HOW THE FEDERAL HEALTHCARE REFORM LAW WILL AFFECT HEALTHCARE PREMIUMS, HEALTHCARE BENEFITS AND THE MARKET FOR COVERAGE

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1 HOW THE FEDERAL HEALTHCARE REFORM LAW WILL AFFECT HEALTHCARE PREMIUMS, HEALTHCARE BENEFITS AND THE MARKET FOR COVERAGE Hilary Rowen, Esq. Sedgwick, Detert, Moran & Arnold San Francisco, CA The Patient Protection and Affordable Care Act ( PPACA ) will transform the healthcare coverage market, impose new forms of premium regulation and strictly limit the rate differentials between high and low risk individuals. 1 Most of the provisions of PPACA relevant to the availability and affordability of health coverage purchased by employers and individuals do not take effect until However, several rate regulation provisions in the healthcare reform law apply to coverage in force on January 1, These provisions will have an impact on the healthcare market prior to the full rollout of PPACA in Mandatory Coverage and the End of Medical Underwriting In 2014 virtually everyone below retirement age will: 1) have to be insured by an employer, 2) be required to purchase individual coverage or 3) be eligible for Medicaid coverage under extended eligibility standards. 3 At the same time, PPACA will require insurers to accept applicants without regard to preexisting conditions or health status. 4 Until 2014 individuals are not required to demonstrate healthcare coverage and insurers are permitted, with some state law limitations, to deny coverage or charge higher premiums based on health status. Where coverage is not mandated by law (or required by commonly used forms of contract), individuals or entities at higher risk of incurring costs covered by insurance are more likely to purchase coverage than those with a lower expectation of making claims. This tendency increases the incidence and cost of claims, driving premiums upwards. As premiums go up, the relatively better risks drop coverage, potentially creating a cycle in which coverage eventually becomes unaffordable for everyone. Allowing carriers to reject health insurance applicants based on risk factors is one traditional solution to the problem. Other solutions include mandatory coverage, such as state laws requiring auto liability coverage, and contractual provisions, such as mortgage lenders requirements that borrowers maintain homeowners coverage. PPACA adopts the mandatory coverage solution: it makes health insurance coverage mandatory for individuals but strictly limit the ways in which carriers can price based on risk factors. The tax penalties for not obtaining coverage are low in 2014 ($95, unless a low-income exemption computed on a sliding scale is applicable), but steadily rise thereafter. 5 After 2014 the size of the health coverage market, especially the market for individual coverage, is likely to increase as higher risk individuals are able to obtain coverage regardless of health status and lower risk individuals elect to pay premiums rather than penalties. Limitations on Rating Factors Currently, insurers in most states have broad discretion to deny coverage based on health status and medical history, except where Health Insurance Portability and Accountability Act ( HIPAA ) restrictions with respect to individuals with prior creditable coverage apply. 6 Insurers also are allowed to charge higher premiums to riskier individuals and small groups, although a number of states limit premium differentials for small groups and a handful of states limit premium differentials for individuals. 7 Starting in 2014, price differences based on health status and medical history will not be allowed, with the exception of lower premiums for employee participation in wellness programs. 8 In addition to banning medical underwriting, PPACA also provides that individual and small group premiums can be determined based only on: Family Structure. Whether coverage is provided only to an individual or for a family. The price differential is not capped, but families of two (i.e. spouses or partners) and families of eight (adults plus children) will pay the same premium. 9 Geographic Region. The permitted geographic regions are to be established by each state, subject to review by the Department of Health & Human Services ( HHS ). 10 This factor is not capped under PPACA. The geographic region rating factor captures differences in the cost of healthcare services in different parts of a state (most typically, cost differences between urban and rural areas). Age. Price differences based on age are limited to a 3-to-1 difference between the lowest and the highest priced age groups. 11 HHS is to specify permitted age bands by regulation prior to On average, people in their fifties and early sixties have significantly higher medical and hospital costs than people in their 20s. The effect of the 3-to-1 ratio cap is likely to shift costs from continued on page 56 55

2 How the Federal Healthcare Reform Law Will Affect Healthcare Premiums continued from page 55 younger insureds (especially males, in states that currently allow insurers to use sex as a rating factor) to older insureds. Tobacco Use. Tobacco use is limited to a 1.5-to-1 difference in premiums between tobacco users and non-users. 12 This rate differential is significantly smaller than the actual difference in costs (especially for older smokers who have reached the ages where tobacco-related ailments tend to manifest). The premiums for large employer groups are generally determined based on the historical experience of the group. 13 The health status of current (and former) employees is likely to be reflected in the premium through the use of historical data, but cannot be used as an explicit rating factor. The rate structure limitations imposed by PPACA will not materially change the process by which insurers price coverage for large groups. Employers and employees may benefit from the one notable exception to PPACA s ban on the use of health status in pricing coverage. Current federal regulations authorizing premium discounts or other incentives for employees who participate in wellness programs have been codified in PPACA. 14 As of 2014, the permissible maximums for these incentives will increase from 20 percent of the total cost of coverage (to both the employer and the employee) under the existing regulation to 30 percent under PPACA. 15 HHS is given authority to allow employee wellness discounts of up to 50 percent. The wellness discounts can take the form of a reduction in the employee s out-of pocket share of health coverage costs, a cash refund of a portion of the premium, or other incentives. Although discounts or other incentives offered under current wellness programs are usually far below the current 20 percent maximum (one to five percent incentive would be more common), PPACA may spur interest in wellness programs that reward measurable improvement in employees risk factors. PPACA expressly provides that it is acceptable under HIPAA for an employee s eligibility for a premium discount for participating in a wellness program to be based on the employee s reducing a health risk factor. Examples include lower blood pressure, good cholesterol levels and weight within a target body mass index. Employee wellness discounts have the potential to reduce premiums (or, more plausibly, reduce the rate at which health premiums increase) for employers with a high rate of employee participation in wellness programs. Providing lower cost premiums or cash refunds to employees who attain (or maintain) health status likely to reduce their expected medical costs is equivalent to charging higher rates to employees that do not participate in an employee wellness program at all, or do not meet the health status criteria for the biggest discounts. The employee wellness provisions are a notable exception to PPACA s focus on flattening premium differences between low and high risk insureds. Insurance Exchanges By 2014, every state must establish an insurance Exchange. 16 The Exchanges are entirely new quasi public/quasi private entities that will maintain web-based insurance portals. The Exchanges are to facilitate the purchase of individual and small group coverage. States have the option of expanding the Exchanges to include large group coverage. The Exchanges will only offer products that provide the essential health benefits specified in PPACA. 17 Essential health benefits include a lengthy and fairly comprehensive list of benefits, including: coverage for ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. HHS is to develop regulations that provide detailed specifications for each category of essential health benefits prior to PPACA authorizes four levels of essential health benefits coverage: Bronze, Silver, Gold and Platinum. Bronze products must cover 60 percent of the projected costs of essential health benefits. Silver products must cover 70 percent of the projected costs; Gold products must cover 80 percent of the projected costs and Platinum products must cover 90 percent of the projected costs. 18 PPACA also authorizes catastrophic coverage with benefits more limited than Bronze coverage for individuals younger than age There are any number of product designs within each of the four categories that would satisfy the requirements of a coverage category. For example, one Gold product might offer a better prescription drug benefit; another Gold product might offer lower copayments. Both Gold products would provide coverage for 80 percent of the projected cost of essential health benefits. Thus, there is likely to be variation between products within each category. However, a number of health products currently offered in the market will not fit neatly into the mandatory categories, because they do not include all essential benefits, do not provide enough coverage to satisfy the minimum Bronze standard, or provide a level of benefits that falls between two of the authorized categories. 56

3 To participate in the Exchanges, a carrier must maintain adequate provider networks, including providers in low-income communities and must at a minimum offer both a Silver and a Gold product. An Exchange may exclude carriers from participation based on a pattern or practice of excessive or unjustified premium increases. 20 Some states may allow all carriers with qualified products to participate. Other states may restrict Exchange participation to carriers that satisfy additional restrictions imposed by the states. The Exchanges could become a low cost distribution channel for carriers, as they will function as shared web-portals for multiple insurers. However, premiums charged for Exchange products may not fully reflect lower expenses of selling health coverage through the Exchange. PPACA provides that a carrier offering products through an Exchange must agree to charge the same premium if the product is sold outside the Exchange. 21 Compensation of insurance agents through commissions makes the agency distribution channel more expensive than on-line sales through carriers own websites and, presumably, Exchange sales. Under this provision, if the same health coverage product is sold at the same price through marketing channels with different cost structures, the Exchange premium will have to reflect the average cost of the different marketing channels. Carriers are likely to respond by offering different products through the Exchange than in the rest of the market. However, there may be public pressure for carriers to sell their most popular products through Exchanges, even if the result is slightly higher premiums for the Exchange products. Looking forward to 2014, it is unclear whether the Exchanges will become a dominant distribution channel for individual and small group coverage. As PPACA permits each state to determine the structure of its Exchange within very broad parameters, the role of the Exchange is likely to vary from state to state. In some states, most individuals and small businesses may purchase coverage through the Exchanges. In other states, the Exchange may primarily serve as a source of comparison pricing information, while most individual and small group coverage continues to be sold through existing distribution channels. Insurer Cross-Subsidies If the introduction of the ban on medical underwriting in 2014 results in a large number of high risk individuals seeking coverage from a small number of carriers, the result would be a sharp increase in the coverage costs of those insurers relative to other carriers. The transitional reinsurance and risk corridor provisions of PPACA are intended to level the playing field among carriers writing coverage for individuals and small employers by surcharging carriers whose insureds present below average risk and subsidizing carriers whose insureds present above average risk. Transitional reinsurance will subsidize carriers that write an aboveaverage percentage of high-risk individuals from 2014 through High risk is to be determined based on medical diagnosis codes, not claims experience. Prior to the implementation of the transitional reinsurance program in 2014, HHS will promulgate the high risk medical diagnosis codes by regulation after consultation with the National Association of Insurance Commissioners ( NAIC ) and with input regarding alternative methodologies from the American Academy of Actuaries. 23 The transitional reinsurance programs will be operated by the states and will be funded by assessments on health carriers. The assessments are to be allocated to health carriers by HHS proportionally to each carrier s major medical health premiums and the cost of self-insured health plans administered by the carrier. 24 Under the risk corridor mechanism, in 2014 through 2016, HHS will make payments to insurers whose actual losses exceed the level projected in each carrier s rate filings, and will surcharge insurers whose actual losses are lower than the level projected by the carrier s rate filings. 25 There is no statutory requirement in PPACA that the surcharges and subsidies balance. In a state where there are very few carriers with low loss ratios and many carriers with high loss ratios, the risk corridor mechanism will not have its intended market-stabilizing effect. Like the transitional insurance mechanism, the risk corridors are designed to address a situation in which some insurers end up with expensive, money losing business, while other, luckier carriers get the healthy, profitable business. The risk corridor provision assumes, perhaps naively, that health coverage premiums for all carriers in the individual and small group markets will on average be adequate to cover losses and expenses and that one carrier s shortfall will be balanced by another carrier s windfall. However, if rate regulators delay needed rate increases or systematically approve inadequate rates, then a large percentage of individual and small group carriers will qualify to receive subsidies. The surcharges collected will not cover the subsidies required to be paid under the formula. PPACA is silent on the source of funding for any shortfall. If a determination is made by HHS or a state insurance regulator administering a risk corridor program that subsidies are to be paid only from funds generated by surcharges, then the risk corridor program will be effective only in states in which premiums are high enough to generate enough winners to balance the losers. 26 If a determination is made that carriers with high losses are entitled to subsidies regardless of the size of the surcharge pool, then an alternative source of funding will be required. Given the already overstrained continued on page 58 57

4 How the Federal Healthcare Reform Law Will Affect Healthcare Premiums continued from page 57 federal and state budgets, the most likely source of funding are additional carrier assessments. However, if most of the carriers are losers, then additional assessments will only make the individual and small group markets in the state less attractive. The transition reinsurance and risk corridor mechanisms terminate at the end of After 2016, PPACA provides authority for HHS and the states to adopt on-going mechanisms for assessing products where the actuarial risk of the enrollees of such plans or coverage for a year is less than the average actuarial risk of all enrollees in all plans or coverage in such State. 27 The amounts assessed would be used to provide subsidies to carriers with above average actuarial risk. Medical Loss Ratios and Retroactive Premium Refunds For coverage in effect on January 1, 2011 and thereafter, PPACA establishes retroactive premium refunds if the portion of the premium going to administrative expenses exceeds the level specified in the statute. The new medical loss ratio system is entirely novel in a number of respects: 1) unlike loss ratio regulation under existing state statutes, the medical loss ratio treats administrative expenses relating to healthcare quality improvement differently from other administrative expenses; 2) rates are reviewed retroactively, rather than the prospective review that is the norm under state rate regulation statutes; 3) the medical loss ratio refunds apply to large group coverage, which has not generally been subject to rate regulation in the past; and 4) the medical loss ratio refunds will be computed by broad categories rather than on a product-specific basis. PPACA creates a new concept: the medical loss ratio defined as the ratio of payments for clinical services and activities to improve health care quality to premium. Unlike traditional loss ratios used in state rate regulation, the medical loss ratio includes specified administrative costs for activities to improve healthcare quality in the minimum ratio. Retroactive premium refunds will be required if the medical loss ratio is less than 80 percent for individual and small employer group coverage or 85 percent for large group coverage. 28 Currently, no state regulates health insurance rates using retroactive premium refunds, although some states review the ratio of administrative expenses in prospective review of individual and small group premiums. The retroactive refund mechanism in PPACA marks a break with traditional forms of health insurance rate regulation. States have not regulated premiums in the very competitive large group market either retroactively or prospectively. Congress authorized the NAIC to develop a standardized methodology for computing medical loss ratios and to identify the activities that improve health care quality whose costs will be included within the medical loss ratio caps. 29 On October 27, 2010, the NAIC formally submitted a model regulation to HHS. 30 The Office of Consumer Information and Insurance Oversight of HHS issued an interim regulation effective January 1, 2011 adopting the substance of the NAIC model regulation. 31 The HHS regulation also specifies the process and criteria under which the Secretary of HHS will review state applications for waiver of the 80 percent refund trigger in the individual market and the enforcement of the medical loss ratio provisions. 32 The medical loss ratio regulation provides that each carrier (on an affiliate-by-affiliate basis) will compute only three refund trigger percentages for each state: one for all individual products, one for all small group products and one for all large group products. 33 Thus, whether a carrier issues refunds with respect to a given health coverage will depend on the performance of a broad category of products issued in the state. The new medical loss ratio regulation also specifies the types of insurer expenses that will qualify as activities to improve health care quality. The expenses that will be included within the 80 percent or 85 percent refund trigger include activities and programs to reduce hospital readmissions; reduce medical errors; promote wellness programs; increase the use of health information technology to improve patient care; reduce health disparities between demographic groups; and improve health outcomes for enrollees in health coverage. 34 In each state, a carrier that spends more than 80 cents of each dollar of individual (or small group) premium on clinical care and for activities to improve health care quality will not be required to pay refunds. For large employer coverage, if at least 85 cents of each premium dollar goes to clinical care and activities to improve health care quality no refunds will be required for policies issued in a given state. 35 If a carrier cannot satisfy the medical loss ratio threshold for individual, small group or large group coverage in a state, then it will have to refund the difference between its actual ratio and the target to insureds, either as a credit against future premiums or in cash. Under the medical loss ratio regulation, retroactive premium refunds for coverage in force in 2011 will be determined in the spring of The first rebates must be paid by August 1, Rebates are to be allocated between an employer and its employees proportional to the share of the premium paid

5 Unreasonable Rate Increases Entirely separate from the medical loss ratio provisions, PPACA requires pre-implementation filing of unreasonable rate increases. 39 The statute specifies that the filings must include a justification of the unreasonable rate increase, but does not define unreasonable or specify a review process. In December 2010, HHS issued a proposed regulation to be effective July 1, The new filing requirements apply to individual and small group products. HHS chose not to apply the unreasonable rate filing requirements to large group coverage or grandfathered individual and small group plans. 41 The HHS regulation on unreasonable rate increases is designed to supplement, rather than supersede, state rate filing requirements. In 2011, only filings for increases of 10 percent or more will be subject to PPACA filing requirements. 42 Subsequently, HHS intends to promulgate statespecific filing thresholds. 43 If a state has a rate review process that satisfies the criteria in the HHS regulation, then the state standard for approving or disapproving rate filings will apply. 44 If a rate increase is over the 10 percent threshold established by HHS, the carrier must make an informational filing with HHS as well as a rate filing with the state, but HHS will not perform an actuarial review of the proposed rate. HHS has indicated that in its view, a majority of the states have acceptable rate review processes for individual products, small group products or both. 45 If a state does not have a rate review process that meets HHS s minimum criteria, then HHS will require more extensive documentation from the carrier and will conduct an actuarial rate review. 46 However, HHS will not prohibit a carrier from using a rate, even where it has made a final determination that the rate is unreasonable. 47 There are three key differences between typical state rate filing statutes and the HHS review: State rate filing statutes generally apply regardless of the magnitude of the rate change. PPACA and the HHS regulation only require filings for rate increases that hit the unreasonable trigger. As the PPACA provisions do not preempt state rate filing requirements, the state rate review process will be the same for rate increases above and below the trigger. However, justification documentation will be posted on the HHS website only for rate increases over the trigger level. Where the state rate filing process includes an actuarial review of the rate, the carrier is usually prohibited from using a rate that has been found to be unreasonable. Under the HHS regulation, if the actuarial review is performed by HHS because the state does not have a rate review process acceptable to HHS, the carrier can implement the rate increase following a final determination by HHS that the increase is unreasonable. The carrier is simply required to provide a response to HHS s determination of unreasonableness. A number of states do not treat health coverage rate filings as public record documents. In contrast, under the HHS regulation, all of the information and documentation provided by a carrier will be posted on the HHS website, unless the information is entitled to confidential treatment under the HHS Freedom of Information Act regulation. The new HHS regulation is likely to have several indirect effects on state rate regulation. States that do not currently have healthcare rate review processes that satisfy the HHS criteria are likely to enact new rate regulation laws. If HHS promulgates state-specific unreasonableness thresholds in 2012, state regulators may be reluctant to approve higher rate increases, at least absent compelling evidence from the carrier. Impact of PPACA on the Market for Health Coverage PPACA will transform the health insurance market in two phases: pre-2014 and post The first phase has already begun. In September 2010, the first set of PPACA s minimum coverage standards took effect. Carriers are now required to provide coverage for most children to age 26; they cannot impose lifetime limits on coverage; annual dollar caps are severely restricted; most plans must provide certain preventive care without co-payments; and cannot deny coverage for pre-existing conditions for children under age These changes will increase the cost of coverage, although the magnitude of the increases will depend on whether the insurer previously provided some of the now mandatory benefits. In 2011, the medical loss ratio provisions take effect. The 85 percent medical loss ratio cap for large groups is likely to have a marginal impact, as large groups already have relatively low expenses as a percentage of premium. In contrast, the 80 percent medical loss ratio for individual and small groups may cause carriers to limit their offerings in some market segments in some states. Until 2014, carriers will continue to incur the substantial costs of reviewing the health status of applicants for individual and some small group products. The medical underwriting costs may make it difficult for insurers to meet the 80 percent medical loss ratio between 2011 and Some state insurance regulators have already filed petitions with HHS for relaxation for the 80 percent medical loss ratio for some or all products sold in their states for In 2014 the major components of PPACA take effect. The coverage mandate will increase the size of the health insurance market, although it is unclear whether the newly insured continued on page 60 59

6 How the Federal Healthcare Reform Law Will Affect Healthcare Premiums continued from page 59 will on average be healthier or sicker than the present insured population. As the same time, the ban on medical underwriting will reduce the administrative costs of writing individual and small group coverage. This will make it easier for carriers to satisfy the 80 percent loss ratio. The more robust incentives for employee wellness programs also take effect in The greatest uncertainty regarding the full implementation of PPACA in 2014 is whether there will be a major shift from employer-provided coverage to individually purchased coverage. PPACA contains both tax credit incentives for small employers to offer healthcare coverage but relatively weak penalties for larger employers that drop coverage. 50 Some large employers may find it economically advantageous to terminate their health insurance coverage, pay the federal penalties, and pay some or all of the difference in increased salaries to employees (with the idea that they would use the additional money to purchase individual insurance in the marketplace). Until the quality and cost of post-2014 individual health insurance is a known factor, it is difficult to predict whether employers will begin terminating their health plans. Even if PPACA does trigger a move away from employer-provided coverage, employees with guaranteed access to individual coverage will not necessarily be worse off if they receive higher wages in lieu of healthcare coverage. Whether employees will prefer employers that offer health benefits or employers that offer higher compensation but no health benefits will depend on a wide range of factors and is likely to vary by state, by industry and by personal preference. Whether or not there is a move away from large group coverage, the new Exchanges are likely to become a major coverage distribution channel for both individual and small group coverage in many states. While there is a risk that the massive changes required by PPACA will disrupt some health insurance markets, chaos is not inevitable. Well designed and thoughtfully implemented regulations can mitigate the inevitable transitional problems under the healthcare reform law. Conclusion Demographics are working against affordable healthcare coverage. An aging population of baby boomers will consume a lot of healthcare over the next few decades. It will require a tectonic shift toward healthier behaviors and changes in health delivery systems to keep the rise in health costs level with the rate of inflation. PPACA s two major objectives are expansion of coverage and imposition of premium regulation. It contains relatively few cost containment measures applicable to the non-government payor healthcare market (the expanded discount for employee wellness programs is a rare example). In the end, expanding the size of the health insurance market and rate regulation alone cannot create affordable coverage. Capping premiums if costs keep rising will simply result in carriers exiting unprofitable markets. Ultimately what will be needed are effective ways to reduce the incidence and cost of healthcare claims. Hilary Rowen is a partner in the San Francisco office of Sedgwick, Detert, Moran and Arnold, LLP. Her practice focuses on a wide range of insurance regulatory issues. She has 30 years experience with rate regulation issues involving both health and property/casualty coverage. She is the former Chief of the Insurance Division in the Office of the Massachusetts Attorney General and has joint degrees in law and public policy from Harvard Law School and the Kennedy School of Government. She may be reached at or hilary.rowen@sdma.com. Endnotes 1 The federal healthcare reform legislation enacted in March 2010 consists of the Patient Protection and Affordable Care Act (Pub.L ) as modified by the Health Care and Education Affordability Reconciliation Act (Pub.L ). 2 Following the mid-term election, there has been widespread discussion of modifying PPACA. Proposals range from outright repeal to relatively modest tweaks to the law. In addition, a federal district court in Virginia has held that the individual mandate to purchase health insurance, a key component of PPACA and much of this article, is unconstitutional. Commonwealth of Virginia v. Sebelius, 3:10CV188-HEH (E.D.Va. 2010) This article assumes that all of the provisions of PPACA as enacted remain unaltered by future legislation or final unappealable court ruling. Some health coverage providers are licensed as health insurers and some are licensed as managed care plans under separate state statutory provisions. PPACA largely ignores the state licensing distinctions and in this article the term insurer or carrier refers to providers of health coverage, regardless of their licensing status. 3 Pub.L , 1501, as amended by Pub.L , 1002 [individual mandate]; Pub.L , 1513, as amended by Pub.L , 1003 [penalties for large employers that do not provide coverage]; Pub.L , 1201 [Medicaid eligibility]. 4 Pub.L , 1201 amending the Public Health Services Act ( PHSA ) to add PHSA Pub.L , 1501(b) adding Internal Revenue Code 5000A as amended by Pub.L , and Pub.L , U.S.C 300 gg Price differences among small groups in different risk categories are regulated in every state except Hawaii, Pennsylvania, Virginia and the District of Columbia. In contrast, price differentials among different individual product risk classes are regulated only in Idaho, Kentucky, Minnesota, New Hampshire, New Mexico, Nevada, North Dakota, Rhode Island, South Dakota, Utah, Vermont and Washington. 8 Pub.L , 1003 adding PHSA 2705(a). 9 Pub.L , 1003 adding PHSA 2701(a)(1)(A)(i). 10 Pub.L , 1003 adding PHSA 2701(a)(1)(A)(ii). 11 Pub.L , 1003 adding PHSA 2701(a)(1)(A)(iii). 60

7 12 Pub.L , 1003 adding PHSA 2701(a)(1)(A)(iv). 13 Under PPACA, the dividing line between small employers and large employers is 100 employees, but states may opt to place the dividing line at 50 employees until Pub.L , 1304(b). Existing state statutes regulating small group coverage typically use 50 employees as the dividing line between small group and large group. 14 Pub.L , 1201 adding PHSA HIPAA regulations promulgated in 2006 authorized premium discounts for participation in wellness plans to 20 percent of the cost of coverage. Nondiscrimination and Wellness Programs in Health Coverage in the Group Market, Final Rule. Federal Register 71:239 (December 13, 2006) p 75014, Pub.L , 1003 adding PHSA 2705(j)(3). 16 Pub.L , Pub.L , 1302(b). 18 Pub.L , 1302(d). 19 Pub.L , 1302(e). 20 Pub.L , 1003 adding PHSA 2794(b). 21 Pub.L , 1301(a). 22 Pub.L , The NAIC is an organization of insurance regulators from the 50 states, the District of Columbia and the five U.S. territories. Formed in 1871, the NAIC promulgates model insurance laws and insurance financial reporting standards. State legislatures have enacted the NAIC model laws to varying degrees. All states, either by statute or regulation, have adopted the NAIC s uniform financial reporting standards. The American Academy of Actuaries is a professional organization of accredited life, health and property/casualty actuaries. Among other activities, the American Academy of Actuaries provides an actuarial perspective on various public policy issues of interest to its members. 24 Pub.L , 1341(b)(3). 25 Pub.L , HHS has authority to establish regulations governing the administration of the risk corridor program, but could treat the potential problem of a mis-match of subsidies and surcharges as a matter to be determined by the state legislatures or insurance regulators (provided that state solution did not conflict with an express PPACA requirement). 27 Pub.L , 1343(b). 28 Pub.L , 10101(f), adding PHSA 2718(b). 29 Pub.L , 10101(f), adding PHSA 2718(c). 30 Regulation for Uniform Definitions and Standardized Methodologies for Calculation of the Medical Loss Ratio for Plan Years 2011, 2012 and 2013 Per Section 2718(b) of the Public Health Services Act, 10/21/10, index_health_reform_section.htm. 31 Health Insurance Issuers Implementing Medical Loss Ratios (MLR) Requirements Under the Patient Protection and Affordable Care Act, Interim Final Rule, 75 Fed. Reg (December 1, 2010) (to be codified at 45 C.F.R. pt. 158). The text of the regulation appears at pages The final regulation will probably be issued by HHS in Id. at , 45 C.F.R Id. at 74927, 45 C.F.R Id. at , 45 C.F.R Id. at 74926, 45 C.F.R (a). 36 Id. at 74922, 45 C.F.R Id. at 74928, 45 C.F.R Id. at 74929, 45 C.F.R Frequently, the insurer will not have information regarding the portion of the premium paid by the employer and the employee. The regulations permit the insurer to enter into an agreement with the employer under which the employer will distribute the employees refunds. However, the insurer will remain liable to pay the refunds if the employer does not perform. 39 Pub.L , 1003 adding PHSA 2794(a). 40 Rate Increase Disclosure and Review, Proposed Rule 75 Fed. Reg (December 23, 2010) (to be codified at 45 C.F.R. pt. 154). The text of the regulation appears at pages The final regulation will probably be issued by HHS in Id. at 81026, 45 C.F.R Id. at 81026, 45 C.F.R HHS has invited comment on whether the 10 percent trigger is appropriate. Id. at Id. at Id at 81027, 45 C.F.R Id at Id at 81027, 45 C.F.R Id at 81028, 45 C.F.R Pub.L , 1001 adding PHSA 2714 [dependent coverage to age 26], 2711 [ban on dollar coverage limits], 2713 [preventive services]; Pub.L , 1201 adding PHSA 2704 [ban on pre-existing conditions restrictions for children under 19]. 49 Florida, Kentucky, Nevada and New Hampshire have medical loss ratio waiver applications pending with HHS. HHS approved Maine s medical loss ratio waiver application on March 8, 2011, granting its request that it be allowed to use a lower standards of 65 percent. Georgia filed a waiver application on March 16, Additional requests for waivers are likely to be filed as regulators assess Maine s waiver approval and the likely impact of the 80 percent medical loss ratio on access to individual coverage in their states. 50 Pub.L , 1401 [small employer tax credit]; Pub.L , 1513, as amended by Pub.L , 1003 [penalties for large employers]. REMINDER: ABA Health Law Section members can access past issues of on the Section s website. To access back issues and s full index, go to 61