On August 29, 2016, the Centers for Medicare and Medicaid Services released its proposed 2018 Notice of Benefit and Payment Parameters.The proposed rule was accompanied by a fact sheet and CMS blog post. CMS also released on August 29 a draft actuarial value (AV) calculator and AV calculator methodology for 2018.
The "payment notice," as it is called, is an annual CMS omnibus rule that pulls together in one place all the major changes the agency intends to implement for the next plan year for the marketplaces (in particular the federally facilitated exchange (FFE) and SHOP marketplaces), the premium stabilization programs, and the health insurance market reforms generally.
For the first three years of the marketplaces, the proposed payment notice was released in late November and a final rule in late February or early March. This year the rule has been speeded up for obvious reasons—the Obama administration wants to lay down the ground rules for the 2018 plan year before it leaves office in January, rather than leaving the market to the vagaries and confusion of a presidential transition. The early release may, however, mark a trend, as it does make some sense to release the rule earlier and to give qualified health plan (QHP) insurers more time to adapt to changes.
The proposed rule, preface, and analyses come in at under 300 pages, much shorter than proposed payment notices in prior years. It is very dense, however, containing literally dozens of proposals. Many of these are actually proposals for new rules or changes in current rules. But many others are requests for information or for ideas. Most of the proposals will not go into effect until 2018 or later years, but a few are intended to take effect already in 2017 and a number build on initiatives already underway.
The clear focus of the proposed rule is to strengthen and improve the marketplaces. The accompanying CMS blog post identifies four purposes of the proposed rule:
- Supporting insurers with high cost enrollees and updating risk adjustment;
- Strengthening the marketplace risk pool;
- Improving enrollment growth; and
- Removing obstacles to insurer entrance, growth, and innovation.
Given recent events, this emphasis on stabilizing the marketplaces makes a great deal of sense. The proposed rule, however, contains many provisions that are not so narrowly focused. It includes, for example, routine updates for various charges, thresholds, or limits; clarifications of earlier adopted rules that had been misinterpreted; attempts to align confusing directives dealing with the same or related issues or to achieve efficiencies; and attempts to align federal directives with state requirements.
The Affordable Care Act (ACA) overlaid a complex body of federal insurance law on top of an already extensive body of state health insurance law, and then added specific rules governing the health insurance marketplaces in the individual and small group markets, as well as the premium stabilization programs. The end result is a dense and bewildering jungle of regulatory requirements. Although to lay eyes the payment rule seems to be adding yet another layer of underbrush to this jungle, much of it is in fact intended to hack paths through the jungle to make it easier for insurers, consumers, and states to navigate.
The topics addressed by the proposed rule, and thus this post, include:
- modifications of the ACA's general market reforms (changes to the five-year ban on market reentry upon withdrawal of an insurer from a market, child age rating, and transitions to Medicare and coordination of benefits with Medicare, as well as changes in the medical loss ratio rules to assist new and rapidly growing plans);
- changes in the risk adjustment program for 2017 and 2018; the 2018 payment parameters (the FFE user fee, premium adjustment percentage, and annual limits on cost sharing);
- changes in plan benefits (bronze plan changes, gold and silver plan participation requirements, standardized options, and network requirements); and
- eligibility, enrollment and other changes (special enrollment periods, language access requirements, direct enrollment, and binder payments, SHOP participation requirements).
This first installment will address the general market reforms and risk adjustment program. The next installment will consider changes in plan benefits and eligibility and enrollment changes.
General Insurance Market Reform Changes
Although much of the focus of the debate over the ACA in recent months has focused on the exchanges or marketplaces, the ACA also included major changes in the regulation of health insurance generally, in particular in the regulation of the individual and small group markets. The 2018 proposed payment notice makes a number of tweaks in the rules governing insurance markets generally.
Market Withdrawal
First, rules dating back to the Health Insurance Portability and Accountability Act of 1996 provide that if an insurer leaves an insurance market in a state (individual, small group, or large group), that insurer cannot return for five years. The purpose of this requirement is to discourage insurers from lightly leaving markets with the intention of jumping back in when market conditions become favorable. This rule has been interpreted to mean that if an insurer discontinues all health insurance products it has been offering in a market, it must wait five years to reenter, even if it in fact is prepared to offer new products or if the same products the insurer was offering continue to be offered by a different insurer under common control.
The proposed rule would make it easier for insurers to remain in insurance markets. It would redefine the terms "plan" and "product" to allow a plan or product to be considered the same even though they are no longer issued by the same insurer but rather by a different insurer under common control (in the same "controlled group"). Products will also be considered to be the same products even though they have been modified, transferred, or replaced as long as they meet standards earlier established for uniform modification of coverage.
Under the proposed rule, if an insurer transferred all of its products to a related insurer under a corporate reorganization but maintained continuity of coverage within products in compliance with uniform modification of coverage standards, the transfer would not be considered a market withdrawal that would trigger the five-year reentry ban. The insurer would also not be required to send to its enrollees the discontinuation notice that is necessary when an insurer withdraws from a market, but would rather send a renewal notice. The products would continue to be considered to be the same product for federal rate review requirements.
CMS proposes to determine whether insurers within a controlled group are effectively the same entity using the definition of controlled group that the IRS applies in judging whether a group is a single entity for the ACA's insurance provider tax provisions, although CMS says it is open to alternative approaches. States that have different rules governing market withdrawal could continue to use their own rules.
CMS also proposes a modification in its current rules governing the situation where an insurer remains in market but discontinues all of its products, replacing them with a different set of products. Under current rules, an insurer that discontinues all of its products would be considered to have withdrawn from the market and could not reenter for five years. Under the proposed new interpretation, the insurer could remain in the market even though it is offering all new products.
CMS recognizes, however, that insurers could avoid federal rate review by changing their products every year. To remain in a market while replacing its portfolio of products, therefore, an insurer must identify at least one newly offered product that replaces a discontinued product and subject the new product to the federal rate review process. Federal rate review would apply if the premium increase for the new product was "unreasonable" as defined by the federal rules.
Child Age Rating
The proposed rule would also modify slightly the age rating requirements of current rules. The ACA permits premium rates to vary based on age only within a ratio of 3 to 1 for adults. Current age rating rules provide for a single age band for children aged 0 through 20. The default age factor for this group is .635. This single age factor not only does not accurately reflect claims costs for children (which are highest for children 0 to 4 and lowest for children age 5 to 14), but results in a significant jump in premiums (about 57 percent) when a child reaches age 21.
The proposed rule would increase the current age factor for children up to age 14 from .635 to .765 and would then gradually increase the age factor year by year from ages 15 to 20 to create a smooth transition to age 21. This would make coverage somewhat more expensive for children and less expensive for adults. CMS asks whether this change should be done all at once or phased in over three years. States would continue to be able to set their own age rating curves if they chose to do so.
Guaranteed Availability
The ACA's guaranteed availability requirement allows insurers that offer coverage through a network to limit offers of coverage to employers in the small and large group market that have employees who live, work, or reside in their service area. Federal law does not require that the employer have a principal business address within the service are (although insurers are not required to offer coverage to employers who do not have a place of business in a state).
Some insurers have network sharing agreements with affiliated insurers such that an affiliate is not allowed to offer coverage to an employer with a business headquarters outside of its service area but will offer coverage to employees of an employer covered by its affiliate that live in its service area. (For example, affiliated insurer A would not insure an employer located in the service area of affiliate B but would cover its employees in its service area if the employer was covered by affiliate B). CMS requests comments on whether these arrangements are consistent with the guaranteed availability requirement.
Transitions To Medicare And Coordinating Benefits With Medicare
CMS states in the preface to the proposed rule that it is considering further changes in the application of the ACA's guaranteed renewability provisions to individuals with marketplace coverage who are eligible for Medicare. Current law prohibits the sale of individual health insurance to individuals who are entitled to benefits under Medicare Part A or are enrolled in Medicare Part B when the insurer knows the coverage would duplicate Medicare coverage. Current rules, however, provide that Medicare eligibility or enrollment is not a basis for nonrenewal or termination. Under the proposed modified rules on guaranteed renewability described above, the renewal could be in a different product from the same insurer or in a product of a related insurer within the same controlled group.
Enrollees who are eligible for Medicare tend to be quite costly, and insurers have been questioning whether they should be required to continue to cover them in marketplace plans. On the other hand, marketplace plans may provide more comprehensive coverage than Medicare and thus might be preferred by individuals eligible for Medicare, even though individuals who are eligible for Medicare are likely not eligible for premium tax credits. Providers also prefer marketplace to Medicare coverage, as commercial plans usually pay more than Medicare does.
CMS seeks comments on how the guaranteed renewal requirement and duplication prohibition should be reconciled. Specifically, should renewal of coverage for a Medicare eligible individual be required or prohibited under a variety of circumstances concerning the modification or replacement of products or related insurers? CMS is particularly interested in how requiring or prohibiting renewal in these circumstances will affect consumers and the marketplace and Medicare risk pools.
Medicare payments are always primary to individual insurer payments. Some insurance contracts, however, also make individual insurance payments secondary to Medicare payments where an individual is eligible for but not enrolled in Medicare. CMS seeks comments on whether this should be allowed. It also seeks information on how coordination of benefits rules should apply to Medicare End Stage Renal Disease Medicare beneficiaries.
From 2010 to 2013, HHS operated a preexisting condition insurance program (PCIP). The ACA provided this for consumers with preexisting conditions as a bridge to 2014, when insurers had to offer coverage without regard to health status or preexisting conditions. The statute directed CMS to help these individuals transition into QHP marketplace coverage after 2013. CMS asks in the proposed rule preface for help in identifying former participants in the PCIP, identifying their claims costs and the impact they are having on the current risk pool, and determining steps that can be taken to ensure that they do not experience a lapse in coverage.
Medical Loss Ratio Rules
The ACA's medical loss ratio (MLR) requirements, like the guaranteed availability and renewability provisions, apply to all insurance markets in and out of the marketplaces. HHS laid down the general rules for the MLR in 2010 rules. The MLR statute authorizes HHS to consider the special circumstances of newer plans in applying MLR requirements.
In line with this provision, the original MLR rules allowed insurers to defer experience reporting for policies that were newly issued with fewer than 12 months of experience if these policies contributed to 50 percent or more of the insurers total earned premium in a reporting year. The idea behind this provision was that new policies often have low initial claims experience, but claims accumulate rapidly as the policy ages. New or rapidly growing insurers might therefore have to pay rebates based on excess premium over claims for new policies that are unwarranted given expected experience over time.
The proposed rule would recognize that as of 2014, new non-grandfathered policies must be issued for a 12-month plan year. To encourage entry of new plans and expansion of existing plans, CMS proposes allowing deferral of reporting of new business for insurers where up to 50 percent or more of their premium is attributable to policies with 12 months or less experience. The experience of those policies would need to be reported in the following calendar year.
Beginning in 2014, MLRs are calculated on a three-year rolling average. Insurers can thus offset high and low MLRs over the period, potentially allowing them to pay lower overall rebates. New entrants, however, do not have three-years of experience and are thus disadvantaged by this provision. Insurers that experience rapid growth may also not fully enjoy the benefits of three-year averaging. This may be an entry barrier for insurers that would otherwise like to enter or expand in a market.
The proposed rule would allow insurers the option of calculating their MLR liability for a single year if the insurer recalculates MLR liability for the two subsequent years based on total experience over the time period, with the insurer's rebate liability adjusted to take account of earlier payments. The proposal is more complicated than this, and is not only explained at length but also illustrated with an example in the preface, but the basic idea is to give new entrants and rapid expanders the same advantage that three-year averaging gives long-term market participants.
The Risk Adjustment Program
A primary purpose of the payment notice is to set the parameters for the ACA's premium stabilization programs. The ACA included three of these: the temporary reinsurance and risk corridor programs and the permanent risk adjustment program. The reinsurance and risk corridor programs ended in 2016, and thus are not covered by the 2018 payment notice. The proposed rule, however, discusses significant changes to the risk adjustment program for 2018 and a few changes for 2017. It also requests comments on a number of other potential risk adjustment changes.
The risk adjustment program is intended to transfer funds from non-grandfathered plans that cover lower-cost enrollees in the individual and small group markets to non-grandfathered plans that cover higher-cost enrollees; it is designed to remove incentives for insurers to risk select. The proposed rule builds on extensive discussions concerning the risk adjustment rule that have taken place over the past year. In March, CMS issued a White Paper discussing potential changes in the risk adjustment program and in May it held an all-day forum further exploring changes. The proposed rule moves this discussion forward and proposes adoption of some of the changes mooted earlier.
The proposed rule begins the risk adjustment section by dealing with some technical issues. In accordance with the 2017 federal budget, 6.9 percent of reinsurance funds and 7.1 percent of risk adjustment funds will be sequestered for 2017. That is to say, the total amount collected from insurers for risk adjustment will be reduced by 7.1 percent before payments are made to insurers. The sequestered funds may become available in 2018.
The proposed rule would also clarify that insurers should use counting methods determined by state law to decide whether an employer is a small or large employer for purposes of the risk adjustment and risk corridor programs as long as the state counting method takes non-full time employees into account. A small employer that becomes a large employer but continues to participate in the SHOP program should continue to be considered a small employer.
Beginning in the 2017 benefit year, CMS intends to treat states that combine individual and small group experience to establish a market-adjusted index rate as merged markets for purposes of applying the federal risk adjustment formula; this will be true even if a state has not merged the individual and small group market for other purposes, such as requiring calendar year coverage and not allowing quarterly rate adjustments for small-group coverage.
Focusing on changes to the risk adjustment model itself; CMS proposes modifying the risk adjustment formula beginning in 2017 to account for partial year enrollments. CMS has concluded that the current formula undercompensates plans that have disproportionately more partial year enrollments. This may be because short-term enrollments are associated with sudden high-cost acute episodes of care.
Beginning in 2017, adjustments for partial year enrollments of from one to eleven months will be considered as a factor in the risk adjustment adult model. Since HHS intends to finalize the payment notice before 2017 begins, and because it had already given notice of this potential change, this adjustment to the 2017 model is still possible.
Adding Prescription Drug Information To The Risk Adjustment Model
CMS is proposing more changes for 2018. First, as discussed in the White Paper, CMS is proposing to incorporate prescription drug utilization into its model. Drug prescribing information can be useful in risk adjustment both to identify high-risk conditions missed by the current model—which is based on recorded diagnoses—and to better establish the severity of conditions that are identified by the current model. Conditions may also be identified sooner and more easily and accurately from prescribing than from diagnosis information.
Adding prescribing data, however, increases the complexity of the model and creates incentives for over-prescribing. Drug use may also vary based on factors unrelated to risk, such as access to pharmacies or high cost-sharing. And many drugs may be used for both high- and low-cost conditions.
Working from United States Pharmacopeia (USP) drug classifications and applying the set of principles described in the White Paper and in the proposed rule preface, CMS has developed a set of prescription drug categories (RXCs), each of which is associated with a particular hierarchical condition category (HCC) or group of HCCs. CMS is proposing to incorporate a small number of drug-diagnosis pairs into a hybrid model that could impute diagnoses otherwise not coded or might indicate the severity of conditions otherwise indicated by medical coding. RXCs can be linked with more than one HCC and vice versa.
CMS is proposing initially a dozen RXC categories, ten of which can be used for imputation of a condition and for determining the severity of a condition and two for severity only. The drug categories are limited to those where the risk of unintended effects is low, but CMS intends to monitor prescribing for unintended effects and make changes as warranted.
CMS is also proposing to separate the current chronic hepatitis HCC into two new HCCs, one for Hepatitis C and the other for Hepatitis A and B, raising the total number of HCs to 128.
Using Risk Adjustment To Replace Reinsurance: Incorporating Very High Cost Cases Into The Risk Adjustment Formula
CMS further proposes modification of the risk adjustment formula for 2018 to take into account very high cost conditions. CMS is thus effectively planning to use the risk adjustment program to replace in part the reinsurance program which has been phased out. Although the current risk adjustment program accounts for higher than average cost cases, it does not adequately compensate insurers for very high cost cases, and thus does not adequately discourage risk selection against such cases.
The proposed change to the model would, using data from the EDGE servers, calculate the total amount of claims paid for high cost enrollees, defined as enrollees with costs in excess of $2 million. The costs of high cost enrollees would be pooled across all states and across the individual market (including catastrophic and non-catastrophic plans and merged markets) and small group markets. One pool would be established for the individual and merged markets and another for the small group market.
Insurers who incur claims in excess of $2 million would be reinsured through the risk adjustment program for 60 percent of the excess cost. They would continue to bear 40 percent of the cost, providing a clear incentive for managing cost. Risk adjustment transfers would be adjusted by a percent of premium to account for the cost of this program. CMS believes that this modification of the formula would only affect about 0.1 percent of premiums in either market but will help out insurers that incur extraordinarily high cost cases.
Rebalancing Rewards For High Risk And Low Risk Enrollees
CMS is also considering changes to the risk adjustment program to account for the belief that the current program overcompensates plans for high risk enrollees and undercompensates plans for low risk enrollees. One approach would be to use a two-step constrained regression model that would first estimate the adult risk adjustment model using only age and sex variables, and then re-estimate the full set of HCCs using the age-sex coefficients derived from the first estimation. This would put a greater emphasis on demographic variables as compared to medical condition variables than does the current model.
CMS briefly mentions other possible models that could better account for the cost of healthy populations. Alternatively, CMS is considering approaches that would directly adjust plan liability risk scores outside the model for certain sub-populations. Finally, CMS is considering alternative approaches for community rated states that use family tiering rating factors.
CMS is proposing changing its current rule so that it could provide final risk adjustment coefficients in guidance right before risk adjustment scores are calculated, rather than in the payment notice, so that it could incorporate more current data. Under this approach 2015, 2016, and 2017 MarketScan ® data could be used to produce blended coefficients in the spring of 2019 for 2018 risk adjustment calculations, while under the current rule the coefficients must be published for 2018 by spring of 2017 (or this year, in 2016), using 2013, 2014, and 2015 data.
CMS is also considering using data on actual enrollees drawn from the EDGE servers to calibrate the risk adjustment model. MarketScan® data is drawn from employer-sponsored plans, a different population than that found in the individual and small group markets. Beginning in 2019, CMS is considering using data drawn from the EDGE servers of individual and small group market plans—masked for enrollee ID, plan/issuer ID, rating area, and state—to recalibrate the risk adjustment model as well as the actuarial value calculator and methodology. The database could also be useful for other public programs and for researchers.
The Payment Transfer Model: A Decision To Continue Removing Plan Administrative Costs In Calculating Transfers
Once the risk adjustment model is applied to data provided by the health plans to calculate a risk score, the payment transfer model is applied to transfer funds among plans based on their relative risk scores. As already mentioned, CMS is proposing for 2018 to create a nation-wide high-cost outlier pool within which funds would be transferred to insurers with high cost cases to cover 60 percent of their costs above $2 million. The remainder of the risk adjustment funds will continue to be pooled at the state level and transferred among plans based on the relative member-month weighted plan average of individual enrollee risk scores of plans (adjusted for allowable rating and other factors) within a rating area.
The transfer formula has received substantial criticism. CMS believes, however, that it is working properly and does not intend to change it at this time. Specifically, it does not intend to remove administrative costs from statewide average premiums in calculating the transfers. CMS believe that, while this could reward efficient plans, it could also could penalize plans that have higher administrative costs because they have higher risk enrollees. CMS will continue to consider this and other proposals.
CMS is proposing to base the risk adjustment user fee on billable member months rather than enrollee member months, thus excluding from the charge children who do not count toward family rates or premiums. For 2018, CMS is proposing a user fee of $1.32 per billable enrollee per year (.12 per member per month). This is less than the 2017 fee of $1.56 per enrollee per year.
CMS requires health plans participating in the risk adjustment program to engage an entity to perform an initial validation audit which is in turn validated by CMS through a second audit. As of 2018, this validation will include pharmacy information. The cost of these audits is quite high. Beginning in 2017, CMS is proposing to implement a materiality threshold of $15 million in total premium. Insurers with premiums below this threshold would be subject to random and targeted audits, including likely an audit every three years, but not to annual audits. CMS estimates that only 1.5 percent of plan membership nationwide would be covered by plans with premium below the threshold. Insurers not subject to audit would still have their premiums adjusted by an error rate, perhaps a national or state average or the error rate of the insurer in past audits.
Finally, the proposed rule would provide an interim discrepancy reporting process for insurers to contest (within 15 days) the initial validation audit sample provided by HHS; it would also provide a final discrepancy reporting process through which an insurer can contest (within 30 days) the results of the second, CMS, validation process and the calculation by CMS of a risk score error rate. Insurers can request a reconsideration of or appeal only CMS processing errors, incorrect applications of the relevant methodology, or mathematical errors.
If a problem could have been identified through the discrepancy process, reconsideration and appeal will only be allowed if the problem was identified and remained unresolved. Risk adjustment charges will not be adjusted until 2016, and thus reconsiderations and appeals are not available until 2016 data is validated.
from Health Affairs BlogHealth Affairs Blog http://ift.tt/2c2GrUa
No comments:
Post a Comment