ACA rule would let states redefine 'essential health benefits,' let insurers spend more on non-medical costs

HHS on Friday issued a proposed rule for the Affordable Care Act's (ACAs) exchanges for the 2019 coverage year that would give states more regulatory authority.  

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Proposed rule details

CMS in the 365-page rule proposed an array of changes to the individual market and the Small Business Health Options Program for 2019, including giving states additional flexibility to define essential health benefits (EHBs), allowing states to ease the ACA's medical-loss ratio requirements, and expanding the types of organizations that could serve as navigators to help consumers enroll in exchange coverage.

Proposed changes to the ACA's essential health benefits

The proposed rule would allow states to select a new benchmark plan for EHBs each year, and would expand states' options for choosing the benchmark plan.

The change relates to the ACA's requirement that health plans in the individual and small-group markets cover EHBs in a manner "equal to the scope of benefits provided under a typical employer plan, as determined by the Secretary." HHS under former President Barack Obama's administration had allowed states to choose from plans operating in the state to serve as a benchmark for EHBs for the state; in states that did not choose, the benchmark defaulted to the largest small group plan available in the state, CQ HealthBeat reports.

CMS in the latest proposed rule would change that requirement to allow states to choose a benchmark plan from any of the other 50 states, or allow a state "to selec[t] a set of benefits that would become the state's EHB-benchmark plan," provided the benchmark plan's benefits do not exceed those of comparable plans and comply with the ACA's requirement that they be "equal to the scope of benefits provided under a typical employer plan."

Nicholas Bagley, a University of Michigan health law professor, in the Incidental Economist noted that a separate portion of the rule would redefine "a typical employer plan" as one that covers at least 5,000 people. Bagley wrote, "This definitional change, combined with the choose-your-own-adventure option to devise a benchmark, means that states will have wide authority to water down the essential health benefits requirement." However, Bagley said if adopted the move could face legal challenges because the ACA instructs HHS, not the states, to set essential health benefits.  

CMS in the proposed rule acknowledged that "consumers who have specific health needs" could be affected by the change. CMS said, "In the individual and small group markets, depending on the selection made by the state in which the consumer lives, consumers with less comprehensive plans may no longer have coverage for certain services. In other states, again depending on state choices, consumers may gain coverage for some services."

Proposed changes to medical-loss ratio requirements

CMS also proposed changes to the ACA's medical-loss ratio (MLR) requirements.

Under the ACA's MLR provision, insurers must issue refunds to customers if their spending on medical care is less than 80 percent of the premiums they collect for plans sold on the individual and small group markets, and is less than 85 percent of plan premiums in the large group market. The remaining 15 to 20 percent can be used for administrative costs, profits, and other expenses.

Under the proposed rule, states could request to lower the MLR threshold if they can demonstrate that doing so would bolster their individual insurance markets. States would have to submit to HHS data on total enrollment and premiums, as well as total commissions paid to insurance agents and brokers, individual market net underwriting gain, insurer entrances and exits from the market, and information on risk-based capital for health insurers with more than 1,000 enrollees. States would have to submit such data only for health insurers actively participating in the exchange market.

When considering whether to approve a state MLR adjustment, CMS would consider whether the adjustment would keep insurers from exiting exchange markets, as well as whether the change would encourage more insurers to enter exchange markets. CMS also would review how the proposed MLR change would affect health plan premiums and cost-sharing. CMS in the rules proposed that any state requests for an MLR adjustment be treated as public documents with instructions for how the public should assess them.

According to Health Affairs Blog, CMS in the proposed rules projected that 22 states would request MLR adjustments for the 2019 coverage year, which would result in MLR rebate reductions to consumers totaling between $52 million and $64 million.

CMS in the proposed rules also said it is seeking public comments on whether it should allow health insurance companies to exclude employment taxes from their MLR calculations. In addition, CMS proposed permitting health insurers to automatically claim 0.8 percent of premium revenue from any relevant state and market "as quality improvement expenses," which would provide an automatic boost for most insurance companies' MLRs, according to Health Affairs Blog.

Proposed changes to SHOP

CMS under the proposed rule also would eliminate the SHOP exchange as an online enrollment tool. Instead, small businesses that use SHOP would enroll directly through an insurer or a SHOP-registered broker or agent. SHOP would still provide employers eligibility determinations for small employer tax credits, but SHOP exchanges no longer would be required to determine eligibility of employees and no longer would have to notify employers if their workers dropped SHOP coverage or notify workers if their employers withdrew from SHOP coverage.

While the SHOP changes would take effect on the effective date of the final rule, CMS said it would give state and federal SHOP exchanges more time to adjust to the changes. Employer groups that are or plan to enroll in a SHOP exchange plan before Jan. 1, 2018, would do so under the current regulations, according to Health Affairs Blog. 

Other proposed changes

CMS in the rule also proposed eliminating the standardized health plan options. The standardized options were proposed in 2017 as a way to simplify the shopping and enrollment process for consumers using the federal health insurance exchange,

In addition, the agency proposed:

  • Exempting student health insurance from rate reviews to reduce the regulatory burden on states and insurers;
  • Increasing the ACA's mandatory premium rate review threshold, which is intended to ensure premium rate increases are "reasonable," from 10 percent to 15 percent;
  • Easing requirements regarding so-called navigator organizations that help consumers enroll in exchange plans, including those that require at least one organization to be "community and consumer focused" not-for-profit and that require the navigator to be located in the exchange's geographic area; and
  • Updates to the ACA's risk-adjustment model.

CMS in the proposed rule also said it plans to consider proposals in future rulemaking that would help lower prescription drug costs and promote drug price transparency.

CMS is accepting public comments on the proposed rule until November 27 (AHA News, 10/27; Meyer, Modern Healthcare, 10/27; Clason, CQ HealthBeat, 10/27 [subscription required]; CMS fact sheet, 10/27; Bagley, Incidental Economist, 10/30; Jost/Keith, Health Affairs Blog, 10/28).

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