Health Care Reform Update: State Exchanges

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Health Exchange Risk Programs Would Protect Insurers and Consumers

Health and Human Services Department officials have coupled the health exchange regulation released on Monday with another proposed rule designed to minimize the impact of covering sick, expensive patients on insurance companies. The federal government proposed to give insurers higher payments for patients whose claims cost more than average so insurers don't have an incentive to avoid covering high-cost patients.

The 103-page regulation includes three components that would encourage insurers to cover high-risk policy holders just as they would those who are healthy:

• A permanent risk adjustment formula that would pay insurers higher rates for sicker patients, such as those with chronic conditions. The adjustment would apply to those in the individual and small group markets inside and outside of the exchanges.
• A three-year reinsurance program that would establish a nonprofit entity to handle temporary payments for insurers that cover patients with high medical claims in the individual market.
• A three-year risk corridor program that would give insurers inside the exchanges more certainty by limiting losses and gains. Insurers whose claims are at least 3 percent higher than projected would get more federal funding, while those whose costs are at least 3 percent less than projected would get fewer federal dollars.

The first component, the risk adjustment program, is the only one of the three components that is permanent. Payments will essentially transfer money from plans that cover mostly low-cost individuals to those whose enrollees have higher costs. The federal government or the states would calculate the payment formulas.

The reinsurance and risk corridor programs were made temporary because lawmakers felt that over time, more people would enter the new exchange program, insurers would have a better understanding of the risks of covering enrollees, and the market would mature.

The law requires that each state establish a reinsurance program to "help stabilize premiums for coverage in the individual market during the first three years of exchange operation," which are 2014-16. The money will come from all insurance plans and third-party administrators of self-insured group plans which will contribute funds to a nonprofit that will dole out additional money to insurers who have higher claims. Any insurance company in a state's individual market that was not grandfathered under the law -- including plans outside of the exchange -- could be eligible for the higher reimbursements. The law calls for states to collectively assess and disperse a total of $10 billion in 2014, $6 billion in 2015 and $4 billion in 2016 for reinsurance in addition to collecting other funds from insurers such as $2 billion in 2014-15 and $1 billion in 2016 for the general treasury.

The risk corridor program, which will be administered by the federal government instead of the states, would apply to insurers in the exchange's individual and small group markets during the first three years that the exchange is operating.

The three mechanisms are intended to help smooth the transition and provide more stability in the marketplace for insurers who end up with more sick people, or sicker people, than other insurers as well as for insurers who might not be able to predict their risk in the first couple of years. Risk corridors also could cap the profits of some insurers.

States could choose to change the details of reinsurance or risk adjustment from those set out by the federal standards. Any state that decides to make changes would need to publish a notice at least one year before the benefit year begins, and by March in the calendar year before the effective date.

The public has been given 75 days to comment on the proposal.

Milliman Identifies Key Questions That Will Drive the Creation of State Healthcare Insurance Exchanges
Milliman, Inc., today identified a series of considerations for states, health plans, and employers as they look toward the 2014 state exchange implementation deadline set forward in the Patient Protection and Affordable Care Act (PPACA) and reiterated in regulations issued by Health & Human Services on July 11. "The possibility that exchanges could serve a larger role in the rate review process introduces questions about interaction between state insurance departments and exchanges. Perhaps most importantly from an actuarial perspective, we are still awaiting regulations on essential benefits and other key aspects of pricing, which will be pivotal in dictating the design of plans in the exchange."

Some of the questions that still remain include:

• How firm is the deadline? Exchanges are supposed to be established by the open enrollment period that begins on Oct. 1, 2013. However, the regulations indicate that some states could miss the 2013 deadline and then receive regular or conditional approval for an exchange in subsequent years.
• How will essential benefit regulations shake out? Many of the plan design and cost considerations that will influence the insurance policies sold through an exchange begin with the question of which benefits are offered and at what level. The exact nature of insurance policies sold through exchanges will remain vague until these regulations are introduced.
• What rating role will be played by exchanges? The exchange regulations suggest that exchanges may have a larger role in the rate review process, on top of a full review currently performed by state departments of insurance. Is there redundancy and, if so, how will that redundancy be reconciled?
• Yet another complexity involves methodologies used for rating individuals versus rating families. The discussion in the exchange regulations is not conclusive and leaves open a variety of different approaches that may allow flexibility or may just foment confusion.
• What about smaller insurers? The regulations indicate that health plans sold through the exchange can no longer determine their own geographic area, which introduces a new rating wrinkle. The same areas must be used within and outside of the exchanges. What should a health plan do if a state introduces a geographic area that is larger than the area served by a health plan?
• How will federal exchanges operate? The federal government will create an exchange for any state that does not create its own exchange by the deadline, but the federal exchange concept remains undefined.
• Who will pay for federal exchanges? Will federal exchanges need to be financially self-sufficient, as is the case with state-run exchanges?
• What should we expect from "Navigators"? Navigators are entities intended to help consumers make insurance purchasing decisions in the exchange. To date, little detail on Navigators exists.
• The regulations help by clarifying that Navigators must be in place by the exchange's first open enrollment period on Oct. 1, 2013.
• The proposed rules now require that an exchange include two types of entities as Navigators.
• The proposed rules ensure that a community-based or consumer-focused group will fill one of these slots.
• Navigators will need to demonstrate an existing relationship to consumers before appointment.
• Brokers and agents may act as Navigators as long as they are not receiving compensation from a qualified health plan.
• How will exchanges interact with CO-OPs? PPACA allows for the creation of Consumer Operated and Oriented Plans (CO-OPs), but details of these plans are still unclear because CO-OP regulations are still pending. CO-OPs in theory will be sold on exchanges but they have some unique requirements; how will this interaction take place?
• What does success look like? The criteria for determining the success of an exchange are still unclear. Presumably there will be milestones for measuring such criteria, but these too are undefined.
• The regulations also do not get into quality measurement, though quality will likely feed success criteria; forthcoming regulations will pick up on the quality topic.

These details will have to come into focus before states can establish the proper exchange governance framework, before health plans can begin to establish their approach to rating and before employers can make purchasing decisions. To add additional complexity, the answers to some of these questions may vary from one state to another or otherwise be influenced by local dynamics, including the existing regulatory environments in each state and geographic cost variation.

HCR Update: External Claims & Appeals; Workplace Health Funds

We have worked with our partners at UBA to provide you the most recent Health Care Reform Update:

EBSA Issues Amendments to Interim Final Rules and Model Notices on Internal Claims and Appeals and External Review Processes

The U.S. Employee Benefit Security Administration (EBSA) and Department of Health and Human Services (HHS) issued amendments to the Interim Final Rules implementing the requirements regarding internal claims and appeals and external review processes for group health plans and health insurance coverage in the group and individual markets under provisions of the Patient Protection and Affordable Care Act (PPACA).

These rules are intended to respond to feedback from stakeholders on the interim final regulations and to assist plans and issuers in coming into full compliance with the law through an orderly implementation process. Public comments on the amendment to the regulations are requested and must be submitted within 30 days.

The amendments focus primarily on six issues:

• Expedited notification of benefit determinations involving urgent care
• Additional notice requirements with respect to notice of adverse benefit determinations or final internal adverse benefit determination
• Deemed exhaustion of internal claims and appeals processes
• Providing notices in a culturally and linguistically appropriate manner
• Duration of transition period for State external review processes
• Scope of the Federal External Review Process

Some highlights:

Urgent care decisions
One change involves the amount of time health care plan enrollees have to be notified of an urgent care coverage decision.

• Last year, regulators said enrollees would have to be notified of an urgent care decision within 24 hours of receipt of a claim.
• But in a joint amendment to the 2010 regulations published in Friday's Federal Register, the Health and Human Services, Labor and Treasury Departments said they will allow plans to make notification of coverage decisions within 72 hours, closely following a Labor Department rule. Regulators, though, noted that the 72-hour limit is a maximum "and that in cases where a decision must be made more quickly based on the medical exigencies involved, the requirement remains that the decision should be made sooner than 72 hours after the receipt of the claim," according to the rules published in Fridays' Federal Register.

Notifications in languages besides English
The latest rules also amend a requirement that notices of available and external claims appeal processes and review be provided in a "culturally and linguistically appropriate manner."

• Under the previous rules, the requirement to provide notices in a language other than English was based on the percentage of plan enrollees who were literate in a common non-English language. For plans that cover more than 100 participants, the threshold was 10 percent of plan participants, or 500 participants, whichever was less.
• Under the latest rules, the requirement applies if at least 10 percent of the population residing in a county where an employer's health care plan enrollees reside are literate in the same non-English language. Currently, 255 U.S. counties meet this standard, including 78 of which are in Puerto Rico, according to the rules.

 The agencies also released additional guidance and revised model notices related to the amended interim final rules.

• Technical Release 2011-02 
• Revised Model Notice of Adverse Benefit Determination
• Revised Model Notice of Final Internal Adverse Benefit Determination
• Revised Model Notice of Final External Review Decision
• Updated List of Consumer Assistance Programs, as of May 23, 2011

$10 Million in Affordable Care Act Funds to Help Create Workplace Health Programs
The U.S. Department of Health and Human Services announced today the availability of $10 million to establish and evaluate comprehensive workplace health promotion programs across the nation to improve the health of American workers and their families. The initiative, with funds from the Affordable Care Act's Prevention and Public Health Fund, is aimed at improving workplace environments so that they support healthy lifestyles and reduce risk factors for chronic diseases like heart disease, cancer, stroke, and diabetes.

Funds will be awarded through a competitive contract to an organization with the expertise and capacity to work with groups of employers across the nation to develop and expand workplace health programs in small and large worksites. Participating companies will educate employees about good health practices and establish work environments that promote physical activity and proper nutrition and discourage tobacco use -- the key lifestyle behaviors that reduce employees' risk for chronic disease.

Project funds will support evidence-based initiatives to build worksite capacity and improve workplace culture in support of health. Examples of such strategies include establishing tobacco-free campus policies, promoting flextime to allow employees to be more physically active, and offering more healthy food choices in worksite cafeterias and vending machines. A core principle of the initiative is to maximize employee engagement in designing and implementing the programs so they have the greatest chances of success.

Organizations interested in submitting proposals for the Comprehensive Health Programs to Address Physical Activity, Nutrition, and Tobacco Use in the Workplace can find more information at www.fbo.gov. The application deadline is Aug. 8, 2011. A separate funding opportunity is available for a national evaluation of the initiative and can also be found at www.fbo.gov.

HCR Update: PCIP; Quality of Care

Here is the latest Health Care Reform Update, brought to you with the help of our partners at UBA:

HHS Announces Lower PCIP Premiums

The federal government announced on May 31 that they will increase subsidies to premiums in the Pre-Existing Condition Insurance Program (PCIP) in another effort to spur enrollment. The added subsidies, which will begin July 1, will result in premiums being reduced by up to 40 percent in 17 of the 23 states and D.C. which have the program administered by the federal government. (For example, the monthly premium for a person older than 55 in Florida will be $234.) The remaining 27 states, which each run their own plans, will be able to reduce premiums as well.

In addition, people who would like to enroll in the program no longer need to provide a letter from an insurance company denying them coverage. Starting July 1, 2011, program applicants can simply provide a letter from a doctor, physician assistant, or nurse practitioner dated within the past 12 months stating that they have or, at any time in the past, had a medical condition, disability, or illness. HHS officials cannot waive other eligibility requirements that are spelled out in the statute, such as a rule that people must be without insurance for six months before qualifying for the risk pool.

This announcement comes as enrollment in the Pre-Existing Condition Insurance Plan continues to lag far behind expectations. To date, only 18,000 Americans have signed up for the PCIP. Officials initially said it would reach over one million enrollees by the time the program is phased out in 2014, when it will become illegal for insurance companies to discriminate against the sick. $5 billion in funding for the program was included in PPACA legislation passed in March 2010.

Major New Effort to Give Consumers and Employers Better Information About Quality of Care
The Centers for Medicare & Medicaid Services (CMS) proposed rules that will allow organizations that meet certain qualifications access to patient-protected Medicare data to produce public reports on physicians, hospitals and other health care providers. These reports will combine private sector claims data with Medicare claims data to identify which hospitals and doctors provide the highest quality, cost-effective care.

This new program would provide for the following activities:

• CMS would provide standardized extracts of Medicare claims data from Parts A, B, and D to qualified entities.
• The data can only be used to evaluate provider and supplier performance and to generate public reports detailing the results.
• The data provided to the qualified entity will cover one or more specified geographic area(s).
• The qualified entity would pay a fee that covers CMS' cost of making the data available.
• To receive the Medicare claims data, qualified entities would need to have claims data from other sources.
• To prevent mistakes, qualified entities must share the reports confidentially with providers and suppliers prior to their public release, which gives providers and suppliers an opportunity to review the reports and provide necessary corrections.
• Publicly released reports would contain aggregated information only, meaning that no individual patient/beneficiary data would be shared or be available.
• During the application process, qualified entities would need to demonstrate their capabilities to govern the access, use, and security of Medicare claims data.
• Qualified entities would be subject to strict security and privacy processes.
• CMS would continually monitor qualified entities, and entities that do not follow these procedures risk sanctions, including termination from the program.

This initiative will be based on quality measures that hospitals have been reporting to the Hospital Inpatient Quality Reporting Program since 2004, and that information is posted on the Hospital Compare website. CMS will invest up to $1 billion to help drive these changes.

The proposed rule is on display at the Office of the Federal Register HERE. Comments are welcome on this set of proposed rules.

New Rules for Child Only Policies in Iowa

Federal Healthcare Reform legislation passed in 2010 requires insurance companies to allow children under age 19 to enroll in a plan regardless of health status, claims history, or geographic status. A child only policy can be a good option for some families when traditional family coverage is not practical. But today you cannot buy a child only health insurance policy anywhere in the state of Iowa.


The Iowa Insurance Division (IID) issued a new Administrative Rule that requires all individual health insurance carriers doing business in Iowa to offer coverage to individuals under age 19 during an annual open enrollment period of July 1 through August 14 each year. Applications received during the open enrollment period will be offered coverage on a guaranteed-issue basis, regardless of past or present medical conditions. It’s important to note that insurance companies can charge a higher premium based on health status.

TrueNorth recommends that parents consider applying for a child only policy if:

• A child has past or ongoing medical conditions that made it difficult (or even impossible) to obtain insurance coverage, or
• Providing coverage for a healthy child through an employer plan is a financial burden for the family.

**Note that if an employee is contributing premium dollars for their dependents’ coverage on a pre-tax basis (through a Section 125 plan), there may be limitations regarding if/when a dependent may be dropped from the plan.

TrueNorth has specialists that are experts in the individual health markets, including child only health plans. If you think you might benefit from placing your child under such a policy, please feel free to contact:

Tana Studt, RHU at (319) 739-1414 or
Ted Messer, CLU, ChFC, LUTCF at (319) 739-1421.

HCR Update: Medicare Notices; HIPAA Rules

CMS Makes Changes to Medicare Part D Creditable Coverage Notice Requirement
Organizations and "entities" that provide prescription drug coverage to Medicare Part D eligible individuals must annually notify these individuals whether the drug coverage they have is creditable or noncreditable.

The Centers for Medicare & Medicaid Services (CMS) has made two changes to this requirement:

• CMS has issued new model disclosure notices that are to be used after April 1, 2011. The model notices, in both English and Spanish, can be found on the CMS website.
• Because the Patient Protection and Affordable Care Act (PPACA) changed the Medicare enrollment period, beginning in 2011, the disclosure notice must now be sent to participants a month earlier. In the past, the Medicare enrollment period was Nov. 15 through Dec. 31, and the notice had to be given out by Nov. 15. PPACA changes the enrollment period to Oct. 15 through Dec. 7. Accordingly, creditable coverage notices must be sent by Oct. 15.

HHS Releases Proposed Rule on HIPAA Privacy Rule Accounting of Disclosures Under HITECH Act
The Department of Health and Human Services (HHS) released a proposed rule to modify the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule's standard for accounting of disclosures of protected health information.

The proposed rule, in part, implements statutory requirements under the Health Information Technology for Economic and Clinical Health Act (HITECH Act) to require covered entities and business associates to account for electronic disclosures of protected health information to carry out treatment, payment and health care operations.

HHS proposes to expand the accounting provisions to provide individuals with the right to receive an access report indicating who has accessed electronic protected health information. Also proposed are changes to accounting requirements to improve workability and effectiveness. Comments are due on or before Aug. 1, 2011.

HCR Update: MLR Guidance; Insurance Rate Rules

We have worked with our partners at UBA to provide you with the latest Health Care Reform Update:

Technical Guidance Issued Regarding Medical Loss Ratio Requirements

On May 13, 2011, HHS issued a bulletin which provided technical guidance regarding Medical Loss Ratio requirements for insurers.

This Bulletin contains seventeen Q&As on the following topics regarding the MLR Interim Final Rule:

• Definition of Small Employer;
• Mini-Med Plan MLR Reporting;
• Expatriate Plan MLR Reporting;
• Reimbursement for Clinical Services Provided to Enrollees (Incurred Claims);
• Third-Party Vendor Payments;
• Activities that Improve Health Care Quality; and
• A State Request for Adjustment to the MLR Standard.

The entire text can be found HERE.

HHS Issues Final Rules On Health Insurance Rate Reviews
Under new rules issued by the Obama Administration, health insurers will be "required to justify annual premium increases of 10 percent or more to state regulators." The regulations were contained in a 94-page document released on May 19.

"Starting in September 2012, the federal government will set a separate threshold for each state, reflecting trends in insurance and health care costs." Federal officials "acknowledged that they did not have the authority to block rates that were found to be unjustified," but they noted that many states already have that authority.

Moreover, the federal government is "providing $250 million to states to strengthen their capacity," although a few states opposed to the federal health care law "have turned down the money."

HCR Update: Wellness Ruling, Full-Time Threshold; Value-Based Purchasing

Here is the latest Health Care Reform Update, brought to you with the help of our partners at UBA:

Important Legal Ruling for Employer-Sponsored Wellness Plans

In a decision filed April 11, the Southern District of Florida granted an employer health plan's motion for summary judgment in a case where the health plan's wellness program was charged with violating the Americans with Disabilities Act (ADA). The case, Seff v. Broward County, is important because it has never been clear whether wellness programs and health risk assessments that otherwise comply with the HIPAA wellness rules (particularly those that are mandatory or involve penalties) are also compliant with ADA.

The Equal Employment Opportunity Commission (EEOC), which administers the ADA, has questioned whether mandatory wellness programs or those that include penalties for noncompliance (as opposed to a reward for participation) would be permitted under this provision. However, the EEOC has not issued formal guidance. In this case, the court found that the ADA prohibition does not apply to a wellness program offered by an employer health plan where the program meets the ADA's safe harbor for bona fide benefit plans.

Importantly, the court did not address whether the county wellness program was "voluntary" under EEOC standards. Applicable regulations define a voluntary wellness program as one that neither requires employees to participate nor penalizes employees for non-participation. The EEOC has informally suggested that a wellness program may not be voluntary if the program includes a mandatory health risk assessment or a punitive trigger, but since the court did not address this, it remains an undecided issue.

Treasury Plan Would Help Determine Full-Time Workers for Health Cover
The U.S. Treasury Department unveiled potential approaches Tuesday to what constitutes a full-time employee as it pertains to the health care reform law requirement that employers offer full-time employees coverage or pay a penalty if they do not.

Under one approach suggested by Treasury in Notice 2011-36:

• An employer would calculate each employee's full-time status by looking back "at a defined period of not less than three but not more than 12 consecutive calendar months" to determine if the employee worked an average of 30 hours per work during this "measurement" period
• If the employee met the 30-hour standard by that measurement, the individual would be considered a full-time employee during a subsequent "stability" period, regardless of the number of hours the employee worked during that subsequent period.
• For an employee determined to be a full-time employee during the measurement period, the stability period would be at least six consecutive months after the measurement period
• If an employee were determined not to be full-time during the measurement period, the employer would be allowed to exclude the individual in calculating its full-time employees during a stability period

The Treasury Department said it is asking for public comment on determining whether an employee meets the 30-hour threshold. Comments are due June 17 and can be emailed to Notice.comments@irscounsel.treas.gov.. Notice 2011-36 should be included in the subject line.

CMS Implements Medicare Value-Based Purchasing for Hospitals
A new initiative launched by the Department of Health and Human Services (HHS) will reward hospitals for the quality of care they provide to people with Medicare and help reduce health care costs. Authorized by the Patient Protection and Affordable Care Act (PPACA), the Hospital Value-Based Purchasing program for the first time changes how Medicare pays health care providers and facilities--3,500 hospitals across the country will be paid for inpatient acute care services based on care quality, not just the quantity of the services they provide. The final rule establishing the Hospital Value-Based Purchasing Program will be published in the May 6 Federal Register; the proposed rule was published on Jan. 13.

In fiscal year 2013 (beginning on Oct. 1, 2012), an estimated $850 million will be allocated to hospitals based on their overall performance on a set of quality measures that have been proven to improve clinical processes of care and patient satisfaction. This funding will be taken from what Medicare otherwise would have spent, and the size of the fund will gradually increase over time, resulting in a shift from payments based on volume to payments based on performance.

The better a hospital does on its quality measures, the greater the reward it will receive from Medicare.