The Obama Administration's 'Fix' for Insurance Cancellations: Five Things Worth Taking into Account
President Obama announced on November 14 that the Administration will allow health insurers to continue certain coverage in the individual and small group market which would have not otherwise met the market reform requirements of the Affordable Care Act (ACA). This change raises significant questions and operational problems for issuers, providers, employer sponsors of health plans, and other organizations operating in the health care industry. In conjunction with the President's announcement, the Centers for Medicare & Medicaid Services of the Department of Health and Human Services (CMS) has issued a letter to state insurance commissioners (CMS Letter) detailing the Administration's new "transitional policy" in regard to this issue. The CMS Letter provides some guidance regarding health insurance policies that now may be continued, and specifies the necessary conditions under which these policies may be continued. However, there remains much uncertainty as to whether issuers will be able to continue to offer these policies, as well as the overall impact on the insurance market.
Summary of the CMS Letter
The transitional relief described in the CMS Letter applies to health insurance coverage in the individual and small group market that is renewed for a policy year between January 1, 2014 and October 1, 2014 and "associated group health plans of small businesses." In order to take advantage of the relief, the following conditions must be met:
- The coverage must have been in effect on October 1, 2013, and the relief applies only to individuals and small businesses with coverage under the policy as of that date. In other words, if a policy is extended under the relief, it cannot be sold or offered to new insureds.
- The issuer sends a new notice to all individuals and small businesses that received (or would have received) a cancellation notice with respect to the coverage, informing them of the following: (1) any changes in the options that are available to them; (2) which of the specified market reforms would not be reflected in any coverage that continues; (3) their potential right to enroll in a qualified health plan offered through an Exchange and possibly qualify for financial assistance; (4) how to access such coverage through an Exchange; and (5) their right to enroll in health insurance coverage outside of an Exchange that complies with the specified market reforms.
If individuals or small businesses have already received a cancellation notice, the issuer must send this notice as soon as reasonably possible. If the cancellation notice has not yet been sent, the issuer must send the notice by the time it would have otherwise had to have sent the cancellation notice.
Under the relief, eligible policies will not have to comply with the following market reforms which otherwise would be mandated by the ACA for 2014:
- the prohibition on using factors other than rating area, actuarial value, age, tobacco use, and individual/family status to determine premium rates;
- guaranteed availability of coverage;
- guaranteed renewability of coverage;
- the prohibition of pre-existing condition exclusions or other discrimination based on health status, with respect to adults (except with respect to group coverage);
- the prohibition of discrimination against individual participants and beneficiaries based on health status (except with respect to group coverage);
- the prohibition of discrimination against health care providers acting within the scope of their license and state laws;
- the requirement to provide essential health benefit packages;
- the prohibition on discriminating against an individual who requires treatment for cancer or another life-threatening condition because the individual chooses to participate in a clinical trial.
Note that this list does not encompass all of the market reforms under the ACA; for example, the relief does not extend to the prohibition on waiting periods that exceed 90 days, or the prohibition against establishing lifetime or annual limits on the dollar value of benefits.
The CMS Letter states, at its conclusion, that "State agencies responsible for enforcing the specified market reforms are encouraged to adopt the same transitional policy with respect to this coverage." In other words, while the CMS Letter reflects the Obama Administration's policy, CMS acknowledges that state insurance regulators will dictate whether this relief will be available for any particular state.
Our initial reactions to the Administration's announcement and the CMS Letter are as follows:
- The threshold question is whether state insurance regulators will be willing, or able, to let insurers take advantage of the relief.
The transitional relief is only available to the extent state insurance regulators are willing to go along with the Administration's proposed policy. This will be determined on a state-by-state basis, based at least in part on political considerations. The status of Exchange enrollment within the state may also be a factor.
Initial reaction to the proposed relief has been mixed. According to press reports, regulators in Florida, Hawaii, Kentucky, North Carolina, Ohio, and Texas have indicated that they are receptive to allowing insurers to continue eligible plans. Rhode Island, Vermont, and Washington have already stated they will not allow insurers to continue non-compliant policies, regardless of the Administration's position. Other states are apparently reviewing the proposal. However, it seem likely that some states will adjust their initial positions based on their success in enrolling individuals on the Exchanges. States with low enrollment may be more likely to allow for the continuation of otherwise non-compliant policies in the hopes that it will lower the number of individuals with no coverage at all.
There are other problems at the state level. A number of states have adopted laws mirroring the ACA market reforms, effective as of January 1, 2014. Insurance regulators in these states may not have the flexibility to allow non-compliant policies to be renewed, absent action by the state legislature to amend the relevant laws. At least one state, California, has entered into contracts with issuers offering Exchange products requiring them to discontinue nongrandfathered coverage that does not comply with ACA market reforms. Such contracts would also have to be modified.
- Even if the states are willing to "play ball," insurers are under no obligation to continue these policies. Insurers will have to take into account significant business and logistical considerations in deciding how to proceed.
Under the current guidance, a health care insurer has no obligation to continue any particular health insurance policy, regardless of whether it is eligible for the transitional relief. If the policy is potentially eligible to be extended, the issuer will have to take into account a number of factors in determining whether it is feasible to continue a policy that it anticipated terminating. First, the issuer will have to make a business decision regarding whether it is in its financial interest to continue the policy, given the changes in the insurance market. Many issuers have significantly altered their internal programming for administering claims in anticipation of the implementation of the market reforms, and they will have to determine if they can now modify that programming to accommodate the reinstatement of these other policies. Also, since the carriers did not anticipate the existence of these policies, they presumably have not filed for the appropriate premium rates. That will require the carrier to take the time to determine what premiums are appropriate and then file the policies with the appropriate state regulators for approval. Finally, issuers will have to comply with the notice requirements set forth in the CMS Letter and do so in a timely manner, and give policyholders ample time to decide whether to renew their policies. Working through all of these issues will pose challenges for many issuers.
- Not every policy that is non-compliant with the ACA market reforms can be "saved" by this relief. Notably, it appears "mini-med" policies cannot take advantage of the relief and therefore are no longer viable.
While the CMS Letter would allow the continuation of some policies that otherwise would be out of compliance with the market reforms, the excepted "specified market reforms" as laid out in the transitional relief are not inclusive of all the market reforms in the ACA. As a result, at present it appears that certain policies simply cannot be saved, regardless of the relief. Most notably, it appears that "mini-med" policies, which provide for inexpensive premiums but typically cap benefits at a relatively low annual limit, are not eligible for the relief, since the elimination of annual limits is not one of the excepted "specified market reforms" set forth in the CMS Letter.
- A number of entities are raising concerns about how this new relief could affect the health insurance risk pools. Further guidance addressing this issue is likely.
Health insurance industry leaders are already expressing the concern that the continuation of non-ACA compliant health insurance policies will result in healthier (lower-cost) individuals retaining less expensive coverage that otherwise would have been canceled, while less healthy (higher-cost) individuals will purchase coverage on the Exchanges. That could result in the premiums that were approved for Exchange coverage not covering the cost of providing benefits for this population. The CMS Letter acknowledges this issue, stating, "though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance." The risk corridor program is a temporary program that HHS will implementduring 2014 through 2016. Under the risk corridor program, funds are distributed from those qualified health plans sold in the Exchanges that have better than expected experience to the qualified health plans with worse experience, in order to stabilize risk. Concerns about disruption of the risk pools are likely to continue, and further guidance addressing this issue is likely to be forthcoming as well.
- The CMS Letter leaves open the possibility that the transitional relief could be extended.
Notably, the CMS Letter states, "We will consider the impact of this transitional policy in assessing whether to extend it beyond the specified timeframe [eligible coverage renewed for a policy year starting between January 1, 2014, and October 1, 2014]." This suggests that CMS could extend the relief into future policy years. Of course, legislation is also under consideration in Congress that could also affect whether these policies will continue to be viable.
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