Health Care Reform: Now What?
In April, after President Obama signed the Patient Protection and Affordable Care Act (PPACA), many looked into the abyss and asked: "Health care reform passed - now what?" Well, nearly five months have passed, and to some degree, we do know the answer to that question.
As most are aware, the Act directs other federal agencies, like the Department of Health and Human Services, the Treasury and the Internal Revenue Service, to promulgate the various regulations contained within it. Thus far, interim final rules have been published in the Federal Register and public comments solicited prior to implementation deadlines; and, somewhat uncharacteristically of the federal government, there have been no postponements of implementation dates.
Hitherto, we have seen rules published on the Age 26 mandate, the early retiree reinsurance program, grandfathering, patient protections, recessions, preventative care, coverage limits, and pre-existing conditions, to name a few. We have also seen model notice language issued for several provisions.
The deadline is here
Implementation of this bill is moving along at a rapid clip. While plans hasten to keep pace, it is important to ensure the decisions made are well considered and not done for the sole purpose of just keeping up. The first plan renewals that take effect after the September 23rd implementation date are upon us, so plans must make decisions and take action now, in conjunction with their renewals.
Effect on plan costs
There is no question that plans, whether grandfathered or not, will not escape some degree of cost escalation. Herein lies the first decision a plan must make; to remain grandfathered or not. Health care reform has created a conundrum. Most insurers, consultants and TPAs have made broad based assumptions of cost increases and have injected these assumptions into their renewal or working rate calculations in the form of trend and other underwriting factors. This has created a general climate of higher rate increases, which forces plans to entertain plan changes to mitigate those increases.
Guidance has shown clearly that most meaningful plan changes will result in a loss of grandfathering. Plans that attempt to make changes to reduce cost lose grandfathered status and find themselves facing a myriad of plan mandates that will increase cost. Yet the effect on plans’ costs is hard to predict universally. For some, it may be as simple as calculating the sum total of preventive office visit copays.
However, plans must also assess the impact on utilization now that preventive care is "free." Mandated no-cost-share coverage of preventive care has within it certain definitions of when a service beyond an office visit may be included as preventive. Plans that may have charged deductibles and coinsurance for these services must be aware of what their plan collects in the way of member payments, must realize for which services, and must understand the relative impact that no-member-cost-share will have.
All plans must now cover dependents to age 26. Claims may or may not increase due to the presence of a dependent, but most are predicting one to two percent in cost increases. We can, however, surmise that there will be a change in the flow of enrollment of employer plans. When faced with a choice of remaining on a parent’s plan, purchasing a plan through an exchange, or enrolling in their employer’s plan (after 2014 for new plans), the dependent will probably choose the less costly option of remaining on a parent’s plan.
That selection would potentially deplete employers’ health plan populations of young adults on single memberships, while swelling the ranks and membership of family contracts. Costs may increase as employers maintain more expensive family contracts with greater numbers of members for longer periods of time; previously, dependents aged off, reducing the number of family contracts and/or the total members on their plan.
Costs may also increase, as those very same employers who hire young adults under age 26 are unable to collect any premiums from them, if those young employees opt to remain on their parent’s plan longer.
Effect on other plans
The Act amends the IRS Code to allow individuals who were not generally tax qualified to be now given favorable tax status within a medical plan. The IRS issued guidance via Notice 2010-38, which clarified favorable tax treatment did extend to section 125 flexible spending plans. This does not, however, apply to health savings accounts (HSAs). Given the increased penalties (now 20%) for ineligible distributions from HSAs, plans must communicate this important fact to members of high deductible health plans.
Plan administrators should also consider rate increases when considering extending age 26 eligibility to other types of coverage beyond medical. One prominent dental insurer is quoting a 2% book of business surcharge to rates for those plans wanting their dental dependent eligibility to age 26, purely for ease of administration.
"Known knowns" – grandfathered or not, on or after September 23rd 2010
Pre-existing exclusions are not allowed for participants 19 or younger on or after September 23rd. Pre- existing conditions are not allowed for all participants after January of 2014. Until 2014, the current Health Insurance Portability and Accountability Act (HIPAA) rules regarding pre-existing condition exclusions may still be imposed on plan participants age 19 and older. Although plans are allowed to exclude benefits for a specific condition, this exclusion must apply universally to all participants and cannot be applied to an essential benefit.
Group health plans are immediately prohibited from imposing a lifetime on the dollar value of health benefits. The prohibition on annual dollar limits is phased in through 2014 for essential health benefits.
For individuals whose coverage ended due to reaching a plan’s lifetime limit, the plan must provide written notice of the lapse of the lifetime limit and that the individual is once again eligible for benefits. In the event an individual is eligible for benefits but no longer enrolled, the plan must provide a 30-day opportunity to enroll and must provide written notice of the enrollment opportunity. A model notice has been published.
Plans are prohibited from rescinding coverage, except in the case of fraud or an intentional misrepresentation of a material fact. Cancellation of coverage is prospective rather than retrospective, and inadvertent omissions or unintentional misrepresentations do not give rise to grounds for rescissions of coverage.
"Known knowns" –not grandfathered, on or after September 23rd 2010
The Act protects the right to choose a health care professional and receive benefits for covered emergency services.
Plans that allow individuals to select an in-network primary care provider or pediatrician must permit an individual to select any provider who is available to accept the individual. In addition, if coverage is provided for obstetrical or gynecological care, a plan cannot require authorization or referral for a female participant to seek care from an in-network specialist. There is a notice requirement, and the DOL has recently issued a model notice for this purpose.
Patients have the right to receive benefits for emergency services without prior authorization, even out of network. Cost-sharing requirements, expressed as a copayment amount or coinsurance rate imposed for out-of-network services, cannot exceed the cost-sharing requirements imposed for in-network services. In order to avoid excessive balance billing, the regulations require plans to pay a reasonable amount for benefits before a participant becomes responsible for the balance of the bill. Under the interim final regulations, a reasonable amount is the greatest of:
The median amount negotiated with in-network providers
The amount for the services calculated with the same methodology generally used to determine payments for out-of-network services but using the in-network cost-sharing provisions
The Medicare fee for the service amount
- No cost share on preventive services
Further regulations will provide more information about "essential health benefits." Currently, essential health benefits include at least the following: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services; behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. For plan or policy years beginning before the issuance of regulations defining "essential health benefits," the departments will take into account good faith efforts to comply with a reasonable interpretation of the term "essential health benefits" for purposes of enforcement.
The definitions of preventative care are published by various task forces, including the United States Preventive Services Task Force Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention (CDC) and the Health Resources and Services Administration (HRSA). They will change from time to time. The Act requires compliance within a year of published guidelines. The Act also defines various scenarios whereby certain services would be considered preventive care under certain circumstances, when otherwise those same services would not be considered preventive.
Guidelines and the application for the Early Retiree Reimbursement Program have been issued. Plans are wondering, however, what data on the application will provide the best chance of its being accepted and if there will be any money available for reimbursement, when and if their application and subsequent claims submissions are accepted.
The 85% mandated minimum loss ratio is perhaps the biggest "known unknown" out there. Guidance on how this loss ratio is calculated could have a huge impact on insurer profitability and on filed trend and renewal increases in general. Long-awaited guidance on how self-insured plans should calculate premiums may also significantly affect employer sponsored plans.
Other unintended consequences
Loss of grandfathered status subjects fully insured plans to non-discrimination testing. Some organizations maintain different contribution schemes for executives compared to other employees, and this would run afoul of the non-discrimination rules.
Plans contemplating switching insurance carriers will also lose grandfathered status, meaning a plan sponsor that procures an identical or better plan, at a lower cost from a different carrier, would be penalized. This may cause stagnation in the markets and reduce competition as employers are discouraged from shopping their coverage.
Maintaining compliance with the health care reform law will require considerable time, energy and effort on the part of employer sponsored plans. One plan administrator recently asked what employers were doing to address health care costs and what innovative new programs were being implemented for 2011. While innovation has not stopped, it has slowed dramatically while plan administrator attention is focused on compliance and assessing the cost impact of the regulations.