PPACA Impact and Opportunities : Health Care Lawyer & Attorney : Epstein Becker Green Law Firm : Insurance & Costs : Health Reform Musings Blog

This autumn, health insurance exchange ("Exchange") implementation issues can be characterized as either meeting impending deadlines or waiting on necessary federal guidance. We will shortly experience a cascade of developments on federal Exchange guidance and state implementation through the remainder of 2012. 

State Options

Exchanges are intended to operate a "one-stop marketplace" in each state for individuals and small employers to obtain health insurance. The Exchanges also have the responsibility of setting standards for participating qualified health plans (“QHPs”). States are given the option of establishing their own State-Based Exchange; coordinating with the U.S. Department of Health and Human Services (“HHS”) to establish a Partnership Exchange; or declining to establish any exchange, in which case HHS will establish and run a federally-facilitated exchange (“FFE”) in the state.

Fast Approaching Deadlines

States have until November 16, 2012 to submit a complete proposal to operate a State-Based Exchange in plan year 2014. A state proposal will be approved by HHS no later than January 1, 2013. HHS may issue a conditional approval at that time if it appears that a state has made significant progress towards implementation and its Exchange is likely to be operational in 2014.

Operating in the 2014 plan year requires being ready for open enrollment in October 2013 and plan contracting with network providers before then. This means a very busy 2013 preparing for the inaugural exchange plan year. 

The pressures may be greatest on plans, providers, and state regulators in those 25 states that have not yet decided whether to establish a State-Based Exchange.  As noted in a recent report on Exchange implementation by PricewaterhouseCoopers Health Research Institute, “the pace of state exchange planning . . . poses challenges for insurance companies that are evaluating which markets to enter or exit.”

Still Awaiting Guidance

States, in turn, face difficulty in evaluating Exchange options before the November 16 deadline because promised information from the federal government is still forthcoming. This difficulty has been articulated by

• September 12, 2012 testimony by Pennsylvania Insurance Commissioner Michael Consedine before the House of Representatives Ways and Means Committee
• A September 24, 2012 letter from Sen. Orrin Hatch, ranking member of the Senate Finance Committee, and
• A September 27, 2012 letter from Gov. Bob McDonnell, Chair of the Republican Governors Association. 

A final regulation addressing many Exchange implementation issues was released in March of this year, brief guidance on FFEs was released in May, and a template “Blueprint” was released in August to aide states in submitting proposals to HHS for state-run exchanges. Yet-to-be released information includes the following:

• Expanded guidance on FFEs, including detailing state responsibilities, costs, and any management reimbursement
• FFE guidance clarifying how many FFEs will be established and what flexibility they will have to meet unique state needs
• Proposed and final regulations defining required essential health benefits for QHPs
• Final standards for Multi-State Plans
• Quality standards for Exchanges
• Details on the conditional approval process for State-Based Exchanges

Stay Tuned

Reasons for the delay in guidance may vary, but it is unlikely that we will see significant state exchange announcements or further HHS guidance until after the November 6 election. After that point, stay tuned to this blog as the pace of Exchange implementation accelerates into 2013. 

In addition to tracking these and other PPACA regulatory developments, EBG counsels plans and providers on the arrangements necessary to participate in Exchanges. For more information, contact the author at phall@ebglaw.com. 

As we ended the summer of 2012, the Obama administration touted one of the more popular aspects of the Affordable Care Act – the requirement that health insurers spend at least 80 cents of every premium dollar on medical care and health care quality (85 cents for large employer groups purchasing health insurance), and if they do not, requiring these insurers to rebate the difference back to subscribers or their employers. According to the Administration, the “80/20 Rule” or the “Medical Loss Ratio (MLR) Rule,” as it alternately known, resulted in 12.8 million Americans receiving directly or indirectly more than $1.1 billion in health insurance rebates this past August. The 80/20 Rule sets this national minimum MLR standard that can only be lowered by a state’s insurance commissioner applying for, and receiving, a waiver from HHS. To receive a waiver, the state has to demonstrate that the application of the 80 percent threshold may destabilize the individual market. These waivers have been hard to come by – at least 18 states and territories have sought HHS approval to permit their insurers to spend below the 80 percent threshold on medical care and quality in the individual and/or small group markets (and therefore to spend more than 20 percent for administrative expenses and profits). Yet HHS has only approved six of these waivers, and most at levels, and for durations, different than requested by the state. On the flip side, states that want to impose a higher MLR threshold – like Massachusetts at 90 percent, and New York at 82 percent -- have done so without federal approval.

Meanwhile, this past month, House Republicans have advanced legislation that would give states the authority to adjust the MLR down in the individual and small group markets in their state without federal approval, thereby giving insurers greater flexibility to spend more on administrative expenses, and to earn higher profits. House Bill 1206 is primarily designed to allow insurers to count broker fees as “medical expenses” in their MLR calculation, a policy choice that continues to be hotly debated between the broker industry and consumer advocates. But buried in the bill is a provision that would require the Secretary of HHS to “defer to the State’s findings and determinations regarding destabilization” of their individual and small group markets in justifying lower MLR thresholds. The bill has over 200 sponsors, bipartisan support, and was recently approved by the House Energy and Commerce Subcommittee.  

What is particularly interesting in following the proposed tweaking of the MLR Rule is that there appears to be an acknowledgment by lawmakers on both sides of the aisle, and many stakeholders across the health care spectrum, that some minimum MLR requirement on insurers makes sound public policy. But does it?

Not necessarily. As recently posted by David Kestenbaum on NPR’s Planet Money Blog, “as is sometimes the case, what is popular with the people is not so popular with economists.” Kestenbaum spoke with six health care economists, and he claims that none thought the MLR would do much good, “and several thought it could be harmful.” In particular, he cites Jonathan Gruber, an MIT economist who helped write the ACA, as opposing the idea of a minimum MLR requirement, and indicating that “the rule has the potential to do exactly the wrong thing — to drive up the cost of health care.” Here are a couple of my own thoughts on some of the problems with relying on a minimum national MLR requirement as opposed to addressing health care costs directly:

• It assumes there are no competitive health insurance markets –  in competitive insurance markets (like in Massachusetts), competitive forces provide the incentives that drive insurers to offer consumers the highest quality products at the lowest possible premium rates. Massachusetts insurers are consistently the highest quality insurance plans in the country (as ranked by the NCQA), while having among the lowest administrative costs and margins. This has been the case even before Massachusetts lawmakers recently required these insurers to meet a 90 percent MLR for 2012 and 2013 – by far the most stringent threshold in the country. Ironically, some of the states with the least competitive insurance markets (the ones that, arguably, would benefit from a more stringent MLR requirement), are those states that received waivers from HHS that allow their insurers to meet lower MLR thresholds. 
• It penalizes the most efficient insurance carriers – in a competitive market (without an MLR requirement), if an insurer is able to reduce medical expenses below targets, it is rewarded with additional margin that it can invest in innovation and infrastructure, making it an even more competitive and efficient market participant. But under the MLR Rule, it must give that money back. As one insurance executive has observed, the MLR Rule gives plans the incentive to spend money on staff and systems that could reduce medical expenses and improve quality, but little incentive to actually achieve those savings and quality improvements.

Of course, many stakeholders and policy makers believe health insurance markets are far from competitive, and argue that the MLR requirement – which is essentially a form of rate regulation – is necessary to force insurers to become more efficient. They may be right – in the short term. But in the long term, as Professor Gruber observed, the MLR requirement may prove counter-productive in the fight to reduce actual health care costs. 

EBG counsels insurance carriers on MLR compliance as well as ACA implementation requirements. For more information, contact the author at jcaplan@ebglaw.com.