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.


Health Care on the Hill: Week of November 18, 2013

Tuesday, November 19 

Health Care Website Data Security
House Science, Space and Technology Committee
10:00am; 2318 Rayburn House Office Building

Regulation of Mobile Medical Apps
House Energy and Commerce — Subcommittee on Health
10:00am; 2322 Rayburn House office Building Security
House Energy and Commerce — Subcommittee on Oversight and Investigations
10:15am; 2123 Rayburn House Office Building

Wednesday, November 20 

Public and Community Health
House Energy and Commerce — Subcommittee on Health
2:00pm; 2123 Rayburn House Office Building

Small Business Health Care Exchanges
Senate Small Business and Entrepreneurship Committee
10:00am; 428 Russell Senate Office Building

Social, Economic Status and Health
Senate Health, Education, Labor and Pensions — Subcommittee on Primary Health and Aging
10:00am; 430 Dirksen Senate Office Building

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.

Initial Health Exchange Enrollment Fails to Meet Projections

Since the state and federal health exchange marketplaces went live on October 1, 2013, approximately 106,185 people have either selected health plans or fully signed up and paid for coverage through these markets.  The first official reporting of these numbers from the Administration comes after weeks of congressional and public frustration and scrutiny over significant problems with the federal enrollment website,  Original goals for enrollment extended into the millions by spring 2014, but in the weeks leading up to today’s announcement, the Administration sought to significantly lower expectations while promising to fix the enrollment website and help people obtain coverage.

The announcement came on the heels of a politically contentious four and a half hour hearing by the House Oversight and Government Reform Committee on challenges with the website.  During the hearing, White House Chief Technology Officer Todd Park testified before the committee and could not commit to the Administration having the website problems fixed by November 30, a promise other top Administration officials have been making since Health and Human Services (HHS) Secretary Kathleen Sebelius testified before Congress last month.

Enrollment levels within the exchanges are significant because low enrollment means that next year’s premiums will be higher, as costs are spread across a much smaller pool of individuals and individuals who have enrolled are more likely to be high utilizers of health care services.  Unless enrollment significantly increases by the March 31st deadline for open enrollment, one of the hallmark issues of the Obama Administration may fail to reach its goal of providing affordable health care to millions of uninsured Americans.

Health Care on the Hill: Week of November 11, 2013

Wednesday, October 13, 2013

9:30 a.m.
ObamaCare Implementation: The Rollout of
House Oversight and Government Reform Committee Hearing
2154 Rayburn House Office Building

10:00 a.m.
Cyber Side-Effects: How Secure is the Personal Information Entered into the Flawed
House Homeland Security Committee Hearing
311 Cannon House Office Building

10:00 a.m.
Budget Conference Committee Meeting
1100 Longworth House Office Building

Thursday, October 14, 2013

10:00 a.m.
The Effects of the Patient Protection and Affordable Care Act on Schools, Colleges, and Universities
House Education and the Workforce Committee Hearing
2175 Rayburn House Office Building

10:00 a.m.
Obamacare Implementation Problems: More than Just a Broken Website
House Energy and Commerce Subcommittee on Health Hearing
2322 Rayburn House Office Building

10:00 a.m.
Self-Insurance and Health Benefits: An Affordable Option for Small Business?
House Small Business Subcommittee on Health and Technology Hearing
2360 Rayburn House Office Building

Friday, November 15, 2013

10:00 a.m.
Reviewing FDA’s Implementation of FDASIA
House Energy and Commerce Subcommittee on Health Hearing
2322 Rayburn House Office Building

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.”

Health Care on the Hill: Week of November 4, 2013

Tuesday, November 5, 2013

10:00 a.m.
The Online Federal Health Insurance Marketplace: Enrollment Challenges and the Path Forward
Senate Health, Education, Labor, and Pensions Committee Hearing
430 Dirksen Senate Office Building
*CMS Administrator Marilyn Tavenner is expected to testify.

2:30 p.m.
Convention on the Rights of Persons with Disabilities
Senate Foreign Relations Committee Hearing
419 Dirksen Senate Office Building

Wednesday, November 6, 2013

10:00 a.m.
Health Insurance Exchanges: An Update from the Administration
Senate Finance Committee Hearing
215 Dirksen Senate Office Building
*HHS Secretary Kathleen Sebelius is expected to testify.

Secretary Sebelius Testifies on ACA Implementation

After weeks of scrutiny, accusations, and calls for resignations by Republicans, Department of Health and Human Services (HHS) Secretary Kathleen Sebelius testified before the House Energy and Commerce Committee today to defend the Affordable Care Act (a.k.a. “Obamacare”) after a month of significant enrollment challenges.  She faced questions on the cost and management decisions associated with the challenged website, the enrollment portal for the federal health care exchanges.  Ironically, the website was down and inaccessible as she gave her testimony.

Sebelius’ testimony follows an October 24, 2013 House Energy and Commerce Committee hearing where federal contractors hired by the Centers for Medicare & Medicaid Services (CMS) and HHS to manage the website and paper enrollment processes pointed the finger at HHS when asked who is responsible for the website’s flaws and challenges.  Today, Sebelius did not point the finger at CMS or HHS staff, stating that she and CMS Administrator Marilyn Tavenner have been responsible for decisions to date.  CMS Administrator Tavenner provided similar testimony before the House Ways and Means Committee yesterday.

Sebelius faced questions on costs expended to date, stating that approximately $118 million has been spent on the website and about $56 million on additional IT to support it.  She offered to get back to the Committee by mid-November 2013 with numbers concerning enrollment in the exchange marketplaces.

While both political parties expressed concern or outrage over the massive exchange website problems to date, Republicans largely defined the problems as an illustration of how flawed Obamacare is overall, while Democrats overwhelmingly characterized the problem as a short-term, fixable glitch.

Some Democratic lawmakers likened the problems to those faced during implementation of the Medicare Part D prescription drug benefit.  However, several on the Committee also sought to distinguish the implementation challenges from those of past programs and mention other problems beyond the website, including data privacy.  The federal data hub meant to link exchange applicant data to determine eligibility for subsidies has become a political target.  Whether personal information is protected and for how long it is stored by the federal government is something of great question, which has resulted in varying answers from the Administration.

The Senate is planning similar hearings next week, with CMS Administrator Tavenner testifying before the Senate Health, Education, Labor, and Pension (HELP) Committee on Tuesday, November 5, 2013, and HHS Secretary Sebelius testifying before the Senate Finance Committee on Wednesday, November 6, 2013.  Additional hearings and scrutiny over the next several months are anticipated in the lead-up to the January 1 enrollment date for the exchange marketplaces.

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).

Health Care on the Hill: Week of October 28, 2013

Tuesday, October 29, 2013

10:00 a.m.
Status of the Affordable Care Act Implementation
House Ways and Means Committee Hearing
1100 Longworth House Office Building
* CMS Administrator Marilyn Tavenner is scheduled to testify.

Wednesday, October 30, 2013

9:00 a.m.
PPACA Implementation Failures: Answers from HHS
House Energy and Commerce Committee Hearing
2125 Rayburn House Office Building
* HHS Secretary Kathleen Sebelius is scheduled to testify.

10:00 a.m.
Children’s Hospital GME Support Reauthorization Act of 2013, CHIMP Act Amendments of 2013, H.R. 2094, Older Americans Act Reauthorization Act of 2013, and Nominations
Senate Health, Education, Labor, and Pensions Committee Markup
430 Dirksen Senate Office Building