Final Rules on Health Insurance Market and Rate Review

Health and Human Services (HHS) issued a final rule on February 22, 2013.

A summary of the key provision include:

• Single risk pool - After January 1, 2014, health insurance companies must have one individual market pool and one small group market pool in each state. States may choose to require issuer merge these pools.  This provision prevents insurers from using separate insurance pools with markets to circumvent the market reforms and charge people with greater health problems higher premiums.
• Fair health insurance premiums  - Health insurance companies may vary the premium charged to a specific individual or small group from the rate for a particular plan limited to the following factors: family size, geography, age and tobacco use.  These rules standardize how insurance companies can price products, bringing transparency and fairness to their pricing methodology.
• Family Rating: Premiums for each family will be calculated by adding the rate for each covered family member over 21 and for the oldest three covered children under age 21.  Premiums will be adjusted for age and tobacco use. The final rule recognizes for all states and markets a single age band for children 0 to 20, one-year age bands for adults 21 through 64, and a single age band for adults 64 and older. Age will be determined once a year, at the time of issue or renewal. 
• Small group rating: Companies will use a per-member rating methodology in the small group market.  States may require companies to base small group premiums on an average amount for each employee in the group, provided that the total group premium equals the premium that would be obtained through the per-member rating approach.
• Geographic rating: Rating areas to be based on counties, three-digit zip codes, or metropolitan statistical areas (MSAs).  States may establish more geographic rating areas with HHS approval.  The areas my not vary by insurance product. 
• Tobacco use: There is concern that the current 1.5:1 rating provision may leave many tobacco users without access to affordable insurance.  The final rule attempts to offset the impact of the higher rating by requiring small group plans to offer tobacco cessation wellness-program discounts to reduce the surcharge.  This does not help the individual market since cessation programs are not typical for individual insurance policies.  Tobacco use is defined as the use of any tobacco product four or more times a week on average within the last six months.   States have the flexibility to enact more consumer protective definitions or look-back periods, or even reduce/eliminate the surcharge altogether. 
• Guaranteed availability of coverage  - Insurers must accept every employer or individual who applies for coverage in the group and individual market.  Insurers may limit coverage to 1) open and special enrollment periods, 2) only to those that reside in the service area, and 3) up to the insurer's network capacity.  Small and large employers cannot be denied coverage due to failure to satisfy the minimum participation or contribution requirements.  To mitigate adverse selection risk, there will be limited open enrollment periods in the individual market.  Enrollment for "special" circumstance triggers (e.g., loss of other coverage, birth, marriage, etc.) will be 60 days for the individual market and 30 days for the group market.  Future guidance will further address strategies to limit adverse selection related to guaranteed availability. Adverse selection is covering only the unhealthy, instead of a mix of healthy/non-healthy.  Purchasing needs to be monitored, so that people will purchase coverage when they are healthy, not only when they are sick and need the coverage.
• Guaranteed renewability of coverage - The insurance company may not cancel coverage with very few exceptions.  For instance, an insurer may cancel for non-payment, an insured moving out of the service area, no longer eligible for a particular form of coverage (such as catastrophic) or the exit of the insurance company from a particular market.
• Rate review - Insurance companies are required to submit to HHS all rate increase proposals, not just those exceeding a previously set reasonable threshold. HHS will allow states to make the rate review decisions for states with an "effective rate review program." 
• Catastrophic plans - Catastrophic plans will be available to individuals who are certified by the exchange as exempt from the individual responsibility requirement because of affordability, or who are under age 30 at the beginning of the plan year.  Catastrophic plans must cover at least three primary care visits in addition to the preventive services that all plans are required to cover.
• Special plan types - The final rule exempts all student health insurance coverage from the single risk pool requirements.  Clarification was also issued that student health insurance coverage is not subject to federal rate review requirements at this time.  Future guidance will be issued on the applicability of the market reform provisions to expatriate plans.

The Rockwood Company - Insurance Brokers since 1896 - To find out more about healthcare reform and how it affects your business, please feel free to contact me at ddoe@rockwoodco.com or 312-621-2215.

Small Group Marketplace (Exchange) Delayed!

Unable to meet the January 2014 implementation deadline, the full exchange for small businesses will not be available until 2015. 

The Affordable Care Act calls for a new insurance marketplace (formerly called an exchange) for small employers to be able to offer plans from several different insurance companies.  As it stands right now, the marketplace opening in January 2014 will be limited to a single plan offering, rather than the multiple choice option that was a key advantage and selling point to small employers.

The administration cited "operational challenges" as a reason for the delay.  One of the most important tasks of the exchange is to simplify the collection of payment of monthly premiums.  An employer through the marketplace will receive one bill for all the employees, regardless of the insurance company the employee selected. 

The administration said that the government and insurers needed "additional time to prepare for an employee choice model" of the type envisioned in the law.  Insurance companies urged the administration to delay the marketplace offering because the administration did not provide detailed guidance or final rules for the small business exchange until recently, just not in enough time to implement the complex system by January 2014.

"Experience with Massachusetts has demonstrated that employee choice models are extremely cumbersome to establish and operate, " the health insurer Aetna said in a letter to the administration in December. 

A few states running their own exchanges indicated that they will be fully operational in January 2014 (California and Connecticut), but Illinois will not be ready at that time due to being in a partnership with the federal exchange.

The Rockwood Company - Insurance Brokers since 1896 - To find out more about healthcare reform and how it affects your business, please feel free to contact us at ddoe@rockwoodco.com or 312-621-2215.