Health Care Reform Update: Annual Dollar Limits; MLR and HSA's

THE LATEST HEALTH CARE REFORM UPDATE:

HHS Releases Guidance Related to Annual Dollar Limit Waivers
On Feb. 13, 2012, the Department of Health and Human Services (HHS) stated a health insurance issuer that has received a waiver of the annual dollar limit requirements pursuant to Section 2711 of the Public Health Service Act for a group health insurance product can sell that product to a self-insured grandfathered group health plan that has itself been granted a waiver and wishes to switch from being a self-insured plan to a fully insured plan, as long as the following criteria are satisfied:

1. In all cases, the plan sponsor must have been offering group health coverage to its employees before Sept. 23, 2010, for which it obtained from HHS a waiver of the annual limits requirement;
2. The issuer from which the group health plan is now obtaining the insured policy must have obtained a waiver from HHS for the newly purchased policy;---
3. The annual limits of the new policy may not be lower than the annual limits of the previous policy, except in the situation outlined in No. 4;
4. The plan sponsor may obtain a replacement policy with a lower annual limit only if other comparable coverage is not available.  If a plan purchases a lower annual limit policy due to lack of comparable coverage, this change would cause a loss of status under 45 CFR 147.140(g)(1)(vi)(C), relating to status as a grandfathered health plan.-
5. The health insurance issuer must obtain from the plan sponsor an attestation that the criteria outlined above are satisfied, and the attestation must be accompanied by documentation outlining the terms of the prior coverage. Issuers shall retain this information in accordance with the data retention requirements of the Sept. 3, 2010, and Nov. 5, 2010, annual limits guidance documents.
6. To the extent not superseded here, all prior HHS guidance regarding annual limits waivers continues to apply to the plan and policies described here.

Milliman Study Highlights the Impact of Medical Loss Ratio Rules on HSAs
A new report by Milliman Inc. says that high-deductible health plans, including those with health savings accounts (HSAs), will likely be more adversely impacted by the medical loss ratio requirements under PPACA than other types of comprehensive medical plans.  Consumers who rely on HSA-qualified plans to finance their health care may experience greater costs in their current health plans and may eventually have to find more expensive replacement coverage.

The primary issues of concern for high-deductible plans are that:

• The medical loss ratio formula doesn't take into account contributions to HSAs.  Many high-deductible health plans are accompanied by an HSA, which covers much of the first-dollar costs before the plan's deductible is reached. HSA contributions are currently not reflected in the medical loss ratio calculations.
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• High-deductible health plans may not be able to raise rates fast enough to keep up with rising costs.  High-deductible health plans will require larger annual rate increases than typical medical plans because medical inflation will have a greater impact on claim levels than plans with lower deductibles.
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• Every plan has fixed expenses that it covers with premiums.  Since high-deductible health plans have lower premiums than other plans, a greater percentage of the premium must be used to pay these fixed expenses. ---

High-deductible health plans have less predictable claims experience that could increase the risk of paying rebates.  High-deductible insurance plans pay fewer claims than plans with low deductibles.  But when high-deductible health plans pay claims, the claim dollar amounts tend to be larger.  This lower-frequency/high-payment creates less actuarial predictability which can result in high claims in one year and low claims in another.  If the plan has low claims, it may not meet the 80 percent medical loss ratio and be required to pay rebates.  If the plan has high claims, it may lose money that it cannot "make up" in other years.