One of the notable revenue provisions included in the Patient Protection and Affordable Care Act (ACA) is an excise tax on the health insurance industry that will be assessed annually starting in 2014.
This report provides an independent analysis of the ACA health insurer fee provision’s impact on the United States health insurance industry.
On March 21, 2013, the Departments of Health and Human Services, Labor, and Treasury published proposed regulations to implement the 90-day waiting period limitation required by the Patient Protection and Affordable Care Act (ACA) for grandfathered and nongrandfathered group health plans and insurance. The proposed rule, which when published in final form would be effective for plan years beginning in 2014, is generally consistent with the agencies’ guidance (IRS Notice 2012-59) published in August 2012 and modifies existing requirements such as preexisting condition limitations.
The agencies indicate that group health plans and health insurance issuers may rely on the proposed rule at least through the end of 2014, just as they may do so on the August 2012 guidance.
The ACA prohibits a group health plan or health insurance issuer offering group health coverage from applying any waiting period longer than 90 days for an individual to be covered for benefits. One plan eligibility requirement that multiemployer health plans frequently apply is the cumulative hours-of-service requirement. The newly published proposed rule includes several clarifications regarding this:
• If a group health plan conditions eligibility on any employee’s (part time or full time) having completed a number of “cumulative hours of service,” the plan will not be deemed as designed to avoid compliance with the 90-day waiting period limitation if the cumulative hours of service does not exceed 1,200 hours.
• A plan’s waiting period must begin once the employee satisfies the cumulative service requirement and cannot exceed 90 days.
• The same individual must not be subject to multiple eligibility requirements annually (i.e., this provision is designed to be a one-time eligibility requirement).
• Other conditions for eligibility (i.e., those that are not based solely on the lapse of a time period, such as compensation) are generally permissible unless the condition is designed to avoid compliance with the 90-day waiting period limitation.
The proposed rule does not include a “three month” replacement for the 90-day requirement nor grant plan sponsors the ability to provide coverage effective the first of the month after 90 days. The regulators stated that because the ACA specifies 90 days, they did not have the flexibility to modify the waiting period, and all calendar days – including weekends and holidays – are counted beginning on the individual’s enrollment date.
The proposed rule also provides another clarification of interest to multiemployer plan sponsors: Plans with “hour banks” or eligibility provisions that allow workers to bank excess hours from one measurement period and draw down those hours in another to prevent lapses in coverage are permitted to allow participants to make a “self-payment” or “buy in” to satisfy any otherwise permissible hours-of-service requirement.
The proposed rule also would amend ACA regulations already in effect, as well as those that will become effective beginning in 2014. For example, it makes conforming amendments to the preexisting condition limitations and other portability provisions under HIPAA, as well as to some implementing regulations because they have become moot or need revisions due to the ACA’s new market reform protections. Under the proposed rule, a technical amendment eliminates the need for plan sponsors to provide HIPAA certificates of creditable coverage beginning on December 31, 2014.
For more information about the federal agencies’ announcement, please contact your Milliman consultant.
How will the Patient Protection and Affordable Care Act (PPACA) affect employer-sponsored health insurance? Employers have to consider whether they want to preserve their existing coverage, self-insure, or pay fines for suspending coverage. That decision may hinge on an employer’s ability to maintain affordable costs while offering minimum coverage.
Paul Houchens recently discussed affordability and PPACA’s minimum benefits compliance with Healthcare Payer News. Here is an excerpt from the article:
Across industries, the main challenge will be having minimum coverage and keeping it as affordable as possible…
Wellness benefits across corporate and small firms vary from tobacco cessation programs to on-site fitness centers, free produce and commuting perks. For ACA minimum benefits compliance, though, it’s still not clear how exactly the affordability test will be measured against wellness incentives, said Paul Houchens, an Indianapolis-based consulting actuary with Milliman.
“Let’s say you have a plan that charges $2,000 for single coverage without wellness incentives, but $1,000 if you’re a non-smoker. Is that affordability going to be measured based on the $2,000 or that $1,000? Particularly for employers with large wellness incentives in their plans, it’s difficult to do a lot of planning without having that information.”
More broadly than wellness, Houchens sees employers probing the value of their current sponsored insurance and calculating the costs and benefits of different options, as federal agencies finalize rules for the individual and employer mandate, premium assistance and eligibility.
If all of an employer’s workers are above 400 percent of the federal poverty level (FPL), Houchens said, “None of them are going to qualify for premium subsidies and probably in a lot of cases are going to be paying a lot more for health insurance under exchanges than they would under (their) plan.” Or “if you have an employer with dominantly low-income employees, maybe some would actually be better off in the exchange versus your employer plan.”
While the level and relative affordability of coverage will probably vary by industry and income, Houchens and colleagues think that the cost of dropping coverage is likely to outweigh the savings.
“Even for some of the low-income employers, I think a key point to remember is that your health insurance is a tax-deductible expense, whereas the penalties are not,” Houchens said. “That’s a huge difference for the for-profit companies. And also, you’re being penalized on every full-time employee. You’re not just being penalized on the people that would participate on your plans.”
A company with 60 percent health plan participation is “really only paying for health insurance for 60 percent of employees,” he said. “But with the exception of the 30 employee exemption, you would be paying a penalty on 100 percent of the full-time employees; that’s non-tax deductible. We’ve run the calculations for a number of employers. The math of terminating coverage and trying to make them whole, it simply doesn’t add out. So employers are thinking prudently. They’re probably going to continue to offer coverage in 2014.”
Download Milliman’s Healthcare Reform Strategic Impact Study which helps answer important reform questions employers are dealing with.
Also, for more of Paul’s insights on healthcare reform, follow him on Twitter @PaulHouchens.
A.M. Best recently interviewed Bob Cosway about the challenges of defining essential health benefits (EHB) in each state. Under the Patient Protection and Affordable Care Act, insurers must provide plans that include these EHBs when marketing to the state health exchanges.
Employees’ family members who are eligible to enroll in the employees’ group health plan will be ineligible for federal subsidies under the exchanges if the employees are offered affordable self-only healthcare coverage, according to the final rule published on February 1 by the Internal Revenue Service (IRS). The final rule retains the provision in the IRS’s proposed rule basing the affordability test of the Patient Protection and Affordable Care Act (PPACA) on the cost of self-only coverage, rather than family coverage. Thus, an employee’s contribution toward the premium for family coverage is not taken into account when determining whether an employer is subject to penalties for not offering affordable coverage that satisfies PPACA’s minimum value standard. The IRS’s final rule may result in limiting federal healthcare premium subsidies for employees’ family members who purchase insurance from the exchanges beginning in 2014.
Under PPACA, employees eligible for an employer-sponsored health plan that is deemed “not affordable” can opt out of the coverage and receive a federal subsidy to help them purchase insurance in the exchanges. They are eligible for a federal health insurance premium tax credit, which is based on income as a percentage of the federal poverty level (FPL), if their employer-sponsored plan is deemed “not affordable,” i.e., if their share of the premium is more than 9.5% of household income. In addition, PPACA subjects employers to a $3,000 penalty for each full-time employee whose premium share exceeds the threshold of 9.5% of household income and who receives the subsidy to purchase exchange coverage.
In a related proposed rule also published February 1, the IRS said that family members of an employee who is offered affordable, self-only coverage will not be subject to the PPACA individual mandate penalty, which is applicable to individuals who do not obtain insurance if the employee’s premium share for family coverage exceeds 8% of household income and family members do not enroll in the coverage. This proposed rule cannot be relied upon at this time.
Employers should review their employee contribution and eligibility strategy for all employees to avoid unnecessarily limiting premium tax credit options under the exchanges for employees and their dependents.
For more information about the final rule or for assistance with implementing PPACA’s requirements, please contact your Milliman consultant.
The pressure on Medicare Advantage (MA) plans to ensure that risk scores appropriately reflect the health status of their population under the Patient Protection and Affordable Care Act (PPACA) continues to increase. Payment rates from the fee-for-service (FFS) phase-in as well as changes in star ratings for MA plans have been impacted.
The Centers for Medicare & Medicaid Services (CMS) assigns a risk score to every MA member based on the member’s characteristics, including age, gender, disability status, Medicaid status, and “health” status. The majority of revenue received by MA plans is based on the risk scores of their members, and the health status is the primary variable in the calculation of the risk score.
CMS determines the diseases/hierarchical condition categories (HCCs) for each member based on ICD-9 diagnosis codes. Identifying and submitting all appropriate ICD-9 diagnosis codes to CMS results in a higher risk score for the member and an increased payment to the MA plan.
This article, first published in the October 2012 issue of the Society of Actuaries’ Health Watch newsletter, discusses accurate diagnostic coding as an important revenue tool.
With healthcare reform moving full speed ahead, the individual and small group markets will experience changes and challenges starting in 2014, including the introduction of risk adjustment and transfer payments for non-grandfathered plans.
Part of the healthcare reform legislation mandated that the U.S. Department of Health and Human Services (HHS) establish a transfer payment methodology between plans in these markets to help mitigate differences in the risk characteristics of members. The transfer payment methodology results in transfers between carriers on a zero-sum basis—if a plan is receiving a payment, that payment must come from another carrier. Carriers will have to submit accurate diagnosis codes to HHS to ensure their risk scores reflect the actual risk of their populations.
This paper addresses both the operational challenges of submitting diagnoses and how the transfer payment will work, as well as key questions insurers need to be asking in order to be successful in the new environment.
As the Patient Protection and Affordable Care Act (PPACA) moves forward, deadlines for implementation are fast approaching. This timeline contains the key deadlines for insurers through the end of 2016, including financial reporting dates and enrollment dates.
In the late 1980s and early 1990s, managed care plans frequently featured offerings with provider networks of limited size, based on the idea that using the most cost-effective and efficient providers would result in lower healthcare expenses. As a result, these plans, which usually had lower premiums than larger network counterparts, were hoped to funnel a greater number of patients to smaller networks, resulting in an additional “volume” of traffic to the providers. Advocates of this approach also argued that a smaller network would produce a more favorable risk profile, because members willing to choose from a smaller list of providers were less likely to have an existing condition already in treatment.
A variation on this theme is the “tiered network,” in which the highest benefits are paid when members visit the most efficient providers. However, a “narrow network” is not necessarily a tiered network because the concepts involved represent two different methods for reducing costs while improving access and quality (although “narrow networks” and “tiered network” concepts are often utilized in tandem).
The narrow network approach, which was often combined with other payment methodologies such as capitation or staff-model network design, did produce significant cost savings, but several market factors, including members’ demand to see specific providers, and provider contracts that made inclusion in the most favorable tier a requirement for participation, caused typical network size to steadily increase in the years since.
Another factor that affected the success of this approach was the diverse methods payors used to define the network’s composition; in addition to fee negotiation, providers were often analyzed using a variety of measures, to determine those with the best quality outcomes. However, because these analysis methods varied between payors and were usually not completely disclosed, providers often challenged the results, arguing that important factors such as the health status of a particular group of patients had been overlooked.
Now, with the Patient Protection and Affordable Care Act (PPACA) and its associated exchange dynamics, as alternative reimbursement methodologies and risk adjustment are fundamentally changing the way health plan business is conducted, the narrow network concept is being revisited. Several plans have introduced narrow network offerings in hopes that such plans will be attractive in the exchange environment.
MedInsight has always offered a variety of innovative ways for payors to measure provider quality. The platform includes provider network management capabilities, which enable organizations to analyze, compare, and manage the performance of providers and provider networks. These analytic techniques include the ability to understand both the overall and relative cost performance of provider contracts, analyze how well specific disease and healthcare conditions are managed by providers, compare efficiency within provider peer groups, and identify best practice patterns, all of which can assist in developing and administering “narrow networks.” In addition, MedInsight supports a variety of analytic tools, both proprietary and from third parties, which assist in the quality measurement process. Table 1 below provides an example, derived using MedInsight sample data:
Table 1: Sample Provider Measurement Report
Because many new contracting methodologies, including accountable care organizations (ACOs), rely on quality measures, and because federal and state risk adjustment will incorporate payor-provided claims and electronic health records (EHR) data submitted for audit, these abilities will continue to be of increasing value to MedInsight customers. Finally, these tools can also be used to help provider organizations participating in “narrow networks” to create a better relationship with members.
This article first appeared at Milliman MedInsight.
The U.S. Departments of Labor (DOL), Health and Human Services (HHS), and Treasury have announced that employer notification to employees regarding Patient Protection and Affordable Care Act (PPACA) health insurance exchanges will be postponed beyond the March 1, 2013, statutory deadline. Although the announcement does not specify a new date, it states that the timing for distribution of the notices will be in the late summer or fall of 2013, which will coordinate with the open enrollment period that begins in October 2013 for purchasing health insurance through the new exchanges. While there is no action for employers at this time, they should anticipate questions from employees as more attention is paid to this topic.
PPACA requires employers to provide all new hires and current employees a written notice about the exchanges. The notice must:
• Inform employees about the existence of the exchanges and give a description of the services provided
• Explain that employees may be eligible for a federal premium tax credit or a cost-sharing reduction if they purchase health insurance through the exchange because their employer’s plan does not meet the 60% “minimum value” standard
• Specify that employees purchasing coverage through exchanges may lose any employer contributions toward the cost of employer-provided coverage, and that all or a portion of the employer contributions may be excludable for federal income tax purposes.
The DOL is considering providing model generic language that could be used to satisfy the notice requirement or, alternatively, language based on information from the employer coverage template under the January 22, 2013, proposed rule on Medicaid, the Children’s Health Insurance Programs, and exchanges.
The delayed notification announcement appears in the federal agencies’ “FAQs about Affordable Care Act Implementation (Part XI),” dated January 24, 2013. The document also provides guidance on health reimbursement arrangements (HRAs) and other account-based arrangements; the DOL’s plan not to bring enforcement action against certain self-insured group health plans that are Employer Group Waiver Plans; fixed indemnity insurance policies that are not “excepted” benefits; and payment of the Patient-Centered Outcomes Research Institute fee by multiemployer plans.
For more information about the federal agencies’ announcement or for assistance with implementing PPACA’s requirements, please contact your Milliman consultant.
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