may be more liberal in the traditional eligibility groupings to which the non-MAGI rules continue to apply, and because coverage and benefits may continue to be more generous for the non-MAGI group, it really matters whether an individual enters the program as a MAGI or non-MAGI beneficiary. The proposed rules had provided that MAGI would trump the non-MAGI groupings, that is, that an applicant eligible on the basis of the MAGI test would be enrolled as part of the MAGI population, with a follow-on determination to consider whether the person should be switched into a non-MAGI group. This proposed approach assured swifter coverage, since no disability evaluation would be required, but also used a tighter income evaluation methodology and, as importantly perhaps, may have resulted in significantly more limited coverage for long term care services and supports.

The final rule departs from the proposed rule. Under the final rule, CMS provides that this group of dually entitled persons — eligible as either MAGI or non-MAGI beneficiaries — can ask to be evaluated for full Medicaid coverage under one of the “alternative “ (i.e., non-MAGI) methodologies rather than being automatically enrolled into MAGI-based coverage if they qualify based on MAGI income. In addition, because of this move away from automatic enrollment as a MAGI beneficiary with subsequent evaluation for eligibility under a non-MAGI category, CMS also revised its approach to eligibility screening, discussed below.

CMS also notes that MAGI rules do not apply to newborn infants automatically deemed eligible for Medicaid, without regard to parental income.^[12] CMS further notes that MAGI does not apply to SSI recipients, applicants seeking assistance with Medicare cost-sharing, medically needy coverage, or §209(b) spend-down coverage.

State residency

The final rules adopt the proposal to strike “permanently or for an indefinite period” from the definition of residency, as well as to replace the term “intention to remain” with “intends to reside, including without a fixed address” (42 C.F.R. §435.403(h)(1) and (h)(4)). The final rule also retains pre-existing language clarifying that a resident is a person who have secured or seeking employment if the individual is living in the state (42 C.F.R. §435.403(h)). CMS intends to issue future guidance on “ways to facilitate” enrollment of persons moving into the state, particularly persons with health issues.^[13]

CMS also clarifies that students and other children living apart from their parents (such as in institutions or foster care) must be covered – both for Medicaid and Exchange coverage depending on their MAGI — if they actually reside in a state and that they cannot be barred from enrollment in states other than the state in which their parents reside. In residency disputes, CMS provides that actual physical location controls^[14] (42 C.F.R. §435.403(i)(2)). CMS is also considering whether further rulemaking is required to address the situation of individuals residing in federally managed or operated entities under the Indian Self-Determination and Education Assistance Act, the Indian Health Care Improvement Act or the Bureau of Indian Education, and seeks input on the potential impact of possible residency policies.^[15]

Timelines for eligibility determinations

CMS reiterates that the legal timelines allowed for processing applications may differ from the performance standards that may be used to rate state performance on enrollment. CMS seeks additional comment and issues its timelines rule (42 C.F.R. §435.912) as an interim final rule.

Application and enrollment procedures

The final rule rejects comments advocating for an expansion of information that states must provide to applicants to include the application/renewal process, assistance, appeals, and benefits including the benchmark package. According to CMS, basic Medicaid regulations already require states to provide such information,^[16] and therefore there is no need for an additional regulation related explicitly to information available on state agency websites offering online application procedures and required under the ACA. The agency notes that information should be widely available to the public via an agency’s Internet site and that Medicaid websites should carry information on all insurance affordability programs.

With respect to language access, the final rule makes important changes. In the Preamble, CMS reiterates the applicability of the 1964 Civil Rights Act, the ADA, and Section 504 of the Rehabilitation Act of 1973 with respect to language access standards governing language access and states that “section 1413 of the Affordable Care Act and section 1943 of the Medicaid Act, as added by section 2201 of the ACA, [ ] establish a coordinated system of eligibility and enrollment across all insurance affordability programs, as well as the specific requirement in section 1943(b)(1)(F) of the Act that states establish procedures for conducting outreach to and enrolling vulnerable underserved populations, including racial and ethnic minorities.” As a result, these requirements “would support requiring written translation and oral interpretation.”^[17] As a result, CMS has modified 42 C.F.R. §435.905(b) to “specify that information for persons who are limited English proficient or have a disability be provided in an accessible and timely manner and at no cost to the individual. For people with disabilities, we specify that accessibility includes auxiliary aids and services.” The final rule also clarifies that applicant and renewal forms must meet the same standards (42 C.F.C. §§ 435.907(g) and 435.916(g)).^[18]

Applications

The proposed rule required a single streamlined application for all insurance affordability programs. CMS retains this approach (42 C.F.R. §435.907(b)(2)) while indicating that states can continue to use supplemental applications to enable a multi-benefit application process. CMS also retains the Secretarial approval process for alternative state applications to the single streamlined application that CMS will develop in model form. CMS also intends to set standards and review application forms used for applications for Medicaid on bases other than MAGI.^[19] CMS further indicates that its model form will also help states screen applicants for potential Medicaid eligibility on the basis of disability or long term services and supports in order to enable states to carry out their screening obligations under 42 C.F.R. §435.911. The final rules also have been amended (42 C.F.R. §435.907(d)) to bar in person interviews as an eligibility or renewal requirement.

In the Preamble to the final rule, CMS has reiterated the ban on requiring SSNs from individuals who themselves are not applying for assistance.^[20] At the same time, CMS will permit states to request the voluntary disclosure of SSNs from non applicant household members “as long as the conditions set out in our Medicaid eligibility proposed rule are met in accordance with current policy.”^[21] CMS also codifies in regulation its position (previously confined to Preamble) that information about applicants provided by non-applicants is covered by Medicaid’s privacy provisions.^[22] The Preamble also attempts to clarify that the immigration status of non-applicants is not information that is necessary to make an eligibility determination or that is directly connected to program administration.^[23] The same necessary and direct administration standards would govern renewals.^[24]

Assistance with application and renewal

CMS notes in the Preamble to the final rule, that states must permit individuals to designate an authorized representative for both application and renewal and to provide that representative with full access to relevant information.^[25] CMS rejects the notion of an automatic referral process for individuals who are found ineligible for insurance affordability programs offered through state Exchanges, noting that its authority is limited to assistance for Medicaid, CHIP, Exchange coverage, or Basic Health Program assistance. CMS encourages, but does not require, alignment between the procedures used for application assistance under Medicaid and those that apply to Exchange Navigators.^[26]

Application of the MAGI screening system to persons with disabilities and in need of long term care services and supports

As noted, CMS’ proposed rule provided for automatic enrollment into Medicaid of individuals who meet the MAGI standard, even if also eligible under a non-MAGI eligibility grouping. In response to many comments objecting to the compulsory MAGI treatment of applicants eligible under both MAGI and non-MAGI categories, the final rule, 42 C.F.R. § 435.911, allows applicants to select the group in which they want to enroll, assuming that they are eligible under multiple categories (e.g., the MAGI adult category and a disability category). The final rule also clarifies that MAGI-eligible individuals will be allowed to enroll in the MAGI category while they undergo a final determination of eligibility under an optional coverage group that may offer broader services and supports.^[27] The final rule further clarifies that states can satisfy the timeline requirements for applications either by enrolling the individual in MAGI-based coverage and then doing a follow-on eligibility determination or by “first determining eligibility on the MAGI-excepted basis”.^[28] The Preamble notes the multiple Medicaid eligibility categories that remain in the wake of MAGI and thus, the breadth of the state obligation to allow individuals who may be eligible based on MAGI also to seek eligibility for coverage on any of Medicaid’s other non-MAGI eligibility categories that continue to apply.^[29]

The final rule retains the proposed rule’s approach to conduct basic Medicaid eligibility screening through state Exchanges, with fuller Medicaid eligibility screens by the state Medicaid agency. CMS notes the importance of the basic Medicaid eligibility screen in order to promote streamlining and assure efficiency in enrollment in the appropriate insurance affordability program. CMS further reiterates that applicants whose preliminary screening puts them over the Medicaid eligibility level will be enrolled in an Exchange QHP pending follow-up further review by the state Medicaid agency; at this point, if further review for Medicaid eligibility under a more liberal non-MAGI category has been sought, the state Medicaid agency would do the deeper review. Thus, for example, a child with household income in excess of the Medicaid MAGI eligibility level will be enrolled in a subsidized QHP while her follow-on eligibility as a person with a disability is further reviewed by the state Medicaid agency (42 C.F.R. §§435.911 and 435.122 and 45 C.F.R. §155.345).^[30]

Coverage months

A question arises as to when Exchange enrollment begins following the loss of Medicaid. The proposed rule had provided that Exchange enrollment would begin on the first day of the month following the date that the individual loses Medicaid eligibility and is found eligible for Exchange coverage. This could create a potential, considerable gap in coverage. The final Exchange rule (45 C.F.R. §155.420(b)(2)(ii)) establishes a special enrollment period that begins the first day of the month following the month in which Medicaid or CHIP is lost, provided that plan selection can be completed in time. “Therefore, beneficiaries terminated, for example, on the 31st of the month may be able to enroll as early as the next day in Exchange coverage.”^[31] CMS requested comments on whether state Medicaid programs should be required to continue coverage for persons losing Medicaid until the end of the month. The final rule encourages but does not require, this extension of eligibility and notes that FFP will be available for states choosing to do so.^[32]

Verification of income and other eligibility criteria

The proposed rule made significant changes in the verification procedures applicable to state Medicaid programs, reflecting the significant reforms in verification under the ACA. As CMS notes, its proposed Medicaid rules, coupled with the proposed Exchange rules, “maximized reliance on electronic data sources, shifted certain verification responsibilities to the Federal government, and provided States flexibility in how and when they verify information needed to determine Medicaid eligibility.”^[33] The use of data verification versus verification through data supplied by applicants or beneficiaries was stressed in the proposed rule. The proposed verification procedural changes also linked closely with Program Integrity, since they are designed to reduce the potential for fraud. At the same time, the verification procedures add administrative challenges to enrollment and retention and may make the process of securing coverage for people more complex.

The final regulation stresses that the best interest of applicants and recipients is a factor to be considered in the design and administration of verification systems and that additional documentation steps be applied only when “necessary and appropriate” (42 C.F.R. §§435. 940, 435.945, 435.952). The final rule also revises the rule to clarify that states may not make documentation requests, whether in paper copy or other formats, unless the state has made a determination that verification using electronic data match would not be effective. In making this determination, agencies are expected to consider factors such as administrative costs associated with establishing and using the data match system, administrative costs associated with relying on documentation, and the impact on program integrity and error rates in terms of “the potential both for ineligible individuals to be approved, as well as for eligible individuals to be denied coverage.”^[34] The final rule retains state discretion to use self-attestation except on matters such as citizenship and immigration status, where documentation is required.^[35] The final rule further clarifies that for purposes of Medicaid Eligibility Quality Control (MECQ) and Payment Error Rate Measurement (PERM) reviews, the states’ procedures and methods will be applied to review state performance; thus if a state selects self-attestation as the documentation approach where flexibility is permitted, its PERM audit will apply the state standard.^[36]

In addition, the final rules clarify the confidentiality and privacy standards that apply as part of data exchange in connection with eligibility determination and verification.^[37] (42 C.F.R. §435.945; 42 C.F.R. §431.300, 431.305). Because the final regulations make extensive changes designed to align data exchange with federal privacy and security standards, these changes have been issued as an interim final rule, and further comments are sought.^[38]

In response to comments noting the difficulty of verifying household income without non-applicant SSNs, CMS reiterated in the Preamble that SSNs cannot be required from non-applicants and encourages the use of other information.^[39]

CMS also reiterates in the final rule the role of the federal data service hub, the administrative simplification that the hub is expected to produce for states, and state flexibility to use other data sources when information is note available through the hub.^[40] CMS notes that as the hub expands the breadth of federal data available to states, states will be able to rely on this expanding data base rather than having to establish their own data verification systems. While numerous commenters raised the potential for the new verification system to add to the timeline for eligibility determination, CMS has elected to retain the 45-day and 90-day timely eligibility determination rules that have governed the program for many years.^[41] CMS also notes that Medicaid requirements related to third party liability would not slow the eligibility determination process.^[42]

The final rule retains state discretion to terminate individuals from coverage in the event that information is requested, the information is not provided, and timely and appropriate notice is issued warning that failure to provide information will result in loss of coverage or denial of the application.^[43]

Periodic renewal of eligibility

CMS retains its proposed annual renewal process (§42 C.F.R. §435.916(a)(2)) while reiterating that enrollment can be subject to termination during the year if “available information suggests that a beneficiary is no longer eligible, if information is subject to change or missing, or if the State has information that suggests that available information is inaccurate.” In such a situation, states will be expected to “seek information from the individual before renewing eligibility.”^[44] CMS also retains its proposal to simplify renewals through pre-populated renewal forms, the elimination of a new signature if the agency has data on file sufficient to make the renewal determination, and the restriction of additional information to information needed to renew eligibility.^[45] The agency also reiterates its position that no termination can happen until an enrollee is considered under all eligibility categories.^[46]

Coordinating eligibility and enrollment among insurance affordability programs

The final rule (42 C.F.R. §435.1200(c)) is a major shift in policy and revises the proposed rules to offer two state options for coordinating Medicaid/Exchange/CHIP and (where relevant) Basic Health Program (BHP) eligibility determinations. A state may designate a public Exchange as authorized to make all final eligibility determinations for all insurance affordability programs. Alternatively, the state may elect to retain the state Medicaid agency as the final agency for determining Medicaid eligibility, meaning that the Exchange determination would be preliminary only.^[47]

CMS sets conditions for this expansion of state flexibility to maintain a bifurcated eligibility determination system. First, where the state Medicaid and CHIP agencies retain final eligibility determination powers, the agencies collectively will be expected to file a detailed “delineation of responsibilities” for each agency. Second, the state agencies will be required to adhere to new standards regarding the transfer of applications from the Exchange (or the Basic Health Program where applicable) to the Medicaid agency in order to make maximum use of the data already submitted and to avoid additional requests for information or documentation already provided. Third, the agencies will not be able to require the submission of another application and will be required to accept findings of specific eligibility criteria made by the other program without further verification if the findings were made in accordance with the same policies and procedures or were based on verification received through the federal data hub. Fourth, each agency will be expected to act promptly and without undue delay. Finally, each agency will be required to notify the other agency of the receipt of the information. CMS applies the same requirements to the renewal process.^[48]

Because this rule represents such a major shift in policy, it is being published in interim final form, with a new comment period.

Background

The Affordable Care Act included a number of insurance market reforms designed to make health insurance more affordable and available. During consideration of the ACA, one criticism of the private insurance market was that the lack of standardization in descriptions of health insurance policies available made shopping for coverage both difficult and time consuming. The ACA included provisions designed to assist consumers in better understanding their health insurance coverage, and to assist in comparing their insurance policy with other available options. Among those provisions are requirements for plans offered in both the group and individual insurance markets to provide a summary of benefits and coverage and a uniform glossary of terms commonly used in health insurance policies.^[1]

Under the ACA, the Secretaries of the Departments of Health and Human Services (HHS), Labor, and Treasury are directed to develop standards for use by health plans to compile summaries of benefits and coverage, as well as definitions of standard terms.^[2] Proposed rules were issued on August 22, 2011.^[3] The final rule is effective on April 16, 2012 and will apply to plan years beginning on or after September 23, 2012. As required by statute, the three agencies developed the standards taking into consideration recommendations made by the National Association of Insurance Commissioners (NAIC).

Overview of Final Rule

On February 14, 2012 the Secretaries of HHS, Labor, and Treasury issued a final rule establishing federal standards for summaries of benefits and coverage (SBC) and a uniform glossary.^[4] Under the rule, an SBC must be provided:

1) by a group health plan issuer to a group health plan;

2) by a group health plan issuer and by a group health plan to participants and beneficiaries of the plan; and

3) by an individual health plan issuer to individuals and their dependents in the individual (non-group) market.

In each instance, the rule provides the circumstances under which the SPC must be provided. They include, among others: before the first day of coverage, upon renewal or reissuance of the plan, and upon request by the group health plan, participant, or beneficiary. The plan SBC must be provided by the plan administrator of the group health plan and must be provided in writing and at no cost to the covered individual. The Preamble rule notes that several commentators argued that group health plans should not be required to provide the SBC; however, the agencies noted that the statute does not give the agencies the authority to limit provision of an SBC to the individual market.^[5]

The SBC must be provided as part of any written application materials that are distributed by the plan or issuer for enrollment. If the plan does not distribute written application materials, the SBC must be distributed no later than the first date the participant is eligible to enroll in coverage. SBCs must be provided upon request, and must be provided within seven business days following receipt of a request.^[6] SBCs must be provided to participants, beneficiaries and employers, including those who make requests prior to submitting an application for coverage.^[7] Issuers offering in the individual market must also provide the SBC upon request, to allow consumers reviewing coverage options to compare coverage options in the individual market, the Exchanges, and the group markets.^[8] In addition, the SBC must note that the document is a summary, and that the certificate of insurance should be consulted to determine contractual provisions of the coverage.

SBC must include a contact number and Internet web address where a copy of the policy or certificate can be viewed. The rule also notes that the content of the SBC mirrors the requirements under the statute, except that it includes four additional elements recommended by the NAIC, including a list of network providers for plans using networks, a copy of the formulary for those plans that use a formulary, and an internet address where individuals may view the uniform glossary. Generally, the final rule notes that requirements in the individual market parallel the group market.

Treatment of FSAs, HRAs, and HSAs

The final rule notes that the SBC requirement does not apply to excepted benefits, such as stand-alone dental or vision plans, nor to health flexible spending arrangement FSAs, health reimbursement arrangement (HRAs), or health savings accounts (HSAs) to the extent that benefits are limited to excepted benefits. The final rule generally requires FSAs and stand-alone HRAs to meet the SBC requirements, however, and outlines special rules for FSAs that are integrated with other major medical coverage.^[9] In addition, since a HSA is not a group health plan and not subject to the SBC requirement, an SBC prepared for a high deductible health plan paired with an HSA can mention the effects of employer contributions and benefits not otherwise covered by the high deductible health plan.^[10]

Content

Under the ACA, the SBC must include uniform definitions of standard insurance and medical terms, a description of coverage, including cost-sharing for each category of benefits identified, exceptions, reductions and limits on coverage, cost-sharing provisions of the coverage, including deductible, coinsurance, and copayment, the renewability and continuation of coverage provisions, a coverage facts label that includes examples of coverage and related cost sharing, a disclosure statement on whether the plan provides minimum essential coverage and meets actuarial value requirements.^[11] The rule also provides that the SBC cannot exceed four double-sided pages and may not be printed in a font size smaller than 12-point.

Under the rule, if plans make modifications in the policy at a time other than during reissuance or renewal, and the modifications are not reflected in the most recent SBC, the issuer must notify group health plans, as well as group and individual plan beneficiaries. The rule also provides standards for the definition of insurance-related and medical terms. Group health plans and health issuers must provide the uniform glossary in a uniform format and must use terminology that is understandable to the average plan enrollee or individual covered under the policy.

Form and Language

SBCs may be provided electronically from an issuer to a plan, and may be provided electronically to participants and beneficiaries who are already covered under the group plan, as well as for those who are eligible but not enrolled, provided the format is readily accessible and a paper copy is provided free of charge upon request. In addition, the plan or issuer must advise the participant or beneficiary in paper form or by email that the SBC is available online. All participants and beneficiaries, both covered and eligible but not enrolled have the right to receive an SBC in paper format, free of charge upon request^[12]. Finally, the final rule permits issuers in the individual market to provide an SBC in the manner that can reasonably be expected to provide actual notice, regardless of format.^[13] In addition, issuers in the individual market will be deemed in compliance for meeting the SBC requirements if the SBC is provided to the HealthCare.gov website. The final rule also clarifies that certain additional requirements must be met in order to be deemed in compliance.^[14] The statute also requires that SBCs be provided in a culturally or linguistically appropriate manner, and the final rule requires compliance with section 2719 of the Public Health Service Act, relating to similar requirements for claims and appeals.^[15]

Notice of Modification

Plans must provide notice of any material modification (as defined under section 102 of the Employee Retirement Income Security Act) in any of the terms of the plan or coverage that is not reflected in the SBC. The notice requirement would apply to only a material modification in the terms of the plan or coverage that would affect the content of the SBC, that is not reflected in the most recent SBC, and that occurs at a point other than in connection with a renewal or reissuance of coverage. Notice would be made no later than 60 days prior to the effective date of the change.^[16]

Uniform Glossary

The ACA directed the agencies to develop standard definitions for certain insurance-related and medical terms.^[17] In addition, the agencies adopted additional terms recommended by the NAIC.^[18] The final uniform glossary is available online. Plans and issuers must make the final uniform director available upon request within seven business days, and as outlined in the regulation, must include in the SBC an internet address where an individual may review the glossary, as well as a contact phone number to obtain a paper copy.^[19]

Changes from the Proposed Rule

Timing of provision of the SBC

Under the proposed rule, upon automatic renewal of coverage the proposed regulation would have required a new SBC to be provided no later than 30 days prior to the first day of coverage under the new plan or policy year. Under the final rule, the requirement is retained, however, in the event that the issuer and purchaser have not yet finalized the new terms of coverage, the SBC must be provided as soon as practicable, but no later than seven business days after issuance of the policy, or the receipt of written confirmation of intent to renew, whichever is earlier. This exception applies only when the terms of coverage are finalized in fewer than 30 days in advance of the new policy year.^[20]

Availability of Uniform Glossary of Terms

The final rule includes a requirement that the plan SBC also include information regarding how individuals may obtain copies of the uniform glossary of terms, including an Internet address, a contact phone number to obtain a paper copy and a requirement to inform individuals that the paper copy is available. The final rule also noted that the proposed rule solicited comments on this and whether a plan should be required to include the cost of the premium in the SBC. The agencies note that the final rule does not require the SBC to include premium or cost of coverage information due to administrative and logistic complexity in both the individual and group markets.^[21]

SBC as a Stand-alone Document

The proposed rule requested comments on whether the SBC should be a stand-alone document, or whether it may be included alongside or within a summary and plan description. The final rule requires the plans to provide the SBC in the form specified in a separate guidance, and requires that the SBC for group health plans may be provided as either a stand-alone document, or in combination with other summary materials, provided that the SBC is intact and is prominently displayed at the beginning of materials. For the individual insurance market, the SBC must be provided as a stand-alone document, but may be included in the same mailing as other plan materials.

SBCs Provided Electronically

Under the proposed rule, issuers were permitted to provide the SBC to plans electronically, and required plans and issuers providing an electronic SBC to comply with federal requirements. Plans and issuers were also permitted to provide the SBC in paper form. Under the final rule, issuers may provide SBCs electronically to group health plans, and group health plans and issuers may provide the SBC electronically, and to notify by beneficiaries or participants by regular or electronic mail, that the SBC is available online. In the individual market, plans are required to provide the SBC in a manner that can reasonably be expected to provide actual notice regardless of the format.^[22]

Issues Raised

Although the rule now provides for uniform definitions of insurance-related terms and services, the rule notes that beneficiaries must refer to their own policies and contracts for the definitions of covered services. Actual coverage may bear little relation to the terms included in the uniform definitions. Accordingly, the uniform definitions should be used for a high-level comparison of plan coverage only, but should not be relied upon to determine actual plan coverage.