On June 30, CMS announced the results for the second year (2015) of the operation of the reinsurance and risk adjustment programs, two of the Affordable Care Act's "three R" premium stabilization programs. The 2015 results from the third program, the risk corridor program, will be announced later this summer.
The ACA's three R programs were modeled after similar premium stabilization programs that have operated for about a decade for Medicare Part D prescription drug plans: The Part D program also has a risk adjustment program (which adjusts premiums prospectively rather than insurer income retrospectively), a reinsurance program (which is much more generous than the ACA program and permanent rather than temporary), and a risk corridor program (also permanent, and initially more generous than the ACA program.). The part D premium stabilization programs played an important role in attracting insurers to the prescription drug program initially and have helped to keep premiums stable and premium increases low since the program was launched in 2006. They have undoubtedly been an important factor in maintaining the popularity and bipartisan support for Part D.
The ACA premium stabilization programs have proven far more controversial than the Part D programs. The risk corridor program has been criticized as an Insurer "bail-out" and was seriously undermined by legislation enacted by Congress in the program's first year of operation making the risk corridors revenue neutral—that is, limiting program payouts to the amount collected from insurers. For 2014, the Department of Health and Human Services was only able to pay out 12.6 percent of the amounts owed insurers under the statutory formula because of this constraint. This no doubt contributed to the insolvency of a number of insurers and has resulted in a number of lawsuits, as insurers attempt to collect the full amount they claim they are due under the statute.
The reinsurance program has so far been able to pay insurers the full amount owing under implementing regulations. However, it has only done so by prioritizing the reinsurance function of the program and directing the fees collected under the program—which have fallen short of projections—to reinsurance rather than to the Treasury, which was supposed to collect $5 billion from the program over its three-year life. This has provoked criticism from ACA opponents, who claim that the Treasury must share in funds collected under the program.
Finally, the formula used by the risk adjustment program to redistribute funds has been criticized as favoring large, established insurers and penalizing smaller and newer insurers. CMS has proposed changes to the risk adjustment program, some of which will be in effect for 2017.
In the midst of all of these controversies, the reinsurance program has made a substantial contribution to constraining marketplace premiums. During 2014, the reinsurance program reduced net claim costs an estimated 10 to 14 percent. The risk adjustment program has shifted funds from insurers that served lower risk populations to those that have taken on higher risk enrollees.
The federal risk adjustment program for 2015 covered non-grandfathered insurers in the individual and small group markets in every state except Massachusetts, which operated its own risk adjustment program. The reinsurance program covered non-grandfathered insurers in the individual market in every state except Connecticut, which operated its own reinsurance program (although Connecticut reinsurance data is included in the CMS report).
Participating insurers were required to set up EDGE servers through which they could transfer to CMS the data necessary to calculate reinsurance programs and risk adjustment information while retaining control of sensitive enrollee information. Nationally, 575 insurers participated in the reinsurance program, of which 574 successfully submitted the EDGE server data necessary to compute payments. A total of 821 participated in the risk adjustment program of which 817 successfully submitted EDGE server data. Four insurers were subjected to the risk adjustment default charge for failing to submit or properly submit EDGE server data.
It is estimated at this point that the reinsurance program will pay out about $7.8 billion for the 2015 benefit year. CMS has already announced that it will pay out 55.1 cents on the dollar to insurers for claims between $45,000 and $250,000 for 2015. HHS has collected approximately $5.5 billion in reinsurance contributions for 2015 and expects to collect about another $1 billion. Since reinsurance contributions for 2015 were limited to $6 billion, CMS expects to send a half billion minus administrative expenses to the Treasury. CMS had about $1.7 billion in reinsurance contributions from 2014 available for 2015, which will also be spent for reinsurance in 2015.
The reinsurance payments listed in the report will be reduced by early reinsurance payments already made in March and April of 2016 and adjusted for "overlapping claims," in which multiple claims were submitted for the same inpatient services, and for differences in projected and actual collections, discrepancies, and appeals. About 89 percent of reinsurance payments have been or will be paid out now with the remaining amount paid out once collections are finalized.
Of the 817 issuers participating in the risk adjustment program, 531 have individual non-catastrophic plans, 308 individual catastrophic plans, and 652 small group plans. Risk adjustment transfers (calculated using the absolute value of net transfers for each issuer) amounted to 10 percent of enrollment-weighted monthly premiums in the individual market, 6 percent in the small group market, and 18 percent in the catastrophic market, for a national average of 8 percent.
CMS reports that a strong correlation exists between paid claims and risk scores. Ninety-five percent of insurers in the lowest quartile of claims costs were also in the lowest quartile of plan liability risk scores, while 93 percent of insurers in the highest quartile of claims costs were also in the highest quartile of risk scores. Insurers in the lowest quartile of claims costs were assessed on average 12 percent of their premiums for risk adjustment, while those in the highest quartile received on average 11 percent of premium in payments.
Small and large insurers received similar risk adjustment transfers on average, but there was much greater dispersion among small insurers. Risk scores increased by less than 4 percent from 2014 to 2015, less than HHS expected given that in the second year of the program enrollees tended to be enrolled for longer periods of time, leading to more reported diagnoses; cross-year claims became possible for the first time; and insurers became more experienced in coding to capture diagnoses for risk adjustment payments.
Risk adjustment payments will be sequestered at a rate of 7 percent and reinsurance payments at a rate of 6.8 percent for payments made from FY 2016 funds because of governing budget sequestration requirements. CMS hopes that these funds will become available for payment in FY 2017 if Congress takes no further action.
Among the largest recipients of reinsurance payments were Blue Cross of California ($325 million); Kaiser Foundation of California ($194 million); Blue Shield of California ($282 million); Blue Cross and Blue Shield of Florida ($204 million); Humana of Florida ($137 million); Humana of Georgia ($214 million); Blue Cross and Blue Shield of Illinois ($283 million); Blue Cross and Blue Shield of Minnesota ($126 million), Blue Cross and Blue Shield of North Carolina ($223 million); Blue Cross and Blue Shield of Tennessee ($125 million); and Blue Cross and Blue Shield of Texas ($637 million).
Among the biggest recipients of risk adjustment payments in the individual market were Blue Shield of California ($182 million); Health Net of California ($126 million); Blue Cross and Blue Shield of Florida ($369 million); and Blue Cross and Blue Shield of Michigan. Among the biggest payers into the program in the individual market were Kaiser Foundation of California ($82 million); Humana Medical Plans of Florida ($135 million); Molina of Florida ($219 million); and Coventry of Florida ($111 million). Among the biggest contributors in the small group market were Kaiser of California ($87 million); Aetna of New York ($93 million); and the Freelancers of New York ($154 million).
Most of the surviving CO-OPs, which have been very critical of the risk adjustment program, had to pay into it, some by quite sizeable amounts (Land of Lincoln Health, $32 million; Evergreen Health Cooperative, $24 million; Freelancers CO-OP of New Jersey, $46 million).
Effectuated Enrollment Report For The First Quarter Of 2016
On June 30, CMS also released its first quarter effectuated enrollment report for 2016. As of March 31, about 11.1 million consumers had paid their first-month premium and had retained active effectuated coverage through the federally facilitated and state-based marketplaces. About 8.4 million were enrolled through the 38 states served by the federally facilitated marketplace (FFM) and 2.7 million were enrolled through the remaining state-based marketplaces. This equaled 87 percent of the 12.7 million consumers who made plan selections during the 2016 open enrollment period—a respectable retention rate given the fact that enrollees in the individual insurance market routinely move out of that market into employer-sponsored insurance, Medicaid, or Medicare.
Approximately 85 percent of the enrollees (9.4 million) received advance premium tax credits, while 57 percent (6.4 million) received cost-sharing reduction payments. Nine of the ten states with the highest percentage of APTC recipients were states that Obama lost in 2012, while nine of the ten states with the lowest percentages of APTC recipients are states he carried (although this is largely an artifact of Republican states tending not to expand Medicaid and thus having more low-income individuals receiving tax credits).
On average, marketplace enrollees received $291 a month in APTC, with average APTC amounts ranging from a high average of $750 per month in Alaska to a low average of $178 per month in New York (which has a basic health plan and thus fewer low-income individuals with APTC).
Less than half a percent of enrollees were in catastrophic plans, 22 percent in bronze, 70 percent in silver, 6 percent in gold, and 2 percent in platinum. The high level of silver enrollments reflects the fact that an enrollee must be enrolled in a silver plan to receive APTC.
The effectuated enrollment report also includes information on data matching and special enrollment periods. Individuals who enroll in marketplace coverage must provide documentary evidence of their citizenship or immigration status if it cannot be verified through electronic records. Individuals who apply for financial assistance must also document their annual household income if it cannot be verified electronically. Citizenship and immigration issues must be resolved within 95 days of application or the applicant's enrollment will be terminated. Income inconsistencies must be resolved within 90 days or financial assistance will be recomputed.
During the January 1 to March 31, 2016 period, data matching issues were dramatically reduced over the prior year. Only 17,000 individuals had enrollment terminated in the FFM because of unresolved citizenship or immigration issues, an 85 percent decrease compared to the first quarter of 2015. About 73,000 households had their APTC or CSRs adjusted, a 69 percent decrease from 2015.
Consumers who do not sign up for coverage during the annual open enrollment period but meet specific criteria can enroll during special enrollment periods (SEPs). There have been allegations in recent months that ineligible consumers have been enrolling in coverage improperly by claiming that they qualify for an SEP. CMS has as of June 17 begun to require applicants to produce documentation to establish eligibility for SEP enrollment.
The enrollment effectuation report includes a special addendum with the first detailed information CMS has released on SEP enrollments. In 2015, 1.6 million individuals who did not select a plan during open enrollment enrolled through an SEP. (An undisclosed number of individuals who did enroll during open enrollment also were able to change plans through an SEP because of a life change).
Sixty percent of these received an SEP because of loss of other minimum essential coverage. Eighteen percent had initially applied during open enrollment period but had to receive a Medicaid eligibility determination before they could enroll (through an SEP) for marketplace coverage and financial assistance. Nine percent enrolled through the 2015-only tax SEP for those who were unaware that they were subject to the individual responsibility requirement until they filed their 2014 taxes.
Of the remaining SEP enrollees, about 58,000, or 3.6 percent were granted an SEP because they had moved to a new service area, while fewer than 15,000 thousand (less than 1 percent) received an SEP because of marriage, and about 34,000 (2 percent) received an SEP because they had a baby or adopted a child. Given that 12 percent of Americans move each year and that the individual market has always been subject to "churn," these numbers and percentages do not seem exceptionally high.
Up to this point, CMS has been releasing quarterly effectuated enrollment snapshots. In the future, it intends to release semiannual effectuated enrollment reports based on average enrollments during the relevant time period, one for the first six months of the year and another for the full twelve months.
Insurer Repayment Of Cost-Sharing Reduction Overpayments
On June 27, CMS released an FAQ stating that insurers that had received overpayments for cost-sharing reduction payments and could not immediately repay the amount owed could request flexibility to set up a payment schedule. The FAQ explains what insurers would have to do to schedule repayment.
If full repayment would present a liquidity hardship for an insurer but the company expects to remain solvent through the end of 2016 and does not have reasonable access to another source of funding, the insurer must request a repayment schedule from CMS by Tuesday, July 5. It must provide financial data regarding its monthly projection of cash balances, monthly projection of risk-based capital percentage, and annual projected expenses. It must inform the department of insurance of the state in which it is domiciled that it is requesting flexibility. It must also submit an attestation as to each of the eligibility factors listed above, the accuracy of the financial data submitted, and its understanding that it will have to pay interest on the debt.
Navigators and Certified Application Counselor Training And Certification
On June 28, 2016, CMS released a Guidance Regarding Training, Certification, and Recertification for Navigators and Certified Application Counselors in the Federally Facilitated Marketplaces. All staff and volunteers of FFM navigator grantees who perform navigator functions must complete navigator training and pass an exam before they can be certified and carry out navigator responsibilities. New navigators must pass the 2017 navigator training program. Navigators who were certified during the 2015-2016 budget period, have not been decertified, and are still affiliated with the same navigator grantee organizations may take an abbreviated 2017 navigator training course. Navigators who are affiliated with a different navigator organization than the one they served in 2015-2016 will have to complete the entire new training course.
Individuals who seek certification application counselor status for 2017 must complete the full CAC training course. There is no abbreviated training course for CACs. CMS estimates that it will take five to ten hours to complete the CAC training and about twenty hours to complete navigator training. CACs are certified not by CMS but by the CAC designated organizations (CDOs) with which they are affiliated. CDOs are not required to provide to CMS the names of CACs that they certify unless they are requested to do so. CDOs that have an agreement with CMS from 2016 are not required to enter into a new agreement for 2017, as agreements renew from year to year automatically.
No-Cost Extensions Of Exchange Establishment Grants To States
Section 1311(a) of the Affordable Care Act authorized the Department of Health and Human Services to provide grants to the states for exchange planning and establishment activities. The cut-off date for awarding initial establishment grants was January 1, 2015. Prior to that date, HHS awarded states about $5.5 billion dollars in grants,
On June 29, CMS issued a guidance instructing states as to how to request no-cost extensions for 2017 of establishment grants they have already been awarded. In accordance with its usual grants policies, CMS will consider granting state awardees a no-cost extension of up to one year if the extension will not extend the initial grant period beyond five years from the initial award date.
Grantees must demonstrate that an extension is reasonably necessary for them to complete establishment activities approved under the grantee's original work plan and provide an account for progress made during previous extensions. Applicants must also show a direct correlation between the activities that must still be completed and the amount of additional time requested. Establishment grant funds may only be used for planning and establishment purposes, such as creation of information technology systems and establishment of consumer outreach programs, and may not be used for maintenance and operating purposes.
Civil Money Penalties
The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 requires federal agencies to adjust the level of civil money penalties that agencies may impose with an initial catch-up inflation adjustment, followed by annual inflation adjustments. On June 30, the Department of Labor released an interim final rule with comment period proposing catch-up adjustments for some of the civil money penalties imposed by the Department.
These include a number of health coverage related penalties. For example, per beneficiary, per day penalties imposed on group health plans and insurers for failure to comply with prohibitions against pre-existing condition exclusions or health status discrimination, or prohibitions involving genetic testing and information, are increased from $100 to $110. The penalty for failing to provide a summary of benefits and coverage when required is increased from $1,000 to $1,087. The increases are effective August 1, 2016.
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