HHS Finalizes Rules On Premium Stabilization Programs, Exchange User Fees, SHOP Program, And MLR Under Health Reform

The Department of Health and Human Services (HHS) has issued a final rule that provides further detail and parameters related to: the risk adjustment, reinsurance, and risk corridors programs (know as the premium stabilization programs); cost-sharing reductions; user fees for a federally-facilitated health insurance exchange; advance payments of the premium tax credit; a federally-facilitated Small Business Health Option Program (SHOP); and the medical loss ratio (MLR) program. All of these programs were created under the Patient Protection and Affordable Care Act (ACA). The final rule is scheduled to be published in the March 11 Federal Register.

The HHS also has released an interim final rule that builds upon the standards set forth in the final rule described above. The interim final rule will adjust risk corridors calculations that would align the calculations with the single risk pool provision, and set standards permitting issuers of qualified health plans the option of using an alternate methodology for calculating the value of cost-sharing reductions provided for the purpose of reconciliation of advance payments of cost-sharing reductions. The interim final rule also is scheduled to be published in the March 11 Federal Register. Comments on the interim final rule are due 60 days after publication in the Federal Register, and may be submitted electronically through http://www.regulations.gov; or mailed to Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9964-IFC, P.O. Box 8016, Baltimore, MD 21244-8016.

Premium stabilization programs. Beginning on Jan. 1, 2014, individuals and small businesses will be able to purchase health insurance through a health insurance exchange. The ACA created the premium stabilization programs—risk adjustment, reinsurance, and risk corridors—to protect against adverse selection among the individuals who newly purchase insurance in an exchange.

The transitional reinsurance program and the temporary risk corridors program, which begin in 2014, are designed to provide issuers with greater payment stability as insurance market reforms are implemented and Exchanges facilitate increased enrollment. The risk corridors program will protect against uncertainty in rate setting for qualified health plans by limiting the extent of issuers’ financial losses and gains. On an ongoing basis, the risk adjustment program is intended to provide increased payments to health insurance issuers that attract higher-risk populations, such as those with chronic conditions, and reduce the incentives for issuers to avoid higher-risk enrollees. Under this program, funds are transferred from issuers with lower-risk enrollees to issuers with higher-risk enrollees.

The HHS proposed rules on the premium stabilization programs in December 2012. The final rule fills in the framework established in the proposed rule with provisions and parameters for the three premium stabilization programs.

Cost-sharing reduction. The final rule establishes provisions governing advance payments of the premium tax credit and for cost-sharing reductions. The ACA provides for advance payments of the premium tax credit for low- and moderate-income enrollees in a qualified health plan through an exchange. In the final rule, the HHS has finalized a number of standards governing the administration of this program, including: provisions governing the reduction of premiums by the amount of any advance payments of the premium tax credit; and provisions governing the allocation of premiums to essential health benefits.

In addition, the ACA provides for reductions in cost sharing on essential health benefits for low- and moderate-income enrollees in silver level health plans offered in the individual market on exchanges. In this final rule, the HHS establishes a number of standards governing the cost-sharing reduction program, including: provisions governing the design of variations of qualified health plans (QHPs) with cost-sharing structures for enrollees of various income levels; the maximum annual limitations on cost sharing applicable to the plan variations; and provisions governing the assignment and reassignment of enrollees to plan variations based on eligibility for cost-sharing reductions;

Exchange user fees. The final rule establishes a user fee, calculated as a percentage of the premium for a QHP, applicable to issuers participating in a federally-facilitated exchange. The final rule also outlines HHS’s approach to calculating the fee.

SHOP Exchange. The ACA directs each state that chooses to operate an exchange to also establish a SHOP exchange that provides health insurance options for small businesses. The final rule establishes a number of standards and processes for implementing SHOP Exchanges, including:

• standards governing the definitions and counting methods used to determine whether an employer is a small or large employer and whether an employee is a full-time employee;

• A method for employers to make a QHP available to employees in a federally-facilitated SHOP (FF-SHOP);

• the default minimum participation rate in the FF-SHOP; and

• allowing exchanges and SHOPs to selectively list only brokers registered with the Exchange or SHOP.

The HHS also released a proposed rule amending some of the SHOP standards, scheduled to be published in the March 11 Federal Register.

MLR program. The ACA requires health insurance issuers to submit an annual MLR report to the HHS and provide rebates to consumers if they do not achieve specified MLRs. The final rule establishes standards governing the MLR program, including: provisions accounting for risk adjustment, reinsurance, and risk corridors payments and charges in the MLR calculation; a revised timeline for MLR reporting and rebates; and provisions modifying the treatment of community benefit expenditures. The HHS also has extended the annual MLR reporting deadline from June 1 to July 31, and the rebate disbursement deadline from August 1 to September 30, to account for the premium stabilization programs.

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