HHS Issues Final Rule Implementing ACA's Health Insurance Market Reforms

Health Insurance Report™ helps you track and analyze legal, legislative, and regulatory developments affecting the health-insurance industry throughout implementation of the Affordable Care Act...

A final rule implementing the health care reform law's prohibition against denying or charging “discriminatory” rates for health insurance for people with pre-existing medical conditions was issued Feb. 22 by the Department of Health and Human Services.

“Being sick will no longer keep you, your family, or your employees from being able to get affordable health coverage,” HHS Secretary Kathleen Sebelius said in a press release.

Most of the 145-page Health Insurance Market Rules; Rate Review final rule (CMS-9972-F), scheduled to be published in the Feb. 27 Federal Register, implements five key provisions of the Affordable Care Act for nongrandfathered individual and small group plans that have taken effect since ACA was signed into law in March 2010:

• Guaranteed availability: Health insurers are required to sell policies to all consumers. No one can be denied health insurance because they have or had an illness.

• Health insurance premiums: Premiums can only vary based on age, tobacco use, family size, and geography.

• Guaranteed renewability: Health insurers cannot refuse to renew coverage because of illness.

• Single risk pool: Health insurers cannot charge higher premiums to higher-cost employees by moving them into separate risk pools. Separate statewide risk pools must be maintained for the individual market and the small group market unless states merge the two in online exchange markets that will begin selling plans Oct. 1.

• Catastrophic plans: Young adults and people for whom coverage would be unaffordable will have access to catastrophic plans that have lower premiums in the individual market, with out-of-pocket cost protection and preventive services covered without cost sharing.

Most of the rule takes effect April 29 for plans that take effect Jan. 1, 2014. It implements a proposed rule issued in November 2012 (see previous article).

Half of Nonelderly Have Health Conditions

As many as 129 million people, or nearly half of all nonelderly Americans, have some type of pre-existing health condition that can affect their ability to get affordable coverage, according to a fact sheet posted on the website of the Center for Consumer Information and Insurance Oversight.

Despite requests from health insurers, state insurance regulators, and some conservative groups, HHS did not delay or phase in age rating requirements, which limit premiums for older enrollees to no more than three times what younger adults are charged. Currently, most states allow premiums for older enrollees to be at least five times greater than those for younger enrollees, and the requirement could raise premiums substantially, the groups argued.

Instead, the final rule stuck with the proposal to allow premiums for enrollees to increase slightly with each year of age, from ages 21 to 63, with premium charges limited to no more than three times the lowest rate. There will be a single age band for adults 64 and older. The age ratings do not apply to individuals under age 21.

But states “can choose to enact stronger consumer protections than these minimum standards,” the fact sheet said. In 2017 states can choose to allow large group plans to sell through the online exchange markets that open for enrollment Oct. 1. States that choose that option must apply the rating rules to those plans as well, it said.

More Geographic Flexibility Allowed

The final rule gives states more flexibility in basing rates on geographic areas, Michael Kolber, an attorney in the health care division of law firm Manatt Phelps & Phillips LLP, told BNA.

The proposed rule would only have allowed rates to vary in no more than seven areas per state, he said. “They're now saying states can have as many [rate zones] as the number of metro areas plus one,” Kolber said. “The [proposed rule] probably would have been unnecessarily disruptive to individual and small group markets in many states without much of a benefit to consumers. The important thing with these rating areas is that they're sufficiently large that plans aren't able to discriminate based on health status.”

Smokers can be charged 1.5 times what nonsmokers can be charged under the final rule. The rule defines smokers as using tobacco at least four times a week over the last six months, Timothy Jost, a law professor at Washington and Lee University in Lexington, Va., told BNA.

The final rule also requires insurance companies to report all rate increases, rather than just rate increases of 10 percent or more as required under HHS's earlier rate review rule. Insurers had argued against the requirement on the grounds that it would be very burdensome and add to their administrative expenses.

Big Premium Increases Going Down, HHS Says

HHS also released a report, Health Insurance Premium Increases in the Individual Market Since the Passage of the Affordable Care Act, concluding that ACA's rate review provisions have “contributed to a reduction in the rate of increases in premiums in the individual market since 2010.”

The report “found that the law's transparency provisions have already resulted in a decline in double-digit premium increases filed: from 75 percent in 2010 to, according to preliminary data, 14 percent in 2013,” HHS said in the release.

In other regulatory activity related to ACA, the Department of Labor's Occupational Safety and Health Administration Feb. 22 issued an interim final rule, Procedures for the Handling of Retaliation Complaints Under Section 1558 of the Affordable Care Act (OSHA-2011-0193). The interim final rule provides protection to employees against retaliation by employers for reporting alleged violations of the law or for receiving tax credit subsidies or cost-sharing reductions when buying coverage through the exchanges, HHS said.

Exchange Fees.

The final rule provides that exchange fees are to be spread across all individual plans sold within each state, and across all small group plans sold within each state, unless states merged the two markets, Jost said. The requirement would apply to a fee of 3.5 percent of premiums that has been proposed for the federally facilitated exchange, and well as fees charged by states that operate state-based exchanges, he said.

Student health plans will be in separate risk pools, which should help keep rates lower for them, Jost said. In addition, the final rule requires health plans sold through associations to meet ACA's requirements. Some plans sold through associations have been able to escape many state requirements, he said.

The final rule also provides no “safe harbor” to plans, but it contains language saying HHS will attempt to help groups comply, Jost said.

Amy Gordon, a partner in the employee benefits group of McDermott Will & Emery LLP, told BNA that a provision in the final rule allowing employers to include contributions made to employees' health savings accounts and health reimbursement accounts when calculating whether plans meet the ACA's minimum 60 percent actuarial value requirement is “refreshing.”

The provision applies to new contributions made to plans, not to contributions made in the past, she said. “The good news is when you're doing the actuarial value calculator those contributions now count.”

AHIP Statement on Age Rating.

The restrictions on age ratings “will result in an overnight increase in health care costs for people in their 20s, 30s, and early 40s,” Karen Ignagni, president and chief executive officer of America's Health Insurance Plans (AHIP), said in a statement. AHIP represents insurers that cover about 200 million people.

That increases the likelihood that young, healthy people will forgo purchasing insurance until they are sick or injured, she said. “When this happens, costs go up for everyone, young and old.”

The new restrictions on age rating take effect in 2014, at the same time as ACA's requirement that essential health benefits (EHBs) be covered by nongrandfathered individual and small group plans, Ignagni noted. HHS released its final EHB rule Feb. 20 (see related article), which insurers also have warned will increase premiums for many individual and small group participants, whose plans currently do not cover all the benefits included.

A new $100 billion health insurance tax will further add to the cost of coverage, Ignagni said.

Premiums for Young Could Rise 42 Percent.

Brent Parton, program director for SHOUTAmerica, a nonprofit “committed to cultivating sustainable solutions and policies that address today's health care issues,” issued a statement saying the group is “extremely disappointed” with the age rating requirement in the final rule. Recent actuarial studies have estimated that individual market premiums for younger Americans could rise by as much as 42 percent or more next year because of the requirement, even after subsidies are accounted for, the statement said.

But AARP, which has more than 37 million members over age 50, issued a statement from Executive Vice President Nancy LeaMond, applauding the age band restrictions. “Ending the discriminatory practice of charging older Americans more for coverage based on their age is only one of a number of policy changes that will ensure access to affordable coverage and lead to insurance policies with greater value than those commonly purchased in the non-group market today,” she said.

Christopher Hansen, president of the American Cancer Society Cancer Action Network (ACS CAN), issued a statement saying the final rule “makes progress in defining what constitutes tobacco use, but further guidance will be essential to minimize confusion for consumers applying for health coverage.” The rule is vague about what constitutes a tobacco product, he said.

States have the option to reduce the surcharge for tobacco use or eliminate it, and ACS CAN will urge states to forgo the surcharge as “there is little scientific evidence or research showing that financial incentives or disincentives tied to health insurance premiums will compel an individual to quit,” Hansen said. Smoke-free laws, taxes on tobacco products, and prevention and cessation programs are proven to reduce tobacco consumption, he said.

By Sara Hansard  


The final Health Insurance Market Rules; Rate Review (CMS-9972-F) is at http://op.bna.com/hl.nsf/r?Open=wpiy-956mx2. The fact sheet and the report, Health Insurance Premium Increases in the Individual Market Since the Passage of the Affordable Care Act, are available in HealthDocs™. The OSHA interim final rule (OSHA-2011-0193) is at http://op.bna.com/hl.nsf/r?Open=jcon-956tpk.