Proposed rule on Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans (45 CFR Parts 155 and 156), and Proposed Rule on Patient Protection and Affordable Care Act; Standards Related to Reinsurance, Risk Corridors and Risk Adjustment (45 CFR Parts 153)
The Department of Health & Human Services (HHS) has issued two sets of proposed regs looking towards implementation of Affordable Insurance Exchanges (Exchanges) under the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148). The first set of regs outlines a framework to enable states to build Exchanges, and the second addresses standards related to reinsurance, risk corridors, and risk adjustment to assure stability in the Exchange market.
Statutory provisions. PPACA allows each state the opportunity to establish an Exchange that (1) facilitates the purchase of insurance coverage by qualified individuals through qualified health plans (QHPs); (2) assists qualified employers in the enrollment of their employees in QHPs; and (3) meets other requirements specified in PPACA. Beginning in 2014, individuals and small businesses will be able to purchase private health insurance through these Exchanges.
In addition, PPACA provides that (a) each state must establish a transitional reinsurance program to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation (2014-2016), (b) HHS must establish a transitional risk corridor program that will apply to the qualified health plans in the individual and small group markets for those three years, and (c) each state may establish a program of risk adjustment for all non-grandfathered plans in the individual and small group market, both inside and outside of the Exchange.
Proposed exchange rules. With respect to the establishment of Exchanges, the proposed rules: (1) set forth the federal requirements that states must meet if they elect to establish and operate an Exchange; (2) outline minimum requirements that health insurance issuers must meet to participate in an Exchange and offer QHPs; and (3) provide basic standards that employers must meet to participate in the Small Business Health Options Program (SHOP). The intent of this proposed rule is to afford states substantial discretion in the design and operation of an Exchange. Greater standardization is proposed where required by the statute or where there are compelling practical, efficiency, or consumer protection reasons.
The proposal is designed to assist states in setting up Exchanges and to give states significant flexibility to build an Exchange that works for them. Thus, for example, states may decide whether their Exchange should be local, regional, or operated by a non-profit organization; how to select plans to participate; and whether to partner with HHS to split up the work. In addition, each state can structure its Exchange in its own way: as a non-profit entity established by the state, as an independent public agency, or as part of an existing state agency. While HHS encourages state flexibility within the boundaries of the law, each state electing to establish an Exchange must adopt the federal standards contained in PPACA and in the proposed rule, or have in effect a state law or regulation that implements the federal standards.
The main topics of the proposed Exchange rules include standards for:
... states that elect to establish and operate an Exchange;
... health insurance plans to participate in an Exchange;
... enrollment in health plans through Exchanges; and
... employers who opt to participate in the SHOP.
HHS notes, however, that the proposed rule does not address all of PPACA's Exchange provisions, and that additional guidance on the establishment and operation of Exchanges will be provided in future proposed rules. Specifically, yet to be addressed are (1) standards for individual eligibility for participation in the Exchange, advance payments of the premium tax credit, cost-sharing reductions, related health programs, and appeals of eligibility determinations; (2) standards outlining the Exchange process for issuing certificates of exemption from PPACA's individual responsibility requirement; (3) defining essential health benefits, actuarial value, and other benefit design standards; and (4) standards for Exchanges and QHP issuers related to quality.
Proposed reinsurance and risk rules. The proposed reinsurance and risk rules follow the goals of PPACA and are designed to mitigate the impact of potential adverse selection. The rules would also stabilize premiums in the individual and small group markets as insurance reforms and the Exchanges are implemented, HHS said. The rules include detailed requirements for:
... a transitional, state-based reinsurance program, which serves to reduce the uncertainty of insurance risk in the individual market by making payments for high-cost cases, and includes a requirement that states issue an annual notice to disseminate information to issuers and other stakeholders about specific requirements to support payment-related functions;
... a temporary, federally-administered risk corridor program, which serves to protect against uncertainty in the Exchange by limiting the extent of issuer losses (and gains); and
... a state-based risk adjustment program, which is intended to provide adequate payments to health insurance issuers that attract high-risk populations (such as individuals with chronic conditions).
References: For health insurance exchanges, see FTC 2d/FIN ¶H-1171; United States Tax Reporter ¶36B4.01; TaxDesk ¶133,043.1; TG ¶1381.