Proposed HHS and OPM Regulations Address Exchanges, Transitional Reinsurance Programs, Multi-state Plans and More

Practical Law Legal Update 9-522-8164 (Approx. 5 pages)

Proposed HHS and OPM Regulations Address Exchanges, Transitional Reinsurance Programs, Multi-state Plans and More

by PLC Employee Benefits & Executive Compensation

HHS Proposed Regulations on Insurance Exchanges and Related Issues

The HHS proposed regulations address numerous issues relating to the insurance exchanges, including:

Premium stabilization programs, most notably, the transitional reinsurance program.
Cost-sharing reductions and advance payments of the premium tax credit.
Federally-facilitated user fees for insurers.

For a discussion of these issues, see Practice Note, Health Insurance Exchanges and Related Requirements under the ACA.

Transitional Reinsurance Program

The ACA requires that a transitional reinsurance program be established in each state to help stabilize premiums for coverage in the individual market during the first three years of the insurance exchanges (2014 through 2016). This program is in addition to two other premium stabilization programs, involving risk adjustment and risk corridors, which are also impacted by the proposed regulations. These proposed regulations modify and expand on final HHS regulations addressing the premium stabilization requirements that were issued in March 2012 (see Legal Update, Final Rules on Reinsurance, Risk Adjustment and Risk Corridor Programs).

The transitional reinsurance program requires that reinsurance contributions to certain individual market insurers that cover individuals with expensive claims be made by:

All health insurers.
Third-party administrators (TPAs) or administrative-services only (ASO) contractors on behalf of self-insured group health plans. According to the preamble to the latest HHS proposed regulations, self-administered, self-insured group health plans without a TPA or ASO contractor would make their reinsurance contributions directly.

The proposed regulations include several provisions affecting the transitional reinsurance program. For example, HHS proposes to:

Use uniform payment rules in all states, regardless of whether a particular reinsurance program is operated by a state, or by HHS on a state's behalf. This includes a uniform calendar for collecting contributions and a national contribution rate.
Collect contributions from insurers and self-insured group health plans in all states, including those states that choose to operate their own reinsurance programs.
Use a one-time annual reinsurance contribution collection, as opposed to quarterly collections during the year.
Limit the states' ability to deviate from the reinsurance payment rules set out by HHS.

Regarding additional reinsurance contributions by states, the proposed regulations do not authorize the states to collect fees from self-insured ERISA group health plans, and federal law would generally preempt state law in the case of ERISA plans.

The proposed regulations also address which types of plans and coverage must make reinsurance payments, which includes most major medical coverage, but not:

Coverage consisting solely of excepted benefits, for example, stand-alone dental or vision plans.
Health reimbursement arrangements that are integrated with major medical coverage.
Health savings accounts and health flexible spending accounts.
Employee assistance plans, wellness programs and disease management plans if they do not provide major medical coverage.
Stop-loss or indemnity reinsurance policies.
TRICARE and other military health benefits for active and retired uniformed services personnel and their dependents.

Also, for individuals with both Medicare and employer-sponsored group health coverage, the Medicare Secondary Payer (MSP) rules would apply and the group health coverage would be considered major medical coverage only if it is the primary payer under the MSP rules.

Group or individual health insurance policies not filed or approved in a state would be excluded from reinsurance contributions. This means that expatriate coverage (group coverage for employees, most of whom work outside the US) would be:

Excluded it if is not written on a form filed and approved by a state department of insurance, because the coverage is not within a jurisdiction of a state department of insurance.
Required to make reinsurance contributions if it is written on a form filed with and approved by a state department of insurance.

The proposed regulations also include rules for self-insured group health plans to determine the average number of covered lives in calculating their reinsurance contribution. The rules are generally similar to the methods permitted under the Patient-Centered Outcomes Research rules (see Legal Update, IRS Proposed Regulations Address Fees for Health Insurers and Self-insured Health Plans to Fund Patient-Centered Outcomes Research). In addition, the proposed regulations include aggregation rules intended to:

Prevent the double counting of covered lives for major medical coverage offered across multiple plans.
Prohibit plan sponsors from dividing major medical coverage into separate arrangements to avoid reinsurance contributions.

Advance Payment of Premium Tax Credit; Cost-sharing Reductions

The ACA provides for advance payments of the premium tax credit that is available for low-income enrollees in qualified health plans under the exchanges (see Legal Update, IRS Final Regulations Clarify Premium Tax Credit Rules). The proposed regulations address how these advance payments will be administered, including rules on recalculating advance payments based on redeterminations of an individual's eligibility during the year.

The proposed regulations also include rules addressing cost-sharing reductions, for example, how:

Insurers submit estimates of cost-sharing reductions.
Advance estimates are reconciled against the cost-sharing reductions actually provided.

User Fees for Insurers

The proposed regulations would require insurers offering plans through federally-facilitated exchanges to pay HHS a monthly fee calculated by multiplying the number of members enrolled in the insurer's plan through the exchange times the applicable monthly user fee rate, as determined by HHS.

OPM Proposed Regulations on Multi-state Plans

The ACA requires OPM to contract with private health insurers to offer at least two multi-state plans for each state's (and the District of Columbia's) exchange beginning in 2014. The multi-state plans are intended to:

Promote competition within the exchanges.
Offer plans from the same insurer to small employers that operate in more than one state.

The multi-state plans must be implemented in a way that is similar to how OPM contracts with and oversees private insurers in administering the Federal Employees Health Benefits Program (FEHBP). According to OPM, its intent is to establish a level playing field between the multi-state plans and other plans on the exchanges, meaning that multi-states will not have a competitive advantage or disadvantage relative to other plans. The proposed regulations address, among other things:

Coverage levels, cost-sharing limits and premium tax credits.
OPM's procedures for MSP application and contracting (for example, contract renewal rules).
Appeal procedures, including external review by OPM, for individuals who are denied claims for payment or service.

Practical Impact

Although certain of the rules in the proposed regulations affect insurers primarily, at least some of the new rules will also be of interest to employer-sponsored health plans. In particular, the additional clarifications regarding which plans and coverage types are and are not included in the reinsurance contribution calculation may be of interest to self-insured plans as they plan for 2014.

Proposed HHS and OPM Regulations Address Exchanges, Transitional Reinsurance Programs, Multi-state Plans and More | Practical Law