Healthcare Reform & Insurance Rate Reviews
The Affordable Care Act (ACA) includes provisions that prohibit discrimination by health plans against people with pre-existing conditions and provide certain protections for consumers. Effective for plan years beginning on or after January 1, 2014, ACA extends guaranteed issue protections for individuals and employers, prohibits the use of health and other factors to set premium rates, limits age rating and prohibits insurers from dividing up insurance pools.
On February 22, 2013, the Department of Health and Human Services (HHS) released an advance copy of a final rule regarding ACA’s health insurance market reforms and existing rate review program. These reforms apply to health insurance issuers offering non-grandfathered coverage both inside and outside of ACA’s health insurance exchanges (Exchanges). Key topics in the final rule include:
- Guaranteed availability and renewability of coverage;
- Fair health insurance premiums;
- Single statewide risk pools;
- Catastrophic plans; and
- The existing rate review program.
Guaranteed Availability of Coverage
ACA requires health insurance issuers that offer coverage in a state’s individual or group market to accept every individual and employer in the state that applies for coverage, subject to certain exceptions. These exceptions allow issuers to limit enrollment:- To certain open and special enrollment periods;
- To employers with eligible individuals who live, work or reside in the service area of a network plan; and
- In certain situations involving network capacity and financial capacity.
- This rule, which does not apply to grandfathered health insurance coverage, is intended to prohibit health insurance issuers from denying coverage to people because of a pre-existing condition or any other health factor.
- The final rule requires issuers offering coverage in the group market to maintain a year-round open enrollment period for employers to purchase coverage. Issuers offering individual coverage will be required to offer plans during open enrollment periods consistent with those required by the Exchanges.
Guaranteed Renewability of Coverage
The final rule reaffirms existing protections that individuals and employers have with respect to coverage renewal. For example, these protections will prohibit issuers from refusing to renew coverage because an individual or employee becomes sick or has a pre-existing condition.Specifically, the final rule will require health insurance issuers offering coverage in the individual or group market for non-grandfathered plans to renew or continue in force coverage at the option of the plan sponsor or individual, with certain exceptions. These exceptions are:
- Nonpayment of premiums;
- Fraud or intentional misrepresentation of material fact under the terms of coverage;
- For group coverage, the plan sponsor’s failure to comply with employer contribution or group participation rules under state law;
- The issuer ceasing to offer coverage of this type (without regard to claims experience or health status-related factor);
- For network plans, there no longer being any enrollee who lives, resides or works in the service area of the issuer or where the issuer is authorized to do business (in the case of the small group market, the employer no longer having eligible individuals who live, work or reside in the service area for the network plan); and
- For coverage provided through a bona fide association, the employer’s membership in the association ceases, but only if the coverage terminated uniformly without regard to any health status-related factor relating to any covered individual.
In addition, the final rule imposes a waiting period on issuers who wish to re-enter a market after discontinuing all coverage in that market. An issuer that elects to discontinue offering all health insurance coverage in a market (or markets) in a state may not issue coverage in the state’s market (or markets) involved for a period of five years.
Fair Health Insurance Premiums
ACA and the final rule limit the factors that can vary premium rates in small group and individual markets for non-grandfathered plans. Specifically, health insurance issuers will only be allowed to vary premiums based on:- Age (within a 3:1 ratio for adults);
- Tobacco use (within a 1.5:1 ratio, subject to wellness program requirements in the small group market);
- Family size; and
- Geography
All other rating factors are prohibited. This means that several factors frequently used to set premiums, such as health status, claims history, duration of coverage, gender, occupation, small employer size and industry, can no longer be used.
These limitations represent minimum federal standards for fair health insurance premiums. States can choose to enact stronger consumer restrictions. In addition, starting in 2017, states have the option of allowing large employers to purchase coverage through the Exchanges. For states that choose this option, these rating rules would also apply to all large group health insurance coverage.
Single Risk Pool
ACA and the final rule require health insurance issuers to maintain a single statewide risk pool for non-grandfathered plans for each of their individual and small employer markets, unless a state chooses to merge the individual and small group pools into one pool. Premiums and annual rate changes will be based on the health risk of the entire pool. This requirement applies to health plans both inside and outside of an Exchange for both markets.This requirement is intended to prevent insurers from using separate insurance pools within markets to get around the market reforms, or to charge people with greater health problems higher premiums by increasing their premiums at higher rates than other, healthier risk pools.
Catastrophic Plans
The final rule includes provisions for enrollment in catastrophic plans. Catastrophic plans generally have lower premiums, protect against high out-of-pocket costs and cover recommended preventive services without cost sharing. The following individuals will be permitted to enroll in catastrophic plans:- Individuals who are under 30 years of age before the beginning of the plan year; and
- Individuals who have been certified as exempt from the individual responsibility payment because they cannot afford minimum essential coverage or who are eligible for a hardship exemption.
Amendments to the Rate Review Program
ACA established an annual rate review process that requires health insurance issuers to submit justifications for unreasonable premium increases prior to the implementation of those increases. These rates are reviewed by the state in states with effective rate review programs, and by HHS in states without effective rate review programs.Under the current program, all proposed rate increases above a defined threshold in the individual and small group market are reviewed to determine whether they are unreasonable. However, in certain circumstances, a state is permitted to set a state-specific threshold for future calendar years.
In preparation for the market changes in 2014 and to streamline data collection for insurers and states, the final rule makes the following amendments to the rate review program:
- States seeking state-specific thresholds will be required to submit proposals to HHS for those thresholds by August 1 of each year. If approved, a state-specific threshold would be effective January 1 of the following year.
- Health insurance issuers will be required to submit data relating to proposed rate increases that are filed in a state on or after April 1, 2013 (or effective on or after January 1, 2014, in a state that does not require the rate increases to be filed). A standardized format will apply to the data submissions.
- The rate review standards will require health insurance issuers to report information about all rate increases, not just those above the review threshold.
- Additional criteria and factors will be imposed for a state to have an effective rate review program.
