May l8, 2012 Establishment of Exchanges and Qualified Health Plans and Exchange Standards for Employers The New England Council James T. Brett President & CEO Healthcare Committee Chairs Frank McDougall Dartmouth Hitchcock Medical Center Laurel Sweeney Philips Healthcare On March 27, 2012 a final rule on establishing the American Health Benefit Exchanges ( Exchanges ) required by the Patient Protection and Affordable Care Act (the Affordable Care Act ) was published in the Federal Register. 1 The Exchanges are meant to provide marketplaces for individuals and small employers to compare private health insurance options on the basis of price and quality, among other factors. The Exchanges, which will become operational by January 1, 2014, are expected to enhance competition in the health insurance market, improve choice of affordable health insurance, and give small businesses purchasing power similar to that enjoyed by large businesses. As issued by the Department of Health and Human Services ( HHS ), the final rule incorporates provisions from two proposed rules published last summer, collectively referred to as the Exchange establishment and eligibility proposed rules. The July 15, 2011 proposed rule outlined a framework for enabling states to establish Exchanges, while the August 17, 2011 proposed rule outlined eligibility standards for enrolling in qualified health plans through the Exchange and participating in insurance affordability programs, including premium tax credits. The provisions contained in these proposed rules together encompass the key functions of Exchanges related to eligibility, enrollment, and plan participation and management. Accordingly, the final rule: sets forth the minimum Federal standards that States must meet if they elect to establish and operate an Exchange, including the standards related to individual and employer eligibility for and enrollment in the Exchange and insurance affordability programs; 1 Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans; Exchange Standards for Employers, 77 Fed. Reg. 18310 (March 27, 2012) (to be codified at 45 C.F.R. pts. 155, 156, and 157). 98 North Washington Street Boston, MA 02114 (617) 723-4009 331 Constitution Avenue NE Washington DC 20002 (202) 547-0048
outlines minimum standards that health insurance issuers must meet to participate in an Exchange and offer qualified health plans; and provides basic standards that employers must meet to participate in the Small Business Health Options Program. The final rule is intended to provide States with considerable discretion in the design and operation of an Exchange, with greater standardization provided where directed by the Affordable Care Act or where there are compelling practical, efficiency or consumer protection reasons. Like the aforementioned Exchange establishment and eligibility proposed rules, the final rule does not address every Exchange reference found within the Act. HHS will provide additional details through future guidance and rulemaking where it is appropriate to do so. 2 While the promulgated regulations take effect on May 29, 2012, a portion of the rule was issued on an interim final basis. HHS will thus consider any comments submitted from the public on the following provisions: 2 The Departments of Health and Human Services, Labor, and the Treasury are working in close coordination to release guidance related to Exchanges in several phases. Subjects included in the Affordable Care Act to be addressed in separate rulemaking include but are not limited to: standards outlining the Exchange process for issuing certificates of exemption from the individual responsibility policy and payment; defining essential health benefits, actuarial value and other benefit design standards; and standards for Exchanges and qualified health plan issuers related to quality. Also, the health plan standards set forth under the final rule are, for the most part, strictly related to qualified health plans certified to be offered through the Exchange and not the entire individual and small group market. Such policies for the entire individual and small and large group markets have been, and will continue to be, addressed in separate rulemaking issued by HHS, and the Departments of Labor and the Treasury. www.newenglandcouncil.com Page 2
related to the ability of a State to permit agents and brokers to assist qualified individuals in applying for advance payments of the premium tax credit and cost-sharing reductions for qualified health plans; related to Medicaid and CHIP regulations; related to options for conducting eligibility determinations; related to eligibility standards for cost-sharing reductions; related to timeliness standards for Exchange eligibility determinations; related to verification for applicants with special circumstances; related to timeliness standards for the transmission of information for the administration of advance payments of the premium tax credit and cost-sharing reductions; and related to agreements between agencies administering insurance affordability programs. I. Background A. Legislative and Regulatory Overview 1. The Affordable Care Act 3 By January 1, 2014, each State must establish an Exchange for that State that would facilitate the purchase of qualified health plans. Each State is also required to establish a Small Business Health Options Program ( SHOP ) Exchange. A SHOP Exchange is designed to assist qualified small employers (i.e., with 100 or fewer employees) in the state in enrolling their employees in qualified health plans in the State s small group market. A State may elect to provide for only one state Exchange that would provide both American Health Benefit Exchange services and SHOP Exchange services to both qualified individuals and qualified small employers. If, by January 1 of 2013, HHS determines that a State will not have an Ex- 3 Two statutes, the Patient Protection and Affordable Care Act of 20010, Pub.L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub.L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010), (collectively, the Affordable Care Act or the Act ) comprise the federal healthcare reform law of 2010. www.newenglandcouncil.com Page 3
change operational by January 1, 2014, HHS is required to establish and operate an Exchange in the State. A State Exchange will be presumed to meet the standards if the State was operating an Exchange before January 1, 2010. The Act does not prevent the continued operation of health insurance markets out-side of the Exchanges. None of the Exchange-related provisions is to be construed to prohibit an insurer from offering a health plan to individuals or employers outside of an Exchange, prohibit an individual from enrolling in, or an employer from selecting for its employees, a health plan offered outside of an Exchange or compel an individual to enroll in a Qualified Health Plan or to participate in an Exchange. Specifically, sections 1311(b) and 1321(b) of the Affordable Care Act provide that each State has the opportunity to establish an Exchange that: facilitates the purchase of insurance coverage by qualified individuals through qualified health plans ( QHPs ); assists qualified employers in the enrollment of their employees in QHPs; and meets other standards specified in the Act. Section 1311(d) of the Affordable Care Act describes the minimum functions of an Exchange, including the certification of QHPs. Section 1311(k) specifies that Exchanges may not establish rules that conflict with or prevent the application of regulations promulgated by HHS. Section 1321 discusses State flexibility in the operation and enforcement of Exchanges and related policies. Section 1321I(1) directs HHS to establish and operate such Exchange within States that either: do not elect to establish an Exchange, or as determined by the Secretary of HHS on or before January 1, 2013, will not have an Exchange operable by January 1, 2014. Section 1321(a) also provides broad authority for the Secretary to establish standards and regulations to implement the statutory standards related to Exchanges, QHPs, and other components of title I of the Affordable Care Act. www.newenglandcouncil.com Page 4
Section 1401 of the Affordable Care Act creates new section 36B of the Internal Revenue Code ( the Code ), which provides for a premium tax credit for eligible individuals who enroll in a QHP through an Exchange. Section 1402 establishes provisions to reduce the costsharing obligation of certain eligible individuals enrolled in a QHP offered through an Exchange. Under section 1411 of the Act, the Secretary is directed to establish a program for determining whether an individual meets the eligibility standards for Exchange participation, advance payments of the premium tax credit, cost-sharing reductions, and exemptions from the individual responsibility provision. Sections 1412 and 1413 of the Affordable Care Act and section 1943 of the Social Security Act, as added by section 2201 of the Affordable Care Act, contain additional provisions regarding eligibility for advance payments of the premium tax credit and cost-sharing reductions, as well as provisions regarding simplification and coordination of eligibility determinations and enrollment with other health programs. Section 6005 of the Affordable Care Act creates new section 1150A of the Social Security Act, which directs QHP issuers, and sponsors of certain plans offered under part D of title XVIII of the Social Security Act to provide data on the cost and distribution of prescription drugs covered by the plan. 2. Structure of the Final Rule The regulations outlined in the final rule are codified in the new 45 CFR parts 155, 156, and 157. Part 155 outlines the standards relative to the establishment, operation, and minimum functionality of Exchanges, including eligibility standards for insurance affordability programs. Part 156 outlines the standards for health insurance issuers with respect to participation in an Exchange, including the minimum certification standards for QHPs. Part 157 establishes the participation standards for employers in the SHOP. Unless indicated otherwise, the regulations contained within the rule that are related to the establishment of the minimum functions of an Exchange are based on the general authority of the Secretary of HHS provided by section 1321(a)(1) of the Affordable Care Act. www.newenglandcouncil.com Page 5
II. The Final Rule - Establishment of Exchanges and Qualified Health Plans A. Establishment of Exchange Under the final rule, States wishing to establish their own Exchange will submit an Exchange Blueprint to HHS, with the Secretary required to determine by January 1, 2013 whether a state Exchange will be operational by January 1, 2014. States will be notified of approval, disapproval or conditional approval. If a state fails to submit a blueprint or if the blueprint is not approved, HHS will establish an Exchange in the state. HHS provides timeframes for the approval of significant changes to the Exchange Blueprint; permitting changes to go into effect either upon written approval by the department or within 60 days of submission to HHS (may extend consideration for an additional 30 days for good cause). The final rule allows for conditional approval if the state is advanced in its preparation but cannot demonstrate complete readiness by January 1, 2013. The rule also allows states that are not ready for 2014 to apply to operate the Exchange for 2015 or any subsequent year. HHS will continue working with states to support their progress. The final rule provides that each State can structure its Exchange in its own way, i.e. as a non-profit entity established by the State, as an independent public agency, or as part of an existing State agency. Additionally, a State can choose to operate its Exchange in partnership with other States through a regional Exchange or it can operate subsidiary Exchanges that cover areas within the State. Exchanges that are run by independent agencies or non-profits are required to have governance principles guaranteeing freedom from conflicts of interest and promoting ethical and financial disclosure standards. A State must ensure that its Exchange has sufficient funding to support ongoing operations beginning January 1, 2015 and develop a plan for ensuring funds will be available. Specifically, the rule allows a State Exchange to fund its ongoing operations by charging user fees or assessments on participating issuers or by generating other forms of funding, provided that any such assessments are announced in advance of the plan year. www.newenglandcouncil.com Page 6
HHS will approve a State-based Exchange upon determining that all minimum functions of an Exchange are met, which includes providing access to QHPs to qualified individuals and to qualified employers through a SHOP. B. General Functions of Exchange Exchanges will perform a variety of functions, including but not limited to: implementing procedures for the certification, recertification, and decertification of health plans as qualified health plans; providing for the operation of a toll-free telephone hotline to respond to assistance requests; maintaining an Internet website through which enrollees and prospective enrollees of qualified health plans may obtain standardized comparative information on health plans; assign a rating to each qualified health plan offered through such Exchange; utilize a standardized format for presenting health benefits plan options in the Exchange; informing individuals of eligibility requirements for the Medicaid program, the Children's Health Insurance Program ( CHIP ), or any applicable state or local public program; facilitating enrollment of consumers in QHPs; and establishing the Navigator program. The final rule provides States with significant flexibility in determining how to perform these functions. 1. Certification of Qualified Health Plans Only "qualified health benefit plans" may be sold through an Exchange. A "qualified health plan" is a health plan that is: certified as eligible to be offered through an Exchange; www.newenglandcouncil.com Page 7
offered by a duly licensed health insurance issuer that has agreed to offer plans that meet certain cost-sharing requirements; and provides a specific package of health benefits at certain coverage levels, coupled with prescribed cost-sharing amounts. This package is referred to as the "essential health benefits package." 4 Qualified health plans may vary premiums as appropriate by rating area, in accord with rules under the Public Health Service Act. (a) Certification Criteria The final rule establishes criteria for certifying health plans as qualified health plans. At a minimum, a qualified health plan must: 4 An Essential Health Benefits package must generally (1) offer coverage for specific categories of benefits, (2) meet certain cost-sharing standards, and (3) provide certain levels of coverage. At a minimum, coverage must be offered for the following items and services, although plans may offer benefits beyond this requirement: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services (including behavioral health treatment); prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness and chronic disease management; and pediatric services (including oral and vision care). The scope of benefits offered in an Essential Health Benefits package must be equivalent to the scope of benefits provided under the typical employer-sponsored plan. Also, certain plans not offered on the Exchanges will generally also be treated as qualified health plans. These plans are nonprofit plans offered through the CO-OP program, multi-state plans and qualified direct primary care medical home plans. www.newenglandcouncil.com Page 8
have a certification issued or recognized by the Exchange to demonstrate that each health plan it offers in the Exchange is a qualified health plan and that the issuer meets all requirements applicable to qualified health plan issuers; comply with any Exchange processes, procedures, and standards for the small group market; be licensed and in good standing to offer health insurance coverage in each state in which the issuer offers health insurance coverage; charge the same premium rate without regard to whether the plan is offered through an exchange or whether the plan is offered directly from the issuer or through an agent; offer at least one qualified health plan at the silver coverage level and one qualified health plan at the gold coverage level; meet marketing requirements, and not use marketing practices or benefit designs that discourage plan enrollment by individuals with significant health needs; ensure a sufficient choice of providers and provide information both to enrollees and prospective enrollees on the availability of in-network and out-of-network providers; include within health insurance plan networks those essential community providers, where available, that serve predominately low-income, medically-underserved individuals (but this is not to be construed as requiring any health plan to provide coverage for any specific medical procedure); be accredited with respect to local performance on clinical quality measures, patient experience ratings, as well as consumer access, utilization management, quality assurance, provider credentialing, complaints and appeals, network adequacy and access, and patient information programs by an HHS-recognized accreditation entity or receive this performance accreditation within a period established by an Exchange for such accreditation that is applicable to all qualified health plans; implement a quality improvement strategy; utilize a uniform enrollment form that qualified individuals and qualified employers may use to enroll in qualified health plans offered through such Exchange; utilize the standard format established for presenting health benefits plan options; and www.newenglandcouncil.com Page 9
provide information to enrollees and prospective enrollees, and to each Exchange in which the plan is offered, on any PHSA-endorsed quality measures for health plan performance. The rule does not require a qualified health plan to contract with a community provider if that provider refuses to accept the health plan s payment rates that are generally applicable. Thus, Exchanges may certify health plans as qualified health plans if: the health plan meets the criteria established under the final rule; and the Exchange determines that making such health plan available through the Exchange is in the interests of qualified individuals and qualified employers in the state or states in which the Exchange operates. The Exchange must require health plans seeking certification as qualified health plans to submit a justification for any premium increase prior to implementation of the increase. These plans must prominently post such information on their websites. The Exchange shall take this information, and the information and the recommendations provided to the Exchange by the state (relating to patterns or practices of excessive or unjustified premium increases), into consideration when determining whether to make the health plan available through the Exchange. The Exchange must take into account any excess of premium growth outside the Exchange as compared to the rate of such growth inside the Exchange, including information reported by the states. (i) transparency rules Coverage transparency rules also apply for health plans seeking certification as qualified health plans. The Exchange must require health plans seeking certification as qualified health plans to submit to the Exchange, the HHS Secretary, and the state insurance commissioner (and make available to the public), accurate and timely disclosure of the following information: claims payment policies and practices; periodic financial disclosures; www.newenglandcouncil.com Page 10
data on enrollment; data on disenrollment; data on the number of claims that are denied; data on rating practices; information on cost-sharing and payments with respect to any out-of-network coverage; information on enrollee and participant rights; and other information considered to be appropriate by the HHS Secretary. The Exchange must require health plans seeking certification as qualified health plans to permit individuals to learn the amount of cost-sharing (including deductibles, copayments, and coinsurance), under the individual's plan or coverage, that the person would be responsible for paying. This applies with regard to the furnishing of a specific item or service by a participating provider in a timely manner at the request of the individual. At a minimum, this information must be made available to the individual through an Internet website and also via other means, for individuals without Internet access. (b) Insurer Risk If an insurer offers an individual plan on an Exchange, the insurer must consider all enrollees in all health plans other than grandfathered plans offered by such insurer in the individual market in the state, including those enrollees who do not enroll in such plans through the Exchange, to be members of a single risk pool. If an insurer offers coverage on an Exchange in the small group market, the insurer must consider all enrollees in all health plans other than grandfathered plans offered by such insurer in the small group market in the state, including those enrollees who do not enroll in such plans through the Exchange, to be members of a single risk pool. A state may require the individual and small group insurance markets within a state to be merged if the state determines it to be appropriate. 2. Exchange Eligibility Standards The final rule outlines standards and criteria that must be followed in determining whether individuals and employees are eligible for enrollment in coverage through an Exchange. www.newenglandcouncil.com Page 11
Enrollment in a qualified health plan through an Exchange is permitted to qualified individuals and employees of qualified employers. A qualified individual may enroll in any qualified health plan, except that in the case of a catastrophic plan only certain individuals are eligible to enroll. A qualified individual enrolled in any qualified health plan may pay any applicable premium owed by such individual directly to the insurer issuing such qualified health plan. A qualified employer may provide support for coverage of employees under a qualified health plan by selecting any level of coverage to be made available to employees through an Exchange. Each qualified employee of a qualified employer that elects a level of coverage may choose to enroll in a qualified health plan that offers coverage at that level. A qualified individual is a resident of the state of the Exchange who is seeking to enroll in a qualified health plan in the individual market offered through the Exchange and is reasonably expected to be, for the entire period for which enrollment is sought, a citizen or national of the United States or an alien lawfully present in the United States, excluding incarcerated persons. A qualified employer is a small employer that elects to make all of its full-time employees eligible for one or more qualified health plans offered in the small group market through an Exchange. (a) Eligibility Determinations The final rule establishes a web-based system through which an individuals and employees may apply for and receive a determination of eligibility for enrollment in a qualified health plan through the Exchange and for insurance affordability programs. Thus, applicants will use one, single application and receive a consistent eligibility determination, without the need to submit information to multiple programs. The final rule also ensures that Exchanges will make it easy for consumers to keep their coverage year to year through a simple eligibility redetermination process. (b) Verification of Data To reduce paperwork, the final rule directs Exchanges to rely on existing electronic sources of data to the extent possible to verify relevant information, with high levels of privacy and security protection for consumers. For the majority of applicants, an automated electronic data matching process should eliminate the need for paper documentation. www.newenglandcouncil.com Page 12
(c) Cross-Program Coordination The final rule ensures that Exchanges will coordinate with Medicaid, CHIP, and the Basic Health Program, where applicable, to ensure that an applicant experiences a seamless eligibility and enrollment process regardless of where he or she submits an application. The rule provides two ways for Exchanges to interact with Medicaid agencies when making eligibility determinations. Exchanges, following state-established Medicaid rules, can conduct eligibility determinations for Medicaid and for advance payment of premium tax credits; or the Exchange will make the preliminary eligibility assessment and turn it over to the state Medicaid agency, if applicable, for final determination, within certain parameters. Additionally, a statebased Exchange may determine eligibility for advance payments of the premium tax credit and cost-sharing reductions or it could be approved if HHS makes determinations for these functions. 3. Enrollment The enrollment process outlined in the final rule is consumer oriented and will use websites and toll-free call centers, among other tools, to help people enroll in coverage by directing qualified individuals to qualified health plans, as well as assist these individuals in determining whether they are eligible for a premium tax credit or cost-sharing reduction. These tools would be used to present standardized information (including quality ratings) regarding qualified health plans offered through an Exchange to assist consumers in making easy health insurance choices. Exchanges have options to improve the performance of this system through the design of their website. Exchanges may also decide whether to use the single application that will be made available or design one on their own that is comparable. Like the eligibility process, the final rule ensures that the enrollment process meets high standards regarding the privacy and security of personal information. 4. Navigator Program The final rule requires Exchanges to establish a Navigator Program under which it awards grants to entities to carry out certain duties. To be eligible to receive a grant, an entity must demonstrate to the Exchange that the entity has existing relationships (or could readily establish relationships), with employers and employees, consumers (including uninsured and www.newenglandcouncil.com Page 13
underinsured consumers), or self-employed individuals likely to be qualified to enroll in a qualified health plan. Eligible entities may include trade, industry, and professional associations, commercial fishing industry organizations, ranching and farming organizations, community and consumer-focused nonprofit groups, chambers of commerce, unions, resource partners of the Small Business Administration, other licensed insurance agents and brokers, and other entities that are capable of carrying out required duties and can meet required standards and provide required information. An entity that serves as a Navigator must: conduct public education activities to raise awareness of the availability of qualified health plans; distribute fair and impartial information regarding qualified health plan enrollment, and the availability of premium tax credits and cost-sharing reductions; facilitate enrollment in qualified health plans; provide referrals to any applicable office of health insurance consumer assistance or health insurance ombudsman or any other appropriate state agency or agencies, for any enrollee with a grievance, complaint, or question regarding his or her health plan, coverage, or a determination under such plan or coverage; and provide information in a manner that is culturally and linguistically appropriate to the needs of the population being served by the Exchange or Exchanges. (a) Standards The final rule establishes standards for Navigators that include provisions to ensure that any private or public entity that is selected as a Navigator is qualified, and licensed if appropriate, to engage in the Navigator activities, and to avoid conflicts of interest. Under the standards, a Navigator cannot be a health insurance issuer or receive any consideration directly or indirectly from any health insurance issuer in connection with the enrollment of any qualified individuals or employees of a qualified employer in a qualified health plan. The rule also directs Exchanges to establish training standards that apply to Navigators, including both paid and unpaid staff of entities serving as Navigators. The final rule requires that at least one entity serving as a Navigator be a community or consumer-focused non-profit organization, www.newenglandcouncil.com Page 14
and provides a list of entitles that, among others, would meet the requirement. While the rule includes a prohibition against navigators receiving compensation from health issuers for enrolling individuals in QHPs, this would not preclude Navigators from receiving grants that are funded through insurance user fees, and does not preclude Navigators from receiving grants or funding from issuers for activities unrelated to enrollment. The rule states that Exchanges may not require Navigators to be licensed as agents or brokers, and that subsidiaries of health insurance issuers and associations that include members or lobby on behalf of the insurance industry are prohibited from serving as Navigators. C. Small Business Health Options Program Beginning in 2014, Exchanges will operate a Small Business Health Options Program ( SHOP ), a program designed to offer small employers choices concerning the level of coverage offered (bronze, silver, gold or platinum plans), define their contribution toward their employees coverage, and then offer the employees choices between multiple insurers and plans. Employers will be able to offer coverage from multiple insurers, similar to larger companies and government employee plans, but will receive one bill for such doing so instead of multiple bills from each insurer. As previously described, a qualified employer is a small employer that elects to make all of its full-time employees eligible for one or more qualified health plans offered in the small group market through an Exchange. Initially, only small employers will be able to opt to offer coverage to their workers through an Exchange. They will have to make all of their full-time employees Exchange eligible. Before 2016, States will have the option to define small employers either as those with (1) 100 or fewer employees, or (2) 50 or fewer employees. Beginning in 2016, small employers will be defined as those with 100 or fewer employees. Beginning in 2017, each state may allow qualified health plans to be offered in the large group market through an Exchange, and in this case the term qualified employer will include a large employer that elects to make all of its full-time employees eligible for one or more qualified health plans offered in the large group market through the Exchange. This provision does not require insurers to offer coverage in the large group market through an Exchange; however, if a State permits coverage in the large group market to be sold through an Exchange, all plans in the large group market, whether or not offered through an Exchange, will be subject to the rating restrictions www.newenglandcouncil.com Page 15
that otherwise apply only in the individual and small group market (permitting premiums to vary only according to certain factors such as age and rating area). Exchanges can also choose to offer employers additional ways to provide coverage, including allowing their employees to choose any plan in all tiers of coverage or a traditional employer choice offer of a single plan. Beginning in in 2014, small employers purchasing coverage through a SHOP may be eligible for a tax credit of up to 50 percent of their premium payments if they have 25 or fewer employees, pay employees an average annual wage of less than $50,000, offer all full time employees coverage, and pay at least 50 percent of the premium. Employees offered affordable and minimum value health insurance by their employer are not eligible for advance payments of tax credits to reduce premiums for coverage purchased through the individual Exchange. * * * The regulations contained within the final rule are effective on May 29, 2012, and are available as published at https://federalregister.gov/a/2012-6125. This Committee Update provides general information and not legal advice or opinions on specific facts. www.newenglandcouncil.com Page 16