Contradictory exchange language in Affordable Care Act causes latest uncertainty over law

Today’s 2-1 ruling by the District Of Columbia Circuit U.S Court of Appeals in Halbig, et al v. Burwell holding that the Internal Revenue Service incorrectly interpreted Patient Protection and Affordable Care Act provisions governing advance tax credits for individual health plans purchased though state health benefit exchanges — regardless of whether a state has opted to operate its own exchange or defaulted to having the federal government do so — stems from two contradictory provisions in the law.

Section 1311(b)(1) of the law requires all states to establish an exchange, stating that “Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an ‘‘Exchange’’) for the State…” (Emphasis added)

When the word “shall” appears in a statute, it’s a mandate or obligatory requirement. It’s not an option or a suggestion.

However, the Court of Appeal also reviewed another section of the Affordable Care Act at Part 3 that gives the states flexibility in implementing the exchange mandate. This is where the trouble lies. Section 1321(b) states:

 (b) STATE ACTION.—Each State that elects, at such time and in such manner as the Secretary may prescribe, to apply the requirements described in subsection (a) shall, not later than January 1, 2014, adopt and have in effect—

(1) the Federal standards established under subsection (a);
or
(2) a State law or regulation that the Secretary determines implements the standards within the State. (Emphasis added)

Among the federal standards established under subsection (a) is the establishment and operation of exchanges.

Note the use of the word “elects.” Elect means to choose or opt to take (or not take) an action. It is not a requirement unlike the clear “shall” of a mandate. That implies that despite the clear mandate of Section 1311(b)(1), a state could theoretically opt not to establish an exchange under Section 1321(b).

The Court of Appeal apparently picked up on this distinction in its ruling:

The crux of this case is whether an Exchange established by the federal government is an exchange established by the State under section 1311 of the [ACA].” We therefore begin with the provisions authorizing states and the federal government to establish Exchanges. Section 1311 provides that states “shall” establish Exchanges. 42 U.S.C. § 18031(b)(1). But, as the parties agree, despite its seemingly mandatory language, section 1311 more cajoles than commands. A state is not literally required to establish an Exchange; the ACA merely encourages it to do so. And if a state elects not to (or is unable to), such that it “will not have any required Exchange operational by January 1, 2014,” section 1321 directs the federal government, through the Secretary of Health and Human Services, to “establish and operate such Exchange within the State.” Id. § 18041(c)(1).

This is likely to be a critical analysis determining the fate of the subsidies in the three dozen states that have elected not to operate their own exchanges as the case moves forward to a potential en banc review by the District Of Columbia Circuit U.S Court of Appeals and ultimately the U.S. Supreme Court.

The matter is almost certain to reach the high court after another circuit of the Court of Appeals panel today unanimously upheld the IRS’s interpretation of the advance tax credit subsidies as applying to all states, regardless of whether they elected to establish their own exchanges. That ruling was in King et al v. Burwell. The conflicting rulings leave a cloud of uncertainty hanging over the federally operated exchanges that is unlikely to be resolved in the less than four months remaining to plan year 2015 enrollment that opens November 15.

Assuming the issue comes before the Supreme Court, if it sides with Halbig, the ruling would throw the individual health insurance market in the majority of states with federally operated exchanges back into market failure since without the advance tax credit subsidies that are propping it up, low and moderate income earners would once again be priced out of the market, especially those in the highest age rating band.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

AHIP’s catastrophic plan proposal needs rethinking

America’s Health Insurance Plans (AHIP) has proposed the creation of a new Patient Protection and Affordable Care Act-compliant catastrophic individual health plan. (Link here) According to AHIP:

The new catastrophic plan would offer an AV (actuarial value) just below the current minimum requirement (covering an average of 60 percent of medical utilization costs) allowing for lower premiums, but would still include coverage of the law’s mandated essential health benefits, have no annual or lifetime benefit limits, and cover all preventive health services with zero cost-sharing for consumers. This would allow individuals and families eligible for premium subsidies to use that financial assistance to purchase the new plan, an option currently unavailable to consumers purchasing the ACA catastrophic plan.

Since bronze plans and catastrophic plans are quite close in actuarial value, have the actuaries found any potential for meaningfully lower premiums for these proposed catastrophic plans? In other words, is the medical services utilization of a population covered at 57 percent AV, for example, significantly lower than one covered at 60 percent such that it can produce meaningfully lower premiums? Especially given that the Affordable Care Act limits annual maximum out of pocket costs for in-network providers?

Not likely. But the apparent goal isn’t so much to reduce premium rates but rather to make catastrophic plans eligible to become qualified health plans (QHPs) sold in the state health benefit exchange marketplace and thereby eligible for advance premium tax credit subsidies. That has raised criticisms from some quarters that proposed catastrophic plans would not be beneficial to lower income individuals and families since the plans’ high cost sharing (deductibles, co-insurance and co-pays) would discourage their getting necessary care. But lower income people and especially those who utilize a lot of non-catastrophic (i.e. hospital inpatient) care aren’t likely to choose catastrophic plans and instead opt for plans with at least 70 percent AV (this level includes additional cost sharing subsidies for lower income earners).

If the goal however is to bring more relatively healthy people into state risk pools who are comfortable covering their own out of pocket costs for non-catastrophic care and using tax deductible health savings accounts to cover them, a more appealing catastrophic plan would be one that provides lower cost sharing for hospitalizations and other unexpected high cost medical events. Even with annual out of pocket cost limits of $6,350 for an individual plan and $12,700 for a family plan, a hospitalization can result in large medical bills, particularly for out of network hospitals used in an emergency situation that can double those limits.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

3 predictions on California’s Proposition 45

In November, California voters will decide whether to subject individual and small group health insurance premium rates to prior regulatory approval. California requires property/casualty insurance rates to be approved by the state’s elected insurance commissioner under a ballot initiative approved in 1988, Proposition 103. If voters approve the initiative statute, titled the Insurance Rate Public Justification and Accountability Act (Proposition 45), California would join the majority of states that require prior regulatory approval of health insurance rates before they can be used. Although the November General Election seems a long way off in the middle of summer, it will arrive quickly enough. Accordingly, here are some predictions on what’s likely to happen with Proposition 45:

1) Proposition 45 will be approved by at least a 55 percent yes vote margin. Like rising auto insurance rates in the 1980s that provided impetus to Proposition 103, rapidly rising health insurance rates since the early 2000s have set the stage for voter approval. This time around, the voters are in a far crankier and distrustful mindset following the 2008 economic downturn than they were in 1988, which is likely to result in a larger margin of yes votes than for Proposition 103 that squeaked by with a tiny margin of approval. Demographics will also play a role. Members of the boomer generation who rebelled against rising auto insurance rates in the 1980s are now in their 50s and 60s and pay the highest rates for health coverage under Affordable Care Act provisions that permit health plan issuers to base premium rates on age. Many boomers are also what I’ve dubbed “401 percenters” who earn above the 400 percent federal poverty level eligibility cutoff for income tax credits to defray premiums for plans purchased through the state’s health benefit exchange, Covered California. They must bear the full brunt of higher premiums on their own.

2)  Proposition 45 will serve as a de facto 6.9 percent cap on premium increases. Increases of 7 percent or greater would entitle the public to petition the California Department of Insurance to hold a hearing proposed increases to determine if they would result in charges that are excessive, inadequate or unfairly discriminatory. There are a host of consumer groups waiting in the wings that would likely petition for a hearing, particularly since they stand to be compensated if the insurance commissioner determines they have made a substantial contribution to the proceeding including but not limited to Health Access California, the Western Center on Law and Poverty, Consumers Union, the Greenlining Institute and Proposition 45’s proponent, Consumer Watchdog. As long as the underlying health care utilization cost trend stays around 7 percent, health plan issuers will be able to pass along higher costs in premium rates and cost sharing. If the trend exceeds that amount, plan issuers will likely argue that they need higher rates in order to remain solvent and to continue to do business in the state.

3) Because of the uncertainly of intervenor challenges of premium rate increases at or exceeding 7 percent, health plan issuers that want to sell Covered California Qualified Health Plans (QHPs) will negotiate premium increases below that amount. They will do so with two negotiating partners, each with the power to make or break the deal: the exchange as well as the insurance commissioner. Since both Covered California and the elected regulator share an interest in holding down premiums and cost sharing, health plan issuers could find themselves double teamed in a tough negotiating dance. As with now, the dance will begin in early summer once plan issuers have a reasonable amount of data on the prior year’s claim experience and the expected cost trend for the upcoming plan year. The negotiations will culminate in late summer. If they are successful, health plan issuers will make formal 60-day advance filing of rates as required by current California law. If they are not, health plan issuers will have to decide whether they can go without the increase or forgo offering a given plan or plans through the exchange marketplace. That could result in some plan issuers opting to instead offer the proposed plans in the off-exchange market but with the downside of sacrificing access to individuals eligible for advance income tax premium tax credits.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

Multi-state plan paradox

Because the BCBSA is offering at least two plans in each of the states, the requirements of the law are met even though the OPM has a contract with only one issuer. The OPM did not publicly state how many applicants applied to the MSPP. The selection of the BCBSA, although not surprising, may not do much to increase plan choice or competition in heavily concentrated markets. In all but a handful of states, the BCBSA-affiliated plans are already the most dominant plans in the individual market.

via Health Policy Briefs.

A paradox of the Patient Protection and Affordable Care Act is explained in this Health Policy Brief by the journal Health Affairs. Multi-state plans were intended to increase competition in individual health insurance, particularly in state markets with only a small number of plan issuers.  However, the market dominance of Blue Cross and Blue Shield plan issuers in most states — plan issuers affiliated with the Blue Cross Blue Shield Association (BCBSA) — allows an affiliated plan issuer to designate two plan offerings as multi-state plans without altering the market share of the blue plan issuers.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

California exchange undertakes review of November ballot measure calling for prior approval of individual and small group health plan premium rates, cost sharing

California’s health benefit exchange marketplace, Covered California, is undertaking an analysis of the potential impact of a November 2014 ballot measure that would institute prior regulatory approval of individual and small group health insurance rates. The initiative statute, titled the Insurance Rate Public Justification and Accountability Act, would subject these rates to an initiative statute ratified by voters in 1988 that placed most types of property/casualty insurance under prior rate approval regulation.

An outline of the analysis raises various questions as to how prior approval will jibe with Covered California’s annual schedule to select and finalize qualified health plans (QHPs) to be sold through the exchange and on what terms and conditions within Covered California’s standardized benefit framework. Under the schedule, health plan regulators review QHPs and their coverage terms and conditions in a two month window in the late summer and early fall for QHPs effective January 1 of the following year. But the scope of that review does not give regulators the final word on what plans can charge for premiums and out of pocket costs.

The ballot measure would afford California’s elected insurance commissioner that oversight authority as well as the authority to hold hearings to obtain public testimony. The Act would overlay federal regulations issued under the Patient Protection and Affordable Care Act at 45 Code of Federal Regulations (CFR) 154 authorizing federal and state regulators to jointly review (or the federal Department of Health and Human Services alone if a state opts out) small group and individual rates and require health plan issuers justify rate increases of 10 percent or more per year.

Both Covered California as an active purchaser exchange and regulators negotiate final QHP rates, which also affect plans sold outside the exchange since plans must offer the same plans both inside and outside the exchange marketplace. If approved by voters, the November ballot measure would increase the negotiating leverage of the insurance commissioner, who could opt to hold up rate approval pending a public hearing. That could potentially complicate Covered California’s annual QHP negotiation and approval process (and by extension its marketing and enrollment functions) and result in some plans being withdrawn before they take effect the following January if their premium rates and cost sharing are deemed excessive by the commissioner and disapproved.

In addition, since the underlying cost trend of annual health insurance rate increases has generally exceeded 7 percent in recent years, most if not all proposed plan rates would trigger a provision of the proposed law that allows the public and consumer groups to request the commissioner to hold a public hearing to determine if rate increases at or above 7 percent would result in rates that are unfair, discriminatory or excessive, introducing the prospect of further delay before the rates could be used. Further complications could come under a provision in the ballot initiative creating a transition period where plan issuers could hit the reset button and issue new plans that the commissioner could opt to exempt from prior rate approval provided they use rates in effect on or before January 1, 2014.

Proponents of the measure — including the current insurance commissioner — are likely to downplay the issues raised in the Covered California operational analysis. They will likely argue that premium rates are a matter between the plans and consumers (and not the exchange) and plans are responsible for ensuring they are using only approved rates and refunding any excess rates. However, if premium rates and cost sharing for the next to lowest cost silver actuarial value plan are involved in a lengthy challenge and hearing process, it could seriously affect the exchange marketplace since advance premium tax credits are keyed to that plan.

While a majority of states require prior approval of rates in the individual health insurance market (California is in a minority that employ a “file and use” scheme) according to this Kaiser Family Foundation chart, a half dozen states including California have state-based health benefit exchange marketplaces that actively select QHPs and negotiate with health plan issuers according to this Kaiser Family foundation compilation. Of those six states, all are prior approval states except California. Covered California’s analysis should undoubtedly examine how those state-based exchanges navigated their states’ prior approval regulatory schemes for plan year 2014.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

Hospitals Begin Subsidizing Exchange Premiums via Third Parties

Hospitals are concerned the carrot of advance premium tax credit subsidies for individual coverage offered in the state health benefit exchange marketplace and the stick of a tax penalty for being medically uninsured may not be enough incentive to ensure every patient coming through their doors is insured. Particularly for households earning between 100 and 150 percent of federal poverty, even though they pay no more than 2 to 4 percent of their incomes for an exchange qualified health plan and are eligible for cost sharing subsidies for plans with 70 percent actuarial value.

Cheryl Clark of Health Leaders Media reports hospitals in Wisconsin and Florida are teaming up with charities to supplement the exchange premium subsidies and have received approval from the federal Health and Human Services Department to do so. Click here for the story.

Apparently the hospitals’ economic calculation is it’s a better deal to get a tax write off to contribute to the charities to help cover premiums for exchange coverage than to run the risk some patients will allow their exchange coverage to lapse. That in turn increases the risk hospitals will have to retain collection agencies to dun patients for charges arising from uninsured care or write them off.

While it’s still early going with the Patient Protection and Affordable Care Act’s individual market reforms, this development shows hospitals — a primary beneficiary of expanding coverage to reduce those lacking health coverage — aren’t completely confident in the law’s ability to achieve this goal. Some observers note that while the Affordable Care Act provides low income people access to health insurance, many have never had coverage and have habitually sought care in hospital emergency rooms where federal law requires their medical condition be assessed and stabilized if necessary regardless of ability to pay for services.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

Jump in Medi-Cal enrollment will consume most of California’s tax windfall » Ventura County Star

Jump in Medi-Cal enrollment will consume most of state’s tax windfall » Ventura County Star.

The Ventura County Star’s Timm Herdt reports the majority of higher than projected tax receipts is being directed by the administration of Gov. Jerry Brown to cover also higher than expected enrollment in the state’s Medicaid program, Medi-Cal.

One year ago, Brown delayed approving legislation that expanded Medicaid eligibility under the Patient Protection and Affordable Care Act, concerned over the fiscal impact of a program the prior administration of Gov. Arnold Schwarzenegger deemed a budget buster during the recession.

With a staggering 3 in 10 Californians reliant on the public health insurance program, Medi-Cal continues to be a budget threat. Only this time, a revenue windfall staved off a shortfall for upcoming fiscal year that begins July 1.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

Shift away from employer coverage would provide triple fiscal benefit to federal government

As a candidate in the 2008 presidential election, President Obama initially favored shifting to a single payer (government paid) system of universal health coverage but later altered his stance. Instead, Obama favored what he described as a less disruptive brand of health care reform that retains the current system of private insurance sponsored by employers that covers the vast majority of working age Americans.

Ironically, Obama’s Patient Protection and Affordable Care Act could have the opposite effect, according to one of the chief drafters of the law. Ezekiel Emanuel, former Obama administration official, foresees a shift away from employer-based coverage over the next decade, with few private employers offering health coverage by 2025. Amplifying Emanuel’s prediction was a Kaiser Health News report last week on a new paper by the Urban Institute strongly suggesting that one of the linchpins of the ACA to ensure the continuance of employer-sponsored coverage – the mandate that employers of 50 or more offer coverage to most of their workers – ultimately won’t have much of an impact in terms of expanding coverage and keeping people medically insured.

The reason: Adam Smith’s law of rational economic self-interest could trump any penalties these employers will face starting in 2015 if they don’t offer coverage. Some large employers could conclude it will cost them less to pay the penalty than provide coverage through a group health plan or self-insuring employee medical costs. Not only that, the Affordable Care Act ironically cuts against employer sponsored coverage by imposing a large excise tax beginning in 2018 on employers who sponsor overly generous plans.

Even without this tax on so-called “Cadillac” plans, the federal government stands to reap a triple fiscal benefit from increased revenues from any major shift away from employer-sponsored coverage. First, employers not offering coverage would of course be unable to take an income tax deduction for offering coverage. Second, any additional amount of money they provide employees as higher compensation or stipends to purchase individual coverage would generate higher individual tax revenues since they would be taxable to employees. Third, the large employer mandate penalties plus increased individual employee tax liability could also benefit the federal government by offsetting advance tax credit subsidies for plans sold in the public exchange marketplace to workers with household incomes below 400 percent of federal poverty.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

High out of pocket costs for major medical care warrant policy scrutiny

The cruel paradox of those with health insurance seeking bankruptcy protection from high medical bills could grow despite the policy intent of the Patient Protection and Affordable Care Act to expand the safety net of individual health insurance.

It’s most likely to occur in the case of hospitalizations where multiple health care practitioners attend to an insured patient and only some of them are in the patient’s health plan provider network. The patient is then placed in the situation where his or her insurance plan isn’t subject to the calendar year out of pocket maximums ($6,350 for individuals; $12,700 for family coverage) that apply only for care rendered by providers in the plan’s provider network, potentially exposing patients to significantly higher bills. Emily Bazar of the California HealthCare Foundation (CHCF) details one such instance involving a plan purchased through California’s health benefit exchange marketplace, Covered California, in her Sacramento Bee column.

This circumstance warrants study by the CHCF and other policy research organizations since it could occur nationwide. If such incidents increase, it could lead to calls for policy changes that make available all inclusive major medical coverage for hospital stays and other types of high cost care. Limited provider networks may be able to work fine for routine care like physician visits and exams, but can potentially leave major gaps for catastrophic care.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

California bill would bar higher out-of-network cost sharing when timely in-network care unavailable

Pending California legislation would bar health plans and insurers from imposing higher out of pocket costs for out of network services in instances where a plan or insurer is unable to ensure timely access to a medically necessary, covered service by a contracted provider.

Under existing law, California managed health care service plans are required to provide members timely access to providers. AB 2533 would require the California Department of Insurance to develop similar rules for insurance plans it regulates including waiting time for doctor appointments.

The proposed legislation comes amid reports of individuals in plans purchased through the state’s health benefit exchange marketplace, Covered California, being turned away by providers they believed were included in their plans. (Additional background here)

The measure passed its first policy committee this week in the state Assembly. Click here for the text of AB 2533 as amended April 22, 2014.

 


The ACA health insurance market reforms are at hand. Need help understanding and preparing for the new regulatory landscape and the health benefit exchange marketplace -- and explaining them to your key stakeholders?  Pilot Healthcare Strategies can help with expert analysis and clear communications. For a free initial consultation, email me at fpilot@pilothealthstrategies.com or call 530-295-1473. 

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