Focus On: Health Insurance Reform: New Rules on Essential Benefits, Consumer Protections

The U.S. Department of Health and Human Services (HHS) has finalized major new rules for individual and small-group plans governing the services they must cover and the protections that must be provided to consumers, as well as risk adjustments to stabilize premiums, beginning in 2014.

The rules institute changes required by the health care reform law (the Affordable Care Act or ACA) and apply to nongrandfathered plans, that is, those that were not in effect March 23, 2010, when the ACA took effect.

The provisions affect health plans whether sold in the individual and small-group markets, both inside and outside of ACA-established state health insurance exchanges. The latter are due to open for enrollment Oct. 1 for plans that take effect in 2014.

Essential Health Benefits
Clinical laboratory services and physician services in hospitals and ambulatory care settings are among the 10 categories of care in the essential health benefits (EHB) package that individual and small-group plans must cover to customers, according to a final rule published in the Feb. 25 Federal Register and effective April 26 (see box).

While the rule does not specify the scope of the “laboratory services” category (that will be based on a state’s EHB benchmark plan), HHS has stipulated that genetic counseling and routine breast cancer susceptibility gene (BRCA) testing must be covered as a preventive service with no cost sharing by the patient when determined appropriate by a woman’s health care provider. This is in line with a recommendation from the U.S. Preventive Services Task Force that “women whose family history is associated with an increased risk for deleterious mutations in the BRCA1 or BRCA2 genes be referred for genetic counseling and evaluation for BRCA testing.”

Benchmark Plans
States may designate health plans operating in their state to be benchmarks for the EHB package, which is to match typical employer plans. States had until late last December to name a benchmark plan. For those that did not, HHS selected as a default plan the largest small-group plan operating in that state. A list of the benchmark plans appears in Appendix 1 of the final rule.

Levels of Coverage and Actuarial Value
Actuarial value, or AV, is calculated as the percentage of total average costs for covered benefits that a plan will cover. For example, if a plan has an AV of 70 percent, on average, a consumer would be responsible for 30 percent of the costs of all covered benefits.

Beginning in 2014, nongrandfathered health plans in the individual and small-group markets must meet certain AVs or “metal levels”: 60 percent for a bronze plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90 percent for a platinum plan. In addition, health insurers may offer catastrophic-only coverage with a lower AV for eligible individuals. Metal levels will allow consumers to compare plans with similar levels of coverage, HHS said. “This, along with consideration of premiums, provider participation, and other factors, will help them make an informed choice.”

To standardize the AV calculation by health insurers, HHS is providing a publicly available AV calculator based on a national, standard population, as required by law. Beginning in 2015, HHS will accept state-specific data for the standard population if states choose to submit alternate data for the calculator. Consumer-driven health plans, such as high-deductible plans and health savings accounts, are compatible with the AV calculator, HHS noted.

Genetic counseling and BRCA testing for breast or ovarian cancer must be covered as an essential health benefit with no cost sharing by the patient.

Recognizing that health insurers need some flexibility in meeting the metal levels, HHS has ruled that a plan can meet a particular level if its AV is within two percentage points of the standard. For example, a silver plan may have an AV between 68 percent and 72 percent. In addition, insurers in the small-group market may exceed annual deductible limits to achieve a particular metal level.

No Discrimination on Health Status
Individual and small-group plans are prohibited from denying coverage based on health status. “An insurance issuer does not provide EHB if its benefit design, or the implementation of its benefit design, discriminates based on an individual’s age, expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions.” However, this should not be construed, HHS said, to prevent plans from using reasonable medical management techniques.

Consumer Protections

In this final rule, published in the Feb. 27 Federal Register and effective April 29, HHS specified key consumer protections guaranteed in Title I of the ACA:

Guaranteed availability and renewability. Nearly all health insurance companies offering coverage to individuals and employers will be required to sell health insurance policies to all consumers. No one can be denied health insurance because they have or had an illness. Also, these companies can no longer refuse to renew coverage because an individual or an employee has become sick. Renewal is at the option of the individual or employee.

Fair health insurance premiums. Health insurance companies offering coverage to individuals and small employers will only be allowed to vary premiums based on age, tobacco use, family size, and geography. Basing premiums on other factors will be illegal. The factors no longer permitted in 2014 include health status, past insurance claims, gender, occupation, how long an individual has held a policy, or size of the small employer.

Single risk pool
. Health insurance companies will no longer be able to charge higher premiums to higher-cost enrollees by moving them into separate risk pools. Insurers must maintain a single statewide risk pool for the individual market and a single statewide risk pool for the small-group market.

Catastrophic plans. Young adults and people for whom coverage would otherwise be unaffordable will have access to a catastrophic plan in the individual market. These plans generally will have lower premiums, protect against high out-of-pocket costs, and cover recommended preventive services without cost sharing.

In preparation for the market changes in 2014 and to streamline data collection for insurers and states, the final rule amends certain provisions of the rate review program. It increases transparency by directing insurance companies in every state to report on all rate increase requests. A new report, HHS said, has 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.

Premium Stability
This final rule, published in the March 11 Federal Register and effective April 30, is intended to stabilize premiums as new consumer protections begin in the individual and small-group market in 2014. The ACA created three programs for this purpose:

Permanent risk adjustment. This program aims to reduce the incentives for health insurers to enroll only healthier consumers and avoid those with pre-existing conditions. An estimated 27 million uninsured are expected to gain coverage under the law, but it is not yet known how many new enrollees may have costly health problems that could result in “adverse selection” that would push up premiums, HHS noted. To offset this, the program provides payments to insurers that have less healthy enrollees than insurers with healthier enrollees. States that are running an exchange and their own risk adjustment program can propose their own methodology for risk adjustment. HHS is finalizing the methodology it will use when a state chooses not to run its own exchange.

As of March 7, 24 states have conditional approval from HHS to run their own insurance exchanges for individuals and small businesses or to partner with HHS to handle some functions. Seventeen states and the District of Columbia have conditional approval to operate state-based exchanges in line with HHS rules. The seven that will run a partnership exchange with HHS include Iowa, Michigan, New Hampshire, West Virginia, Arkansas, Delaware, and Illinois.

Transitional reinsurance. This three-year program is designed to reduce premiums and ensure market stability by helping issuers cover the costs of high-risk enrollees in the individual market. It will lower premiums in this market by an estimated 10 percent to 15 percent in 2014. The statute sets a fixed contribution amount for the reinsurance program.

Temporary risk corridors
. This program protects against uncertainty in rate setting for qualified health plans by limiting the extent of issuer losses and gains. The rule finalizes technical details on how issuers will account for profits and taxes in their risk corridors calculations, which align this program with the medical loss ratio program that requires insurers to devote 80 percent of their costs to medical services (any amount above this level must be sent as a rebate to customers). The rule also delineates mechanisms for issuing tax credits and a 3.5 percent user fee for plans sold in a federally facilitated exchange.

Associated Data

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