Dewonkify – Risk Corridors

The Patient Protection and Affordable Care Act –commonly referred to as “the ACA”—is a law that reformed nearly twenty-percent of the economy through modifications to regulations and changes to existing law. Its primary goals were to expand health care coverage and control rising costs. Among a number of reforms, the ACA mandated that all citizens have health insurance for a minimum of nine months of the year (or face a penalty); allowed children to remain on their parents plan until the age of 26; created health insurance market places where anyone can shop for health insurance; and banned insurance companies from denying coverage on the basis of pre-existing conditions.

Word: Risk Corridors

Used in a sentence:Risk corridors, a provision of the ACA, limits both the amount of money that a health-insurance plan can make and lose during the first three years it is sold on the new health-care exchanges. Related programs that mitigate risk for insurance companies are also being targeted by conservative Republicans.” –Rep. Tom Cole quoted in The Washington Post.

Definition: Risk corridors are a component of the ACA that limit the risk borne by qualified health plans on the insurance marketplaces. Risk Corridors are a mechanism to minimize the year-end losses of insurers who covered a disproportionate share of sicker, often older, insured customers. The federal government, through the Department of Health and Human Services, agrees to cover 50% of the excess costs borne by insurers if those costs exceeded premiums by 3-8%. In the event those losses amount to greater than 8%, the government will defray 80% of those losses. However, if insurance companies see similar gains then the situation is reversed and the federal government is the beneficiary of those excess funds. This is the risk adjustment portion of the ACA where “healthier” insurance companies help ones shouldering more expensive populations.

History: Ideally, insurance is a system whereby a company manages risk by distributing moneys from a sizeable portion of healthy participants—needing minimal to moderate medical services—to a much smaller portion of sicker participants that need a lot more medical services. This results in a margin or profit where premiums exceed the medical costs of the consumers participating in a given plan. This is a simplified way of explaining what actuaries do every year. They take consumers in a given plan and compare their likelihood to use medical services with the expected revenues from monthly insurance premiums and other out-of-pocket costs like yearly deductibles. However, the advent of the ACA brought on this new frontier of health insurance marketplaces where no one could be denied care due to pre-existing conditions: previous surgery, diabetes, HIV, cancers, benign tumors, hypertension, etc.

Although, risk was managed by mandating that everyone be covered, this did not completely allay the fears of private insurers. Actuaries remained nervous. Anyone from the individual market—usually those not eligible for Medicaid/Medicare or employer sponsored coverage—could enter the exchanges and purchase insurance coverage. This uncertainty could have resulted in excessive premiums to consumers. To mitigate that risk and help with the possibility that consumers would be sicker and older—and thus more likely to use many costly medical procedures—the authors of the law created risk corridors. This would be a temporary program to help insurers on the insurance market places for three years.

 

Dueling Attempts to Address Cancelled Health Insurance Policies

Yesterday President Obama announced a new policy for health insurance plans offered in the individual market.  This announcement falls on the heels of less than ideal health insurance exchange enrollment figures released earlier this week.

This new policy does not require insurers to continue to offer these plans to individuals.  Whether individuals will be allowed to keep their plans will depend on two factors: (1) if the insurer decides it wants to continue to offer the product and (2) if the state insurance commissioner allows insurers to continue to offer these plans.  Plans will have to inform individuals of coverage options and the availability of tax credits available to them on the health insurance exchanges.  This new policy pertains to plans that are renewed in 2014.

Example 1

For three years Bob has purchased an individual health insurance policy from Acme Insurance Co.  This policy is very limited and does not cover maternity benefits.  Because his plan doesn’t cover all the ten essential health benefits (a list of such benefits is available here) that all plans offered in the exchange must provide, Bob receives a notice from Acme Insurance Co. canceling his policy.

Now, under the new policy, if Bob lives in a state where the State Insurance Commissioner will allow the sale of such policies AND Acme Insurance Co. decides to keep offering his policy, then Bob will be able to keep his health insurance policy.  However, Acme Insurance Co. will have to tell Bob what benefits are not included in the plan (in this case, maternity benefits) that are available to individuals on the health insurance exchanges.  Acme Insurance Co. will also have to inform Bob that depending on his income he may qualify for tax credits if he purchased health insurance on the exchanges.  

Example 2

For five years Janet has purchased an individual policy through RU Insured Co.  This policy is very limited and does not provide any prescription drug coverage.  Because her plan does not cover one of the ten essential health benefits (prescription drug coverage), she receives a notice from RU Insured Co. cancelling her policy effective January 1, 2014. 

However, unlike in the example above, Janet lives in a state where the State Insurance Commissioner is unwilling to allow companies like RU Insured to continue to sell plans that are not comparable to plans offered in the health insurance exchanges.  So, notwithstanding yesterday’s announcement, Janet will not be able to keep her existing health insurance policy from RU Insured. 

Over the past few months, individuals who had these plans have been receiving notices announcing their plans would be cancelled.  It is unknown exactly how many individuals have received such notices.  Some individuals who have received these cancellation notices are finding it more expensive to purchase health insurance coverage through the health insurance exchanges.

Shortly after details of this new policy were released, skepticism abounded as to whether this policy is the appropriate remedy to address the cancelled policies.  The American Health Insurance Plans (AHIP), the trade association for health insurance companies, released a statement warning that altering the rules after plans have had to comply with the Affordable Care Act (ACA) requirements “could destabilize the market and result in higher premiums for consumers.”  The National Association of Insurance Commissioners (NAIC) and the American Academy of Actuaries expressed similar concerns with the proposal.

At the same time, Rep. Upton (R-MI) has proposed legislation (H.R. 3350) that would not only individuals to renew these policies, but also would allow insurance companies to sell new policies that fail to meet the minimum requirements imposed under the ACA.  Such policies could be sold through 2014.

Example 3

Max has an individual health insurance policy from OK-R-US Insurance Co.  This is a catastrophic policy that doesn’t provide much coverage (only covers four out of the ten essential health benefits) and charges him more because of his pre-existing conditions.  Max’s friend Lauren would like to buy the same policy. 

Under the Administration’s proposal, Lauren would not be able to purchase this policy from OK-R-US because insurance companies would not be allowed to sell new policies to individuals.

Under H.R. 3350, OK-R-US would be allowed to sell Lauren a new policy. 

The White House released a Statement of Administrative Policy threatening to veto the legislation.

This afternoon, by a vote of 261-157, the House passed H.R. 3550; 39 Democrats voted in favor of the legislation and four Republicans voted against the bill.  The legislation now moves to the Senate, where Senator Mary Landrieu (D-LA) has introduced legislation (S. 1642) that would allow plans to continue offering policies only to current policy holders and, similar to the Administration’s proposal, these plans would have to inform policyholders about the availability of plan options on the health insurance exchanges.  However, unlike the Administration’s proposal, Senator Landrieu’s legislation would allow insurance companies to continue to offer these products beyond 2014.

Administration Releases Additional Guidance on Third-Party Payers

Since the establishment of the health insurance exchanges, there has been the lingering question of whether some so-called third-party payers (such as hospitals, health care providers, and commercial payers) would be permitted to assist with an individual’s premiums and/or other cost-sharing obligations (like deductibles, copayments, etc.).

Today, November 4, 2013, the Center for Consumer Information & Insurance Oversight (CCIIO) released additional guidance on this issue suggesting that such assistance is not permissible.  According to the guidance, “HHS has significant concerns with this practice because it could skew the insurance risk pool and create an unlevel field” in the exchanges.  The guidance concludes by stating that “HHS intends to monitor this practice and to take appropriate action, if necessary.”

CMS Clarifies Health Insurance Exchange Enrollment Deadline

On October 28, 2013, the Centers for Medicare & Medicaid Services (CMS) released guidance clarifying that individuals have until March 31, 2014 to enroll in the health insurance exchanges.  (More information on the health insurance exchanges is available here.)  

What’s the issue? 

The Administration has previously announced the open enrollment period for the new health insurance exchanges would run from October 1, 2013 through Mach 31, 2014.

The Affordable Care Act (ACA) also imposes an individual mandate requirement, which provides that beginning January 1, 2014, individuals must have health insurance coverage or face a penalty.  This penalty is assessed on the individual’s federal income tax return for the following year.  (More information on this requirement is available here.)  In establishing the individual mandate requirement, the Internal Revenue Service (IRS) determined the penalty would not apply to individuals who have a gap in health insurance coverage for less than three months.

So, what’s the problem?

The problem comes from fact that there is a lag between when an individual signs up for health insurance coverage and when the coverage begins.  Under the rules, if an individual selects a plan and pays his/her premiums between the 1st and the 15th of a given month, his/her coverage begins on the first day of the following month.  However, if the individual selects a plan between the 16th and the end of a given month, his/her coverage will not begin until the first day of the second following month.  Below are some examples to illustrate the issue.

Example 1:

Betty does not have any health insurance coverage and decides to sign up for coverage in the health insurance exchange operating in her state.  She signs up for health coverage and pays her premiums on February 10, 2014.  Her health insurance coverage will begin on March 1, 2014.

Because she experienced a gap in coverage of less than three months, she will not be assessed an individual mandate penalty.

Example 2:

Bobby does not have any health insurance coverage and decides to sign up for coverage in the health insurance exchange operating in his state.  He waits until March 20, 2014 (still within the open enrollment period) to sign up for coverage and pay his premiums.  His coverage will begin on May 1, 2014 (the second following month).

However, because he experienced a gap in health insurance coverage of more than three months, prior to the CMS guidance, he would be assessed an individual mandate penalty.

What does the CMS guidance do?

The CMS guidance clarifies that an individual mandate penalty would not be assessed against anyone who signs up for coverage and pays his/her premiums before the end of the open enrollment period.  So, Bobby in Example 2 would not be assessed an individual mandate penalty even though he was without health insurance coverage for more than three months.

CMS will be issuing additional guidance next year to provide additional information to people as they prepare and file their 2014 federal income tax return (which is due to the Internal Revenue Service (IRS) by April 15, 2015).

October 1st – Huge Day for Healthcare

The first day of the federal government shutdown occurred on October 1, 2013, the same day as the start of the open enrollment period for the health insurance exchanges.  This blog post focuses on some of the top issues impacting health care policy on this date.

HHS Operating Status

Like most other federal agencies, the Department of Health and Human Services (HHS) has implemented a contingency plan, which calls for 52% of HHS employees to be placed on furlough.

Medicare Reimbursement

Despite the government shutdown, most Medicare fee-for-service reimbursement will continue as scheduled.

On October 1, 2013, the Medicare Administrative Contractors (MACs) indicated they would “continue to perform all functions related to Medicare fee-for-service claims processing and payment.”  However, according to the HHS contingency plan, health care fraud and abuse efforts will cease during the government shutdown.  In addition, CMS will be curtailing the number of recertification and initial surveys for Medicare and Medicaid providers.

ACA Implementation

Despite the HHS furlough, October 1st marked the first day of open enrollment for the health insurance exchanges.  Initially individuals were reporting that many of the individual state-based health insurance exchange sites were not working properly and the healthcare.gov website and toll-free number were experiencing problems or longer than average wait times.  However, as of yesterday afternoon, HHS informed reporters that more than 2.8 million individuals had visited the healthcare.gov website since it launched earlier that morning, the call centers received more than 81,000 calls, and there were more than 61,000 live chat requests.  HHS did not announce how many individuals had successfully enrolled in a health insurance plan offered through the exchange on this first day.

Medicare and Medicaid Provider Policies

In addition to the establishment of the new health insurance exchanges, the ACA also mandated certain Medicare and Medicaid cuts to begin on October 1, 2013, including:

  • Medicare readmissions reductions:  Under the Hospital Readmissions Reduction Program (HARP) hospitals are assessed a penalty for patients with certain conditions who return to the hospital within 30 days of discharge.  When the program began on October 1, 2012, hospitals were assessed a maximum penalty of one percent of total revenue.  As of October 1, 2013, the penalty increases to two percent of total revenue.  CMS data suggests that more than 2,200 hospitals will have their Medicare payments reduced under this program.  (More information on the program is available here.)
  • Medicaid Disproportionate Share Hospital (DSH) payments:  The Medicaid program provides additional payments—DSH payments—to hospitals that see a higher than average share of low-income beneficiaries.  The ACA reduced the overall level of Medicaid DSH payments beginning October 1, 2013 when cumulatively states will receive a $500 million cut in DSH payments.

Medicaid Expansion

Under the ACA, states who choose to do so may expand their Medicaid programs to cover uninsured individuals up to 133 percent of the federal poverty level (2013 federal poverty level figures are available here).  More than half the states have chosen to expand their Medicaid programs, as seen in this map.  Expanded Medicaid coverage begins in most states on January 1, 2014.

IRS Delays Penalties Under ACA Employer Mandate Until 2015

Last night the Internal Revenue Service (IRS) announced that the enforcement of penalties under the Affordable Care Act’s (ACA’s) employer mandate will be delayed one year, and will go into effect in 2015 rather than 2014. Drinker Biddle Partner Sarah Bassler Millar and Counsel Dawn E. Sellstrom prepared the following client alert on the IRS’s decision.

Drinker Biddle Client Alert: IRS Announces Penalties Under the Employer Mandate Will Not Apply Until 2015

HHS Finalizes Exchange Rules

On Wednesday, June 26, 2013, the Department of Health and Human Services (HHS) released its long-awaited final rules related to the health insurance exchanges, (also referred to as health insurance marketplaces).  The open enrollment period for the health insurance exchanges begins in less than 100 days.  A copy of the final rule is available here.

Under the Affordable Care Act (ACA), beginning on January 1, 2014, most individuals will have to maintain a minimum level of health insurance coverage or face a penalty.  The ACA provides that individuals who are members of an organized religion and those with limited incomes may be exempt from the individual mandate requirement.  Today’s rule provides additional information on the standards and processes by which the health insurance exchanges will use to determine whether an individual is exempt from the individual mandate requirement.

The final rule also provides additional clarification on the ACA requirements on the standards that will be used to determine whether the health insurance coverage being offered by plans qualifies as minimum essential health coverage, as outlined under the ACA.

Dewonkify – Actuarial Value (of health benefit plans)

The Word: Actuarial Value (of health plan benefits)

Definition:  Actuarial value outlines the percentage of medical costs that a health plan will cover.

Used in a Sentence: Actuarial value can help consumers navigate different health insurance plans as they weigh coverage options and their associated costs.

What It Means:  Actuarial value is meant to define how “generous” a health plan is in covering health care costs.  Understanding the actuarial value of a health plan helps consumers understand what they might have to pay (deductibles and coinsurance/copays) out-of-pocket in order to cover their overall health care costs.

History: Under the Affordable Care Act, actuarial value is utilized to help individuals and the small business market understand and compare health plan options offered inside and outside of new health insurance exchange marketplaces.  Health plan coverage options to be offered within the health exchanges, beginning in 2013, will be outlined through “metal” coverage tiers (bronze at 60%, silver at 70%, gold at 80%, and platinum at 90%).  For example, if a plan has a gold actuarial value at 80%, on average, an individual would have to pay 20% of the cost of their covered benefits.