By John Reichard, CQ HealthBeat Editor
March 1, 2013 -- With the deadline bearing down on insurers for filing rate applications to sell coverage next year under the health care law, federal officials recently announced a series of regulations plans will need to help them set their prices and meet other requirements for offering coverage.
The regulations are part of a final rule and interim final rule dryly titled "notice of benefit and payment parameters." The regulations govern: the so-called Three R program to cushion insurers against possible early financial losses in the unfamiliar insurance exchange market, creation of "SHOP" exchanges to serve small businesses, and premium tax credits to help the uninsured pay for insurance and lower their cost-sharing expenses and changes to medical loss ratios.
In addition to the 536 pages of final and interim final rules relating to benefit and payment parameters, the Centers for Medicare and Medicaid Services also announced a separate 26-page proposal. That proposed rule relates to one set of requirements for SHOP exchanges while the benefit and payment parameters rule addresses other final SHOP requirements.
The federal Office of Personnel Management also issued final regulations governing multi-state plans offered in insurance exchanges. And the Internal Revenue Service issued proposed rules governing the payment of fees by insurers under the overhaul law (PL 111-148, PL 111-152). IRS also announced a June 21 public meeting in Washington, D.C., on the proposal.
This wave of new rules and proposals comes just a few weeks before insurers are scheduled to begin filing bids. "Plans can start submitting their bids and policy forms to the exchanges, including the federally-facilitated exchange, on April 1, 2013," said Robert Zirkelbach, spokesman for America's Health Insurance Plans, which represents the insurance industry. "They have 30 days to submit their bids and policy forms and related data templates for approval."
The elements of the Three R program are risk adjustment, risk corridors and reinsurance.
Risk adjustment of premiums adds to the revenues an insurer gets if it has a disproportionate number of bad insurance risks and subtracts from their revenues if it has a disproportionate number of good risks. Risk adjustment aims to eliminate the incentives insurers have to "cherry pick"—to avoid enrolling people with costly chronic medical conditions.
A CMS fact sheet on the regulations announced last week says that the Department of Health and Human Services is making final the risk adjustment methodology officials will use when a state elects not to do its own risk adjustment program. "The final rule also provides a framework for the agency's approach to validating risk adjustment data," the CMS fact sheet says. "HHS will consult with stakeholders on this approach to data validation before finalizing further details."
The reinsurance program runs for three years. It's designed to reduce premiums and ensure market stability by helping insurers cover the costs of high-risk enrollees in the individual market, CMS says. "It will lower premiums in this market by an estimated 10 to 15 percent in 2014."
The risk corridor program also is temporary and will "protect against uncertainty in rate setting for qualified health plans by limiting the extent of issuer losses and gains," the fact sheet says. "The rule finalizes additional technical details on how issuers will account for profits and taxes in their risk corridors calculations," according to the agency.
The notice of benefit and payment parameters also addresses the subsidies low and middle income uninsured Americans will get to buy coverage in the exchanges. These are technically known as advance refundable premium tax credits. HHS made final its proposal for determining the amount of the subsidies. It also finalized its proposal for charging lower income Americans lower cost sharing under the insurance they get and for directly reimbursing insurers to compensate them for the lower cost-sharing they charge this group.
The new rule also changes the medical loss ratio regulation that requires insurers to pay rebates to consumers if they exceed certain levels of profit and administrative expense and do not spend enough of the premiums they receive on medical care and quality improvement. HHS is pushing back a deadline for insurers to report how much they spend in each category. Instead of June 1, the insurers have until July 31. Their annual deadline for issuing any required rebates is now Sept. 30 instead of Aug. 1. HHS also is allowing nonprofit tax-exempt insurers to deduct certain "community benefit" expenditures and state premium taxes from premiums in calculating medical loss ratios and rebates.