Reconciliation Of Advance Payment Of Cost-Sharing Reductions

Implementing Health Reform. On January 15, 2016, the Centers for Medicare and Medicaid Services published at its REGTAP.info website (registration required) a Draft Manual for Reconciliation of Advance Payment of Cost-Sharing Reductions for Benefit Years 2014 and 2015. Health insurers that cover enrollees who are Native Americans or who have household modified adjusted gross incomes below 250 percent of the federal poverty level are required to reduce cost sharing obligations for those enrollees.

In turn, the insurers are reimbursed on a monthly basis for these cost-sharing reductions from the Treasury as directed by CMS. These payments are made on an estimated basis, to be reconciled each year with the cost-sharing reductions (CSRs) enrollees in fact were provided. This is to be done on an annual basis and was to have been done for 2014 in April of 2015.

In early 2015, CMS announced that it would delay the 2014 reconciliation process until April of 2016. Insurers are now supposed to reconcile payments both for 2014 and for 2015 (subject to later adjustments) in April of 2016. Insurers that have been underpaid based on estimated payments will be reimbursed the amount they are due, while insurers that have been overpaid will reimburse the amount they have been overpaid, with the notification of final settlement amounts set for June 30.

Reconciliation Methods

The Draft Manual provides for several different methods that insurers may use for CSR reconciliation. CSR payments are only available for essential health benefits and total claims must first be reduced for non-EHB claims before reconciliation.

Standard Method

Under the standard method, which will be only method available after 2016, all claims for each policy for which CSRs are due must be re-adjudicated as though all EHB claims had been submitted under the insurer's standard plan that is associated with the CSR plan. The difference between the amount of cost-sharing under the CSR variation and the standard plan is the amount to be used for reconciliation.

Simplified Methods

Recognizing that insurers may face technical problems with implementing the standard reconciliation method, CMS is allowing insurers for years 2014, 2015, and 2016 to use a simplified methodology. In fact the Draft Manual sets out three simplified methodologies—one each for "HMO-like" and non-HMO plans with "credible" enrollments, and one for plans with smaller enrollments.

Insurers are supposed to begin by separating enrollees in a standard plan into those with self-only and other-than self-only coverage. If the plan has separate pharmacy and medical deductibles, the insurer will further divide these two subgroups into subgroups based on the pharmacy and medical deductibles. If each standard plan subgroup has at least 12,000 member months per benefit year with in-network EHB claims that are above the standard plan's effective deductible (medical, pharmacy, or combined) for that subgroup but below the annual limitation on cost-sharing, the subgroups are considered credible and the insurer can use the appropriate simplified methodology – HMO-like or non-HMO – for plans credible enrollment to reconcile CSRs.

Under the simplified methodology, the insurer calculates various cost-sharing parameters for enrollees in the subgroups covered by the standard plan. These will vary depending on whether the standard plan was an "HMO-like" (with 80 percent or more claims covered without a deductible) or a non-HMO plan. For non-HMO plans, the cost-sharing parameters include the average deductible, the effective deductible (the sum of the average deductible plus the average of total allowed costs not subject to the deductible), the effective pre-deductible coinsurance rate, the effective post-deductible coinsurance rate, effective non-deductible cost-sharing (the average cost of services not subject to the deductible) , and the effective claims ceiling.

For HMO-type plans the parameters are similar except that the deductible and related parameters are set at zero.

These cost-sharing parameters are then applied through a series of mathematical formulas set out in the Draft Manual to the amounts actually paid under each CSR enrollee's policy for EHB to determine how much the enrollee would have paid in cost-sharing under the standard plan. The amounts thus derived are used to reconcile the estimated amounts paid to the plans for CSRs and the amount they should have been paid.

Plans that do not have a large enough enrollment in standard plans to provide a credible estimate of average claims may use the simplified actuarial value methodology. Under this approach the insurer calculates the amount that an enrollee who received EHB would have paid under the standard plan methodology as the lesser of the plan's annual limitation on cost sharing or the product of one minus the standard plan's actuarial value and the total EHB cost for each enrollee. The amounts thus derived are used for CSR reconciliation.

The draft manual also sets out provisions for reporting, repayment, appeals and to govern special circumstances, such as insurer mergers or situations where an enrollee changes from self-only to family coverage over the course of a year. The methodologies set out in the manual are very complicated and are only described here in their most basic details.

from Health Affairs Blog http://ift.tt/1P0lg33