CMS has released advance copies of a Final rule and an Interim Final rule with comment period that will implement key aspects of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148). The rules involve the market protections for individuals who buy health insurance through the health insurance marketplaces (formerly called health insurance exchanges) and also reduce the risk of “adverse selection” for policy issuers by subsidizing the premiums paid for beneficiaries in poor health.
The Final rule provides that the issuer of a qualified health plan (QHP) will calculate the amount of cost reduction that an enrollee will receive based on the information available in the application. The issuer will determine the amount of advance payment of the enrollee’s premium tax credit. Payments will be made from the Treasury Department to the issuer to cover the anticipated cost sharing.
The rule reduces the incentive for QHP issuers to charge higher premiums in case their estimates of enrollees’ costs are too low through a three-phase program of risk adjustment. The risk of costs for each enrollee is scored based on age and current diagnoses. During the first three years, the government will use temporary risk corridors, so that if an enrollee’s expenses exceed the estimates by a certain percentage, it will be entitled to a payment; if enrollees’ premiums paid exceed the expenses by a percentage, the amount due to the issuer is adjusted accordingly. A transitional reinsurance program will address this risk until a permanent risk adjustment takes effect. The payments to issuers are referred to as “premium stabilization payments.”
User Fees, Stabilization Payments and the Medical Loss Ratio
Issuers will be charged user fees calculated as a percentage of premiums. These fees will be counted as regulatory fees in calculating the medical loss ratio (MLR). The Final rule will change the way that premium stabilization payments are treated in calculating the MLR.
The amendments to the 2014 Notice of Benefits and Payment Parameters make changes to the calculation of risk corridors so to align them with the single risk pool. They also describe a new methodology for the calculation of an enrollee’s cost sharing reduction.