As implementation of the Affordable Care Act (ACA) continues, the federal government continues to make adjustments to its rules to respond to the needs and circumstances arising from this transformational legislation.
On May 6, 2016, the federal Centers for Medicare and Medicaid Services (CMS) issued an interim final rule (IFR) amending the rules governing the consumer operated and oriented plans (CO-OPs) established under ACA to, among other changes, allow CO-OPs to raise money from private investors and broaden the composition of their boards of directors. The new rules also allow insolvent CO-OPs, with the approval of CMS, to sell or transfer their policies.
Further, to address concerns about rules that can be abused to permit individuals to add or drop coverage as they need or don’t need healthcare, the IFR addressed a long standing complaint by issuers and places new limitations on the special enrollment periods (SEPs) determining when individuals can sign up for coverage outside the annual open enrollment period.
Finally, the IFR recognizes the financial challenges for some issuers created by unanticipated charges for the Risk Adjustment Program. CMS called on state regulators to address these concerns and notes that the agency is continuing to review the Risk Adjustment Program methodology. It is unclear if and when CMS and the states will actually adjust the methodology.
Some of the more significant provisions:
1. CO-OP Amendments
The ACA included a loan program to fund the establishment of private, non-profit, consumer-operated, consumer-oriented health plans known as CO-OPs. To be eligible for the loan funds, CO-OPs have been subject to strict limitations on governance and funding. The former rules limited eligibility for board membership and prevented the CO-OPs from raising money from private investors. Those rules also prevented CO-OPs from selling or transferring their policies if they became insolvent.
Recognizing that many CO-OPs have been unsuccessful in the new marketplace, of the 23 CO-OPs that launched, only 11 are still operating and several of the remaining CO-OPs face serious financial challenges, CMS has now provided CO-OPs more flexibility.
a. Private Investment
To bolster the remaining CO-OPs, CMS will now allow CO-OPs to obtain capital from private investors. CMS hopes the additional flexibility will allow the CO-OPs to survive without undermining the principals of the CO-OP program.
CMS also loosened exclusions that restricted eligibility for serving on CO-OP governing boards. Due to conflict of interest concerns, under prior ACA regulations all employees of governments and insurance companies were not eligible for board membership, meaning that individuals with useful expertise were excluded. Under the amendments, only senior executives and high-level representatives of a government unit, or officers, directors or trustees of insurers that marketed health insurance policies and plans (other than Medicare or Medicaid Managed Care plans) on July 16, 2009, are disqualified.
Formerly, the rules provided that all CO-OP directors had to be elected by a majority vote of a quorum of the CO-OP’s members. Under the amendments, only a majority of directors have to be elected by the members and a majority of directors no longer have to be members of the CO-OP. As with the eligibility requirements, the amendments are intended to provide opportunities for qualified individuals, such as entities providing investment and financial support, to participate in CO-OP governance. This additional flexibility will allow CO-OPs to seek experienced Board members.
c. CO-OP Business Mix
CMS also revised a requirement that at least two-thirds of the policies issued by a CO-OP must be qualified health plans (QHPs) meeting ACA policy requirements issued in the individual and small group markets in the states in which the CO-OP is licensed, addressing CO-OPs’ concerns that they were deterred from entering into profitable lines of business by the limitation. Under the amended rule, if a CO-OP does not meet the two-thirds requirement it will not be in default of its loan agreements if it acts on a specific plan and timetable to meet the requirement in future years.
d. Insolvent CO-OPs
CO-OPs have been prevented from converting or selling policies to a non-CO-OP issuers in connection with the wind-down of a CO-OP. Under the prior rules, engaging in such transactions could result in terminating the federal loans provided to the CO-OPs or accelerating loan repayment provisions. The IFR provides that, in appropriate circumstances subject to CMS review, CO-OPs may enter into such transactions to preserve coverage for enrollees.
SEPs are intended to give individuals the ability to obtain health coverage when life changes make obtaining coverage outside of open enrollment periods appropriate. However, lax SEP rules encourage individuals to purchase coverage when they require healthcare services and either drop or fail to obtain coverage when they do not. This can create adverse selection and destabilize the health insurance market. CMS addresses these concerns by restricting eligibility for permanent move SEPs. Under the new rules, individuals must have had coverage in the 60 day period preceding the date of the permanent move to qualify for a permanent move SEP.
Exceptions are made for individuals previously living outside of the United States, for previously incarcerated individuals and for individuals moving from non-Medicaid expansion states who were previously ineligible for advance payments of premium tax credits and Medicaid.
In addition, CMS is conducting an assessment of QHP enrollments that were made through special enrollment periods to ensure that consumers’ eligibility for SEPs were properly determined.
3. Risk Adjustment
Finally, when addressing the Risk Adjustment Program, HHS noted that certain issuers have faced unanticipated risk adjustment charges. While it believes that a robust risk adjustment program is critical to the proper functioning of these new markets, CMS is sympathetic to these concerns and has encouraged states to examine whether any local approaches are warranted to help ease the transition to new health insurance markets. CMS plans to continue to seek ways to improve the risk adjustment methodology.
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