Implementing Health Reform. Recognizing that it was likely that once health status underwriting was abolished and preexisting conditions exclusions were banned the individual market would likely disproportionately attract high-cost enrollees, Congress established under section 1341 of the Affordable Care Act a transitional reinsurance program for the years 2014 to 2016, Under this program, insurers and third party administrators of group health plans are required to pay contributions into a reinsurance fund. These contributions are distributed to health insurers in the individual market to reinsure them for covering high-cost individuals.
The Department of Health and Human Services (HHS) was supposed to set the amounts to be contributed under this program so that they would yield $10 billion for 2014, $6 billion for 2015, and $4 billion for 2016 for financing the reinsurance program. In addition, it was to collect $2 billion for 2014, $2 billion for 2015, and $1 billion for 2016 for the Treasury general fund, presumably to reimburse the federal government for the costs of the early retiree reinsurance program which operated from 2010 to 2013.
In 2012, HHS finalized a rule setting the method through which it would determine the per-enrollee assessments insurers and third party administrators would pay for the three years of the program based on its estimate of how much it projected would be needed to cover these amounts plus the administrative costs of operating the program. On the basis of this method it set the per capita reinsurance rate at $63 for 2014, $44 for 2015, and $27 for 2016.
Reinsurance contributions for 2014 in fact only amounted to about $9.7 billion instead of the approximately $12 billion expected. The problem that then confronted HHS was how to account for the shortfall. In its 2015 Exchange and Insurance Market Standards final rule, HHS concluded that in the event of a shortfall, it would allocate the full amount to the reinsurance program, and that only amounts that exceeded what the statute established for the reinsurance program should be allocated to the general fund and for administrative costs. It determined that the purpose of the program was to provide reinsurance and that the statute gave HHS discretion to prioritize funding the reinsurance program over collecting money for the general fund in the event of a shortfall.
The Congressional Research Service (CRS) in a recent report to Congress criticized HHS for this decision, stating that it “would appear to be in conflict with the plain wording of Section 1341(b)(4).” It seems to me, however, that the interpretation of Section1341 by HHS is permissible.
The Statutory Background
Section 1341(b)(1) directs HHS to establish standards for collecting reinsurance contributions from insurers and third party administrators. Section 1341(b)(3)(A) directs HHS to establish a method for determining the amount health insurers and third party administrators are required to contribute. Under Section1341(b)(3)(B)(ii) each insurer’s contribution amount should proportionately reflect the size of its commercial insurance business and third party administrator fees and coverage costs. Section 1341(b)(3)(B)(iii) states that the aggregate contribution amounts to be collected should cover the cost of the program ($10 billion for 2014, $6 billion for 2015, and $4 billion for 2016). Under 1341(b)(3)(B)(iv) the amount collected should also “reflect” each insurer’s share of the amount to be contributed to the Treasury ($2 billion for 2014 and 2015 and $1 billion for 2016). Under Section1341(b)(3)(B)(ii), administrative costs could also be covered.
Section 1341(b)(4)(A) provides that provides that the amounts collected for reinsurance over the three years can be allocated to cover the costs of reinsurance for any of the three years and funds left over can be used to make payments for reinsurance programs for the two years following 2017. Section 1341(b)(4)(B) then says:
Notwithstanding the preceding sentence [addressing distribution of reinsurance funds], any contribution amounts described in paragraph (3)(B)(iv) shall be deposited into the general fund of the Treasury of the United States and may not be used for the program established under this section.
The Dispute
The CRS reads this provision to mean that some share of each contribution must be allocated to reimbursing the Treasury. HHS, however, reads it as saying that if funds are collected under Section 1341(b)(3)(B)(iv) to reimburse the Treasury, those funds must be used for this purpose and not for reinsurance. HHS concluded, that since less than $10 billion were collected for the reinsurance fund in 2014, no funds were available to repay the Treasury; thus, this provision did not apply for 2014. In 2015, contributions are expected to exceed the $6 billion allocated under the statute to reinsurance, and the excess will be used to reimburse the Treasury and cover administrative costs.
HHS Reading Is Reasonable
The HHS interpretation of the section is, of course, not the only reading possible. But it appears reasonable and consistent with the Supreme Court’s admonition in King v. Burwell:
Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.
The CRS conclusion thus could be seen to be at odds with the deference agencies are usually given in statutory interpretation.
from Health Affairs Blog http://ift.tt/1UvZZQN
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