Health Insurance Exchanges Update: Qualified Health Plans, Reinsurance, Risk Corridors and Risk Adjustment
Posted on July 19, 2011 | No Comments
A major problem in the U.S. health care system is the lack of affordable health insurance options for individuals and small businesses. These groups also have no easy way to compare plans in terms of premium cost, benefits and cost sharing, provider networks, or quality of care provided. The Affordable Care Act (ACA) seeks to address these problems by making private health insurance available to qualified small businesses and individuals through health insurance Exchanges beginning January 1, 2014.
Through the Exchanges, qualified small businesses and individuals will have a choice of private health insurance plans and access to information that permits comparison of available health insurance plans. In the event that a state chooses not to establish state-based Exchanges, the Secretary of HHS is authorized to establish an Exchange either directly or by contracting with a non-profit organization to assure that residents of every state have access to an Exchange. The ACA also includes provisions to assure rate stability and to mitigate adverse selection in the event that some plans enroll a disproportionate share of high-cost individuals. For more detailed background information and a detailed explanation of changes made by the ACA, see the previous implementation briefs on Exchanges and insurance market reforms.
Recent Agency Action
The Centers for Medicare and Medicaid Services (CMS) has released two proposed rules, the first of which includes federal requirements that States must meet if they elect to establish and operate an Exchange, as well as standards related to selection and oversight of qualified health plans (QHPs), standards for participation in the Small Business Health Options Program (SHOP), and minimum federal requirements for QHPs sold through the Exchange. Comments on the proposed regulations are due on 75 days after the date that the proposed rule is published in the Federal Register.
The second proposed rule includes standards related to transitional state-based reinsurance program for the individual health insurance market, minimum federal standards for a state-based risk adjustment program, and standards that must be met by QHPs related to a temporary federal risk corridors program. Collectively, these programs are designed to assure premium stability and mitigate the impact of potential adverse selection in the individual and small group markets, both during implementation and as a matter of ongoing operations.
A number of issues are not addressed in the proposed rule including standards for individual and small business participation in the Exchange, provisions for determining eligibility for premium tax-credits and cost-sharing reduction payments, standards for certifying individuals as exempt from the individual responsibility provisions, standards for essential health benefits, and quality standards for QHPs. CMS has indicated that these issues will be addressed in future proposed regulations.
Health Insurance Exchanges
In many areas the proposed rule does not expand on the language included in the ACA. This implementation brief addresses major issues and areas in which CMS has provided additional guidance beyond that provided in the statutory language. For a detailed summary of the proposed rule, see the Hirsh Health Law and Policy Program memorandum.
Certification of State Exchanges
The proposed rule outlines a process for certification of state exchanges, establishes requirements that states must meet if they choose to operate an exchange, establishes standards for employer participation in a Small Business Health Options Program (SHOP), and establishes requirements for issuers of qualified health plans (QHPs) seeking certification to offer through an Exchange. CMS indicated that a procedure for obtaining HHS approval of state Exchanges will be issued at a later date.
Under the ACA, the Secretary is required to determine by January 1, 2013 whether a State’s Exchange will be fully operational on January 1, 2014. Under the proposed regulations, the Secretary will determine on January 1, 2013, whether a state’s exchange is in compliance, and may provide either conditional or full approval, depending on the state’s progress toward meeting requirements. Unless otherwise determined to be non-compliant, State exchanges in operation prior to January 1, 2010 will be presumed to be in compliance with federal rules, so long as insurance coverage rates are no less than the percentage projected to be covered after implementation of the ACA.
- Exchanges must be able to carry out required functions outlined in the ACA, including enrollment, premium payments, navigator programs, consumer tools, a SHOP, and plan certification and contracting.
- Exchanges must comply with IRS requirements related to advance payments of the premium tax credit (to be defined).
- States must operate a reinsurance program.
- The entire state must be covered by one or more Exchanges.
- Exchanges must be a governmental agency or a non-profit entity with demonstrated experience in the individual and small group markets and in benefits coverage. Health insurance issuers are not eligible to serve as the Exchange, but state Medicaid agencies may function as the Exchange.
- Exchanges are required to consult with a broad range of consumer and employer stakeholder groups. In the Preamble, CMS recommends, but does not require Exchanges to consult with individuals with disabilities, advocates for individuals with disabilities, advocates for individuals who need culturally and linguistically appropriate services, and Medicaid and CHIP beneficiaries. In addition, Exchanges are prohibited from establishing rules that conflict with federal Exchange regulations, pre-empt insurance reforms established by the Affordable Care Act, or engage in discriminatory behavior with regard to marketing, outreach and enrollment.
The Preamble notes that the “proposed minimum functions are designed to provide State flexibility.” The Preamble “encourage[s] States to consider supplemental standards or functionality for their Exchanges that benefit consumers and businesses, and welcomes comments regarding these and other functions that should be required of an Exchange.”
Among other requirements:
- Exchanges must perform certain functions, including certification of exemptions from the individual responsibility requirement and payment, eligibility determinations, and establishing an appeals process for eligibility determinations. CMS will provide further guidance in these areas.
- Exchanges must “evaluate quality improvement strategies and assessments and ratings of healthcare quality and outcomes” – this function will also be detailed in future rulemakings.
Exchanges are required to make grants to public or private entities to serve as Navigators. Navigators must meet any applicable licensing or other standards set by the State or by the Exchange, and must not have conflicts of interest while serving as a Navigator.
An Exchange must select Navigators from at least two of the following categories:
- community and consumer-focused nonprofits;
- trade, industry, and professional associations;
- commercial fishing industry, ranching, and farming organizations;
- chambers of commerce;
- resource partners of the Small Business Administration;
- licensed agents and brokers; and
- other public or private entities that meet the requirements of this section, including but not limited to Indian tribes, tribal organizations, urban Indian organizations, and State or local human service agencies.
The Preamble notes that the Department is seeking comment as to whether “community and consumer-focused nonprofit groups” should be a required category, or whether it should be required that Navigators represent “a cross section of stakeholders.” Navigators are prohibited from being issuers of health insurance and from receiving indirect or direct compensation from health insurance issuers based on enrollment. Navigators cannot be funded with federal Exchange operating dollars.
Individual Market Enrollment
The initial open enrollment period in Exchanges will be October 1, 2013, through February 28, 2014. Exchanges must ensure that QHP coverage will be effective for persons enrolled as of December 22, 2013 for January 1, 2014. If an individual enrolls between the 1st and 22nd of a month, coverage must be effective on the first day of the following month, and if enrollment occurs between the 23rd and the end of the month, the coverage may be effective either the first of the following month or the first of month after that.
Exchanges must have annual open enrollment periods for qualified individuals to enroll in a QHP or change QHPs, and must give current enrollees advance written notice of the annual open enrollment. Individuals may be restricted to these periods to enroll, unless they qualify for a special enrollment period as a result of a triggering event. Coverage for persons who enroll during special enrollment periods is also effective for the following month only if they enroll by the 22nd of the previous month, except that coverage begins on the date of birth, adoption, or placement for adoption for those new dependents. Exchanges must allow individuals to enroll in or change from one QHP to another as a result of the following triggering events with respect to a qualified individual or dependent:
- Loss of minimum essential coverage (except as a result of failure to pay premiums on a timely basis, including COBRA premiums, or where a rescission is allowed);
- Loss or gain of a dependent or change in dependent status through marriage, birth, adoption, or placement for adoption;
- Becoming a citizen, national, or lawfully present individual;
- Correction of enrollment status due to unintentional error, misrepresentation, or inaction by Exchange or HHS;
- Demonstration by enrollee that QHP of current enrollment substantially violated a material provision of its contract with respect to that enrollee;
- Determination of new eligibility or ineligibility for advance payments of premium tax credit or change in eligibility for cost-sharing reductions, even if already enrolled in a QHP;
- A permanent move that results in access to new QHPs;
- Status as an Indian (under Section 4 of the Indian Health Care Improvement Act), which entitles the individual to enroll or change QHPs once per month; or
- Other exceptional circumstances as provided by the Exchange or HHS.
Small Business Health Options (SHOP)
If a state chooses to operate an Exchange, it must establish a Small Business Health Options Program (SHOP), also known as a small business Exchange. The SHOP will assist qualified employers and facilitate enrollment of qualified employees into QHPs. SHOPs must carry out all of the same required functions as an individual Exchange, with limited exceptions.
Among other requirements a SHOP:
- Must allow qualified employers to choose a level of coverage, under which all qualified employees have the choice of any available plan, but may also use a different method to allow qualified employers to offer plan choices to employees.
- CMS notes in the Preamble that the flexibility proposed may create potential for risk selection and invites comment on this as well as whether the SHOP should have a minimum participation requirement for QHPs.
- SHOPs must permit all qualified employers to purchase coverage for qualified employees through the SHOP. In order to be eligible, employers must be a small employer (100 or fewer employees, although a state may limit the definition of small employer to 50 or fewer employees up to 2016.)
- The SHOP is required to determine eligibility for both employers and employees, using a single employer application form and a single employee application form, before permitting purchase of QHP coverage.
- The SHOP is required to process employee applications for coverage and facilitate the enrollment of qualified employees in QHPs.
- SHOPs must also transmit enrollment information to QHPs, notify employees of the effective date of coverage, administer payments, terminate non-compliant employers, receive and maintain enrollment and participation records, reconcile information at least monthly, and notify the employer if an employee terminates coverage.
- The SHOP must administer enrollment periods, including the initial open enrollment period, and ensure that enrollment transactions are sent to QHP issuers, who must adhere to coverage effective dates. CMS proposes that the initial enrollment period for the SHOP begin October 1, 2013 for coverage effective January 1, 2014 (the same dates as the individual Exchange).
- The NPRM requires that employees be given an annual open enrollment period after the employer’s annual election period. Newly hired employees may seek coverage beginning on the first day of employment, regardless of the open enrollment period.
- Exchanges must allow qualified individuals to pay premiums directly to the QHP issuer. They must accept payment of aggregated premiums by qualified employers. They may establish an electronic process to facilitate payments, using specified standards and operating rules.
Certification of Qualified Health Plans (QHPs)
Standards include among others:
- Exchanges must ensure health plans meet two basic requirements to be certified as a QHP: (1) the health insurance issuer must demonstrate compliance with the minimum certification requirements; and (2) the Exchange determines that offering the health plan is in the interest of qualified individuals and employers.
- To determine whether a health plan offering is in the interest of qualified individuals and employers, an Exchange may choose from a variety of strategies (e.g. allow “any qualified plan,” competitive bidding, or negotiation on a case-by-case basis). HHS suggests that a competitive bidding strategy may allow the Exchange to achieve additional value and quality objectives. Exchanges are also permitted to establish additional criteria.
- An Exchange must ensure that a QHP offers a sufficient choice of providers. Exchanges are given discretion to establish network adequacy standards, with no minimum requirements specified. CMS requests comments on what minimum qualitative or quantitative standards Exchanges should use to determine whether the QHP provider network offers sufficient access to care (e.g. numbers and types of providers, proximity of providers to enrollees’ residence or workplace, or cost of out-of-network provider). In its Preamble, CMS notes the NAIC standards, which are considerably more robust than those established by the NPRM.
QHP issuers are required to meet a series of standards, which among others include:
- Issuer participation in the Exchange is conditioned on each plan offered in the Exchange being certified by the Exchange as a QHP. Unless otherwise noted, standards do not supersede state law and do not exempt health insurance issuers from any state law or regulation generally applicable to health insurance issuers. Further, states may establish more stringent standards.
- Each QHP must comply with benefit design standards;
- Issuers must be licensed and in good standing in each state in which coverage is offered. (The agency interprets the term “good standing” to mean that the issuer has no outstanding sanctions imposed by a State’s department of insurance.)
- Issuers must comply with quality improvement standards under the ACA including §1311(g) quality improvement strategies, §1311(c)(1)(H) and (I) disclosure and reporting of quality and outcomes measures, and §1311(c)(4) enrollee satisfaction surveys (the agency will address specific requirements in future rulemaking );
- Issuers may vary premiums for a QHP or multi-state QHP by geographic rating area established under section 2701(a)(2) of the Public Health Service Act.
- Issuers must charge the same premium rate for a plan, regardless of whether the plan is offered through the Exchange, directly to a consumer, or through an agent.
- Issuers must cover all of the following groups using one or more combinations including, individuals, two-adult families, one-adult families with a child or children, and all other families. CMS notes that 2701(a)(4) of the PHS Act requires that any family premium using age or tobacco rating may only apply those rates to the portion of the premium that is attributable to each family member, and seeks comment on how to structure the family rating categories to comply with this requirement, and on how to balance the number of categories to reduce consumer confusion, while maintaining plan offerings and rating structures. In addition, CMS is considering whether to require issuers to cover an enrollee’s tax household, because of the potential administrative challenge of administering the premium tax credit for families filing with non-spousal adult dependents, and seeks comment.
- Non-discrimination – Bans issuer discrimination (with re: each QHP) on the basis of race, color, national origin, disability, age, sex, gender identity, or sexual orientation. Non-discrimination practices include, but are not limited to marketing, outreach and enrollment.
- Issuers, including officials, employees, agents and representatives must comply with state laws and regulations relating to marketing of health insurance, and are prohibited from employing practices that discourage enrollment of individuals with significant health needs. In the Preamble, the agency notes that the Exchange should consider a QHP issuer’s marketing practices in determining whether offering a QHP is in the best interest of consumers, and the agency seeks comments on the best means for an Exchange to monitor QHP issuers’ marketing practices to determine whether issuers have discouraged enrollment of individuals with significant health needs, as well as on a broad prohibition against unfair or deceptive marketing practices by all QHP issuers, and there officials, agents and representatives. This would permit Exchanges to take action to address practices if State agencies do not have the authority to do so under state law.
- Issuers must ensure that provider networks of each QHP includes essential community providers and complies with network adequacy standards established under §2702(c) of the PHSA. CMS notes that this section requires issuers to furnish coverage unless the individual resides outside the plan’s service area or unless the plan is at capacity for enrollment.
- Issuers must make a QHP provider directory available. The provider directory must identify providers that are not accepting new patients. CMS seeks comments on standards that the agency might set to ensure that issuers maintain up-to-date provider directories.
Essential Community Providers
- Under the proposed rule, issuers must include a “sufficient number” of essential community providers (ECPs) that serve predominantly low-income, medically underserved individuals, in the provider network.
- The statute details the full range of “essential community providers” as entities described under section 340B(a)(4) of the Public Health Service Act. These entities qualify for special pricing from prescription drug manufacturers, and include among others, federally qualified health centers (FQHCs), community health center grantees, Title X family planning grantees, Ryan White grantees, State-operated AIDS drug purchasing programs, black lung clinics, hemophilia diagnostic treatment centers, Native Hawaiian Health Center grantees, Indian Health Service grantees, and certain hospitals that treat predominantly low-income individuals (public hospitals, certain children’s hospitals, critical access hospitals and rural referral centers). Essential community providers also include certain entities that qualify for the nominal pricing structure under the Medicaid drug rebate program (entities that meet all the requirements of certain grant funding, but who do not receive grant dollars). CMS seeks comment on whether other types of providers should be included. The regulation clarifies that the ECP requirement does not require plans to cover any specific medical procedure provided by the essential community provider. CMS seeks comment on whether other types of providers should be included. Clarifies that the ECP requirement does not require plans to cover any specific medical procedure provided by the essential community provider.
- CMS leaves the special FQHC payment rules in the ACA unaddressed. The agency notes that two provisions of the ACA regarding payment of FQHC’s may conflict. Section 1311(c)(2) states that QHPs are not required to contract with ECPs if the provider refuses to accept the generally applicable payment rates of the plan, while 1302(g) requires QHPs to reimburse FQHCs at each facilities Medicaid prospective payment rate. The agency suggests two possible solutions, one of which is to require QHPs to pay at least the Medicaid PPS rate to each participating FQHC, and the other proposes allowing plans and providers to negotiate mutually agreed-upon payment rates. CMS suggests pros and cons to each approach and invites comments on these or other approaches.
Segregation of Abortion Services
- Unless prohibited by state law, issuers must determine whether a QHP covers abortion services. QHPs are not required to cover abortion services as essential health benefits for any plan year.
- The rule distinguishes between those abortion services for which federal funding prohibited, and those abortion services for which federal funding is permitted (rape, incest or life of the mother would be endangered). If a QHP provides services for which federal funding is not permitted, the issuer must not use any amount of funding attributable to the premium and cost sharing tax credits paid under section 1412 of the ACA.
- Issuers must collect a separate payment from enrollees for the actuarial value of services for which federal funding is prohibited and deposit those payments in a separate account. The issuer must estimate the basic per enrollee, per month cost, and may not estimate the cost at less than one dollar per enrollee, per month. Issuers must provide notice to enrollees only as part of the summary of benefits and coverage explanation.
- QHP issuers may not discriminate against health care providers or facilities because of its unwillingness to provide, pay for, provide coverage of, or refer for abortions.
- Nothing in the ACA shall be construed to have any effect on State laws regarding the abortion coverage, funding of, or procedural requirements (including parental notification or consent), or on federal laws relating to provider conscience laws or federal civil rights law.
- Nothing in the ACA alters requirements under the Emergency Medical Treatment and Active Labor Act.
Reinsurance, Risk Corridors, and Risk Adjustment
CMS also issued proposed rules to address stability in the small group and individual health insurance markets. States choosing to establish Exchanges must also agree to establish a transitional reinsurance program for the first three years of Exchange operation (2014-2016). In addition, the Secretary of HHS must establish a transitional risk corridor program that will apply to the qualified health plans in the individual and small group markets for 2014 to 2016. Each state may establish an ongoing program for risk adjustment for all non-grandfathered plans in the individual and small group markets both inside and outside of an Exchange. To the extent that states establish reinsurance or risk adjustment standards that are different from those established by the Secretary, the state must provide notice to insurers and stakeholders and must describe the specific reinsurance or risk adjustment parameters that the state intends to employ.
Standards for the Transitional Reinsurance Program for the Individual Market
The ACA requires that a transitional reinsurance program be established in each state for the years 2014 –2016 to stabilize premiums for coverage in the individual market and protect plans that attract a high proportion of high cost individuals. Health insurers (and 3rd party administrators on behalf of self-insured group health plans) must make contributions to a not-for-profit reinsurance entity that in turn supports individual market insurers covering high-cost individuals.
Federal standards for reinsurance programs include, among other requirements:
- Each state that operates an Exchange must also establish a reinsurance program and enter into a contract with one or more reinsurance entities. A state that does not elect to operate an Exchange may establish a reinsurance program. For states that do not elect to operate an Exchange or establish a reinsurance program, HHS will run the reinsurance program.
- The reinsurance entity collects funds from plans using a national uniform contribution rate (determined by a percent of premium amount applied to all contributing entities).
- An individual market health insurance plan that is not a grandfathered plan becomes eligible for a reinsurance payment when the plan’s expenditures for items and services for essential health benefits exceed a certain amount (referred to in the regulation as the “attachment point”).
- The state must ensure that the reinsurance entity collects from all reinsurance-eligible plans the data necessary to calculate the reinsurance payments. The reinsurance entities must make the reinsurance payments to the health insurers in the event of a valid claim, and the state must ensure that reinsurance payments to the health insurers do not exceed overall contributions.
- The state is required eliminate or modify any state-based high-risk pool if necessary to comply with these reinsurance provisions or to coordinate the reinsurance program with its high risk pool if possible under these regulations.
Standards for the Risk Adjustment Program
Federal standards for risk adjustment programs include, among others:
- A state that elects to establish an Exchange is eligible to operate a risk adjustment program. HHS will operate programs in states that do not operate Exchanges. A state must be ready to begin calculating payment and charges for the 2014 benefit year. A state may have another entity besides the Exchange itself perform these risk adjustment functions.
- The risk adjustment methodology used by a state must be federally-certified by HHS.
- The state, or HHS on behalf of the state, must collect risk-related data to determine individual risk scores that form the basis for risk adjustment. Participating states must implement privacy and security standards for the protection of individually identifiable information; however any state with an all-payer claims database that is operational by January 1, 2013 may request an exemption from HHS from the data collection minimum standards.
Health Insurance Issuer Standards Related to the Transitional Reinsurance Program
Standards for transitional reinsurance programs include, among others:
- Health insurers and third party administrators of self-insured group health plans (“contributing entities”) must make payments of contributions to the applicable reinsurance entity. A reinsurance-eligible plan may make a request for a reinsurance payment when the enrollee’s claims have met the criteria for a payment.
Health Insurance Issuer Standards Related to the Temporary Risk Corridors Program
Standards for QHPs
- Issuers of QHPs must comply with the requirements of the federal program of risk corridors for calendar years 2014, 2015 and 2016. QHPs receive payments from HHS under the risk corridor program if the plan’s allowable costs for any benefit year are more than 103% but not more than 108% of the target amount. The amount of this payment will be equal to 50% of the target amount in excess of 103% of the target amount. When the qualified health plan’s allowable costs are more than 108% of the target amount, the HHS payment equals the sum of 2.5% of the target amount plus 80% of allowable costs in excess of 108% of the target amount.
- If a QHP’s allowable costs for any benefit year are less than 97% but not less than 92% of the target amount, the plan must submit to HHS a payment equal to 50% of the difference between 97% of the target amount and the allowable costs. If a plan’s allowable costs are less than 92% of the target amount, the plan must to HHS a payment equal to the sum of 2.5% of the target amount plus 80% of the difference between 92% of the target amount and allowable costs.
- In order to verify the payment amounts, issuers of qualified health plans must submit to HHS data on the premiums collected for each QHP offered by the issuer. These reported premium amounts must be adjusted for any payments made or received for risk adjustment, reinsurance, and user fees paid. Also, all QHP issuers must submit to HHS the allowable costs incurred for each QHP that the issuer offers.
Health Insurance Issuer Standards Related to the Risk Adjustment Program
- All insurance issuers offering risk-adjustment covered plans must submit all the required risk adjustment data (all data that were used in the application of a risk adjustment payment model) for those covered plans to the state, including:
- Claims and encounter data for items and services rendered; and
- Enrollment and demographic information; and
- Prescription drug utilization data.
- Insurers are permitted to include in their contracts with providers, suppliers, etc. provisions requiring the submission of specific risk adjustment data in a manner established by the state, and these contracts may include penalties for non-compliance. Plans owing risk adjustment payments will be notified by the state of the amount and must remit those risk adjustment payments to the state.
 §155.100, §155.105
 Preamble at 22-23.
 Preamble at p. 34.
 Preamble, p. 39.
 Preamble p. 46.
 PPACA §1331(d)(3)(A)(iii).
 §155.410(a) and (d).
 §155.705(b)(2) and (3).
 Pp. 91-92.
 Preamble p. 99
 Preamble p. 108
 Preamble at 118.
 Preamble at 119.
 Preamble at 120.
 Preamble at 136.
 Preamble at 120-121.
 Preamble at 126.
 Preamble at 129.
 Preamble at 129.
 Preamble at 131-132
 §156.280(b) and (c)(2).
 §156.280(e) and (f).
 Preamble at 7.