HRS Insight Human Resource Services HRS Insight 12/23 November 29, 2012 Preparing for the future of health insurance Authored by: Tracey Giddings and Anne Waidmann In brief Last week the Department of Health and Human Services (HHS) issued three sets of proposed regulations under the Patient Protection and Affordable Care Act (ACA), providing guidance on provisions that will become effective in 2014. The first proposed regulations, issued concurrently by the Departments of HHS, Treasury and Labor, provide guidance on wellness programs under ACA, and are discussed in a separate HRS Insight. The second set of proposed regulations addresses the definition of essential health benefits, which are required to be provided by insured plans offered to individuals and small groups, and the determination of the actuarial value of the coverage provided by an insurance policy. The actuarial value determines the metal level (i.e., bronze, silver, gold or platinum) of policies in the individual and small group markets, based on how generous a benefit-level the policy offers. In addition, these regulations provide guidance on determining whether large group policies and self-insured plans meet the minimum value actuarial standard of 60% required in order to avoid some ACA penalties on large employers. The proposed regulations include a proposed timeline and an application process for issuers offering coverage in a federally-facilitated exchange or state partnership exchange and an application process for accrediting entities. Finally, a third set of proposed regulations issued by HHS provides guidance on the insurance market reforms of ACA, which are effective for plan or policy years beginning on or after January 1, 2014.
Highlights The preamble to the proposed regulations on essential health benefits confirms that large group and selffunded plans are not required to provide essential health benefits, and also clarifies that the deductible limits ($2,000 for individuals and $4,000 for families in 2014) under ACA will apply only to individual policies and small group policies and not to large group insured plans or self-insured plans. Not clear is whether the out of pocket maximum rules of ACA will apply to large group and self-insured plans. The proposed regulations clarify that employer health savings account (HSA) contributions and amounts newly made available under a health reimbursement arrangement (HRA) for the year will be taken into account in determining a small group policy's actuarial value and in determining whether a large group policy or selfinsured plan satisfies the minimum value standard. These rules are intended to be effective for policy and plan years starting on or after January 1, 2014. The proposed regulations on the insurance market reforms of ACA are of interest to employers, both for their effect on the availability and cost of group insurance products and for the requirements for coverage offered on or off the exchanges, particularly for employers debating whether or not to continue to provide coverage when the exchanges become available to their employees, or for those considering other insured health arrangements. Essential health benefits Essential health benefits (EHBs) represent a core benefits package spanning 10 specific health benefit categories that must be provided by insured plans in the individual and small group market both inside and outside of the exchanges starting in 2014. The 10 categories are ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services including oral and vision care. The proposed regulations generally follow prior guidance requiring states to define essential health benefits by designating a benchmark plan that satisfies all EHB requirements. If a state does not affirmatively specify a benchmark plan, one will be selected by default based on a process outlined in the proposed regulations. A state may require that plans offered to individuals and small groups through its exchanges (i.e., qualified health plans) offer benefits that are in addition to essential health benefits; however, the state must bear the cost of these additional benefits by making payments directly to individuals covered under the qualified health plans or making payments to the issuers of qualified health plans. Observations: As noted above, the preamble to the regulations confirms that plans outside of the small group and individual market are not required to offer essential health PwC HRS Insight 2
benefits, allaying employer concerns that their plans might have to cover particular benefit categories. While not required to cover essential health benefits, if large group insured and self-insured plans do cover any such benefits, they may not impose any annual or lifetime dollar maximums on them. Because the proposed rules don t specify how employers are to define essential health benefits for purposes of the limits on annual and lifetime maximums, it seems reasonable to rely on prior HHS guidance allowing employers to adopt any permitted benchmark plan to define essential health benefits. For example, a New York-based employer may decide to define essential health benefits in accordance with Oregon s proposed benchmark plan, or one of the EHB benchmark plans offered to federal employees under the Federal Employees Health Benefits Program. Limits on deductible amounts In welcome guidance, the regulations preamble indicates that the deductible maximums ($2,000 for individual coverage and $4,000 for nonindividual coverage) that will become effective in 2014 for individual policies and small group plans do not apply to large group and self-insured plans. It s still unclear whether these plans must limit out-of pocket maximums to HSAcompatible levels (in 2013, $6,250 for single coverage and $12,500 for family coverage). These issues have been the subject of much speculation by employee benefit consultants and benefit plan sponsors. Actuarial value A plan's actuarial value (AV) determines its metal status as a bronze, silver, gold or platinum level plan on the exchanges. Consistent with prior guidance, the proposed rules include three different ways for health plans in the individual and small group market to determine AV, which is the percentage of total average costs for covered benefits that a plan will cover. One method is based on an actuarial value calculator developed by HHS. A second method will be based on a checklist approach comparing key features of a health plan to plans typically offered in the employer marketplace. If the first two alternative methods cannot be used to determine the plan s value, a third method is available based on a determination made by an actuary. The proposed regulations provide a standard for the treatment of small group market high deductible health plans offered with an HSA or a health plan in the small group market integrated with an HRA, so that the health plan and the HSAs/HRAs are integrated in determining the actuarial value. Under these rules, the current year s HRA contribution must be adjusted to reflect expected spending for health care costs. The proposed regulations also set forth the minimum actuarial value for the bronze, silver, gold and platinum levels of health plans offered in the individual and small group markets and allow a two percentage point variation for satisfying a metal standard. For example, plans covering 68% to 72% of plan costs determined actuarially would satisfy the silver standard. PwC HRS Insight 3
Minimum value Minimum value (MV) is the 60% actuarial standard that must be met by large group plans and self insured plans in order to avoid the $3,000 penalty for each employee who gets subsidized coverage on an exchange. This penalty applies if an employer offers coverage to all full-time employees but the coverage is not affordable or does not satisfy the 60% minimum value standard and, as a result, one or more full-time employees qualifies for subsidies for exchange coverage. In addressing minimum value, the proposed regulations generally follow the approach taken in Treasury Notice 2012-31 published in May. In determining whether the minimum value standard is satisfied, employers may take into account all benefits provided under the plan that are included in any of the EHB benchmarks, and will compare the total allowed cost of benefits to a standard population covered by self-insured group health plans. Under the proposed regulations, employer contributions to an HSA and amounts newly made available under an HRA will be taken into account in determining minimum value. Observation: Although employers need not offer all EHBs, they will have to consider how EHBs are covered under their plans to determine whether the plans meet the minimum value standard. In addition, while employers may have to adjust current year HRA contributions to reflect the fact that employees aren t expected to spend the entire year s contribution on health costs during that year, and won t be able to take into account accumulated HRA or HSA account balances in determining minimum value, most employer-sponsored health plans (including high-deductible health plans paired with those types of accounts) are expected to satisfy the 60% minimum value test in 2014. Pursuant to the proposed regulation and the Notice, large employers may use an MV calculator that will be developed (like the actuarial value calculator mentioned above) to determine the percentage of the total allowed costs of benefits provided under the group health plan. Alternatively, they may use an array of design-based safe harbors to be published by HHS and IRS in the form of checklists based on four core categories of benefits with various costsharing attributes, to determine the plan's value. Finally, if neither the MV calculator nor the checklists is suitable for valuing the plan, an actuary may certify its value. Insurance market reforms ACA extends guaranteed availability (also known as guaranteed issue) protections so that individuals and employers will be able to obtain health insurance coverage when it currently can be denied, continues current guaranteed renewability protections, prohibits the use of factors such as health status, medical history, gender, and industry of employment to set premium rates, and limits differentials in premiums due to age, tobacco use or geography. The law also prohibits issuers from dividing up their insurance PwC HRS Insight 4
pools. These reforms are effective for plan years (group market) and policy years (individual market) starting on or after January 1, 2014. Guaranteed issue and renewal; premium rates Issuers generally will have to accept every individual or employer who applies for coverage, and to renew all coverage, subject to certain exceptions such as failure to pay premiums or fraud. In addition, underwriting for new individual and small group policies is set to change in the future. Issuers offering non-grandfathered health insurance coverage in the individual and small group markets starting in 2014 (and the large group market if such coverage is available through an exchange starting in 2017), will have to limit any premium variations in a particular plan or coverage to age (charging no adult more than three times the amount charged any other adult due to age variations), tobacco use (charging tobacco users no more than 1.5 times the amount for nontobacco users), family size, and geography. Risk pools The proposed regulations would also require health insurance issuers to maintain single risk pools for their nongrandfathered business in the individual market and for the small group market. A state could choose, however, to direct issuers to merge their non-grandfathered individual and small group pools into a combined risk pool. Observation: Changed underwriting and new risk pools could change the health insurance marketplace in a particular state, but it s difficult to predict how this might affect individuals and employers purchasing policies. Rate review The proposed regulations would make three changes to the existing rate review program. States seeking statespecific thresholds for rate review would be required to submit proposals for such thresholds by August 1 of each year, to be reviewed by CMS by September 1 of each year and effective January 1 of the following year. Health insurance issuers would be required to submit, in a standardized format, 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. The proposed rules would add criteria and factors for a state to have an effective rate review program, including that the state receives from all issuers proposing rate increases data and documentation about the rate increases in the standardized form specified by the Secretary; reviews the information for proposed rate increases greater than or equal to the review threshold; and makes information publicly available through its Web site. PwC HRS Insight 5
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