Yesterday CMS sent to the Trump White House a proposed rule entitled: “Patient Protection and Affordable Care Act Market Stabilization.” As we have noted in various reports on the status of repeal and replace of the ACA, regulatory action will one of three major strategies to address concerns about the law. The other two are repeal through reconciliation and replace through regular order.
CMS has not released details on the proposed rule but based on yesterday’s hearing at the Senate Health, Education, Labor and Pensions Committee, we able to tell what is on the industry’s short list:
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Relief from Essential Health Benefit mandate. The ACA requires that all individual and small group plans include “essential health benefits.” The law lists 10 categories of benefits:
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Ambulatory patient services
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Emergency services
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Hospitalization
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Maternity and newborn care
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Mental health and substance abuse disorder services
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Laboratory services
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Preventive and wellness services and chronic disease management
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Pediatric services, including oral and vision care
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Regulations released after passage of the ACA allowed states to choose a “benchmark” plan for determining the actual scope and detail of the essential benefits package. If a state did not choose a benchmark plan, CMS would select the largest small group plan by enrollment. If the benchmark plan did not include all the benefit categories listed in the law, the state could supplement with mandated coverage requirements.
Initially, the benchmark plans were those sold in 2012 – meaning before passage of the ACA and therefore injecting a small amount of ambiguity and flexibility in plan design. For the 2017 plan year, the benchmark plans were those sold in 2014 – after passage of the ACA.
One possible regulatory fix is for states to redefine Essential Health Benefits. According to Julie McPeak, president-elect for the National Association of Insurance Commissioner, states should be allowed to define benefits for certain standard plans and then permit greater flexibility through limited benefit plans. The law only requires that the EHBs be “equal in scope to a typical employer plan as determined by the Secretary” thus creating some regulatory flexibility on the part of the Trump administration.
Benefits we think stay either through state action or the pending rule? Mental health and substance abuse treatment, hospitalization and physician services.
2. Limiting Special Enrollment Periods. The relaxed view the Obama administration took toward special enrollment periods has essentially created a continuous open enrollment period, according to the insurance industry. Enrollees are able to enroll for a few months, obtain covered health services and then depart, making it very difficult to assess insurance risk. Current SEPs are:
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Loss of qualifying health coverage
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Change in household size
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Change in primary place of living
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Change in eligibility for Marketplace coverage or help paying for coverage
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Enrollment or plan error
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Other qualifying changes like denied coverage for Medicaid and application is not transferred to marketplace, a victim of domestic abuse or spousal abandonment
Insurers believe the HHS’s approach to SEPs has created more individual insurance customers but for much shorter periods of time. Recent hearings that included testimony from the Government Accountability Office and the OIG at HHS suggest that there is little oversight including demand for supporting evidence from those applying during a SEP (or even during the Open Enrollment Period, for that matter). Compliance with the SEP criteria has been largely dependent on the honor system.
Managing the enrollment periods is fully within the purview of the Secretary so the Trump administration has the authority to constrain use of SEPs and improve the stability of the market.
The most likely SEP to remain? Life changes like marriage, divorce, birth and a change in employment. We expect the rest to be eliminated.
3. Shortening grace Periods. Currently enrollees have 90 days to pay their premiums during which time plan members can access covered health care services. The industry would like the grace period to revert to the industry standard of 30 days. Unfortunately the three month grace period is included in the ACA’s statutory language, so it is not clear how much relief the Trump administration can offer through the regulatory process. Even if they were to unilaterally declare a 30-day grace period, it is sure to be met with legal action from patient advocates.
4. Relaxing age bands. Similar to the 90 day grace period, the 3:1 age ratio is memorialized in law, making it difficult to dislodge through regulation. However, the Secretary does have some flexibility in determining the age bands.
In the spring, under pressure from the insurance industry, the Obama administration changed the age bands for children to reflect the fact that most health insurance claims for children were clustered around birth and very early childhood.
The Trump administration could make additional changes that might offer some relief to the industry and improve the market but it probably cannot be the 5:1 or 6:1 ratio that insurers seek.
The elephant in the room as this proposed rule goes to the White House is what Trump will do with the individual mandate. The CBO and some actuaries have asserted that repeal of the individual mandate or suspension of its enforcement will result in 20-25 percent increases in premiums. Of course, their analysis probably assumes the individual mandate is being enforced and that it is effective in getting people to enroll.
We are not so sure.
The cost of insurance on the exchanges has risen to the point that, unless an enrollee qualifies for substantial premium and cost sharing assistance, a relatively healthy individual is financially better off paying the penalty.
Enforcement of the individual mandate has also been limited. The ACA took from the IRS the two principal tools it uses to enforce the tax code; criminal charges and liens and fines. Essentially, the IRS is limited to deducting from a tax refund – including Earned Income Tax Credit – the amount of the penalty.
The individual mandate also has 15 exceptions including the broadly worded “general hardship,” “coverage is considered unaffordable,” “you live in a state that did not expand Medicaid.”
For good reason, enrollment in the exchanges screws toward the 150 to 200 percent of the Federal Poverty Level. Given this income level and the exception from the individual mandate for people in living in states that did not expand Medicaid, the more compelling reason for enrolling in an ACA plan is the need for health care services and coverage to pay for them.
The fact remains that the individual mandate is very unpopular. President Trump’s counselor, Kellyanne Conway signaled it was in play a couple of weeks ago. While we expect the industry to raise objections about reduced (if that is even possible) or suspended enforcement, there is probably a deal to be made between those doable items on the industry’s short list and President Trump’s political objectives.
As always, call with questions. Congress is back to work and making up for a decade of lost time which keeps the midnight oil burning.
Emily Evans
Managing Director
Hedgeye Risk Management
@HedgeyeEEvans
