Health insurers could have the option to take an extra year to overhaul their individual and small group offerings to meet Patient Protection and Affordable Care Act requirements effective in 2014 and to decide if they want to participate in the state exchange marketplace. Such are the startling implications of a Los Angeles Times story early this month that reported that some health plan issuers are considering waiting until 2014 to revamp their plans to comply with the law. The Times story cites “a little-known loophole” in the Affordable Care Act “that enables health insurers to extend existing policies for nearly all of 2014.” The story quotes Timothy Stoltzfus Jost, a law professor and health policy expert at Washington and Lee University as saying that insurers have discovered the loophole, raising the question of “how many will try to game the system.”
The likely loophole? The Affordable Care Act qualifies certain health plan requirements as applying in “plan years beginning on after January 1, 2014.” So when does a plan year – the key operative term – begin? 45 Code of Federal Regulations 144.103 defines “plan year” relative to employer-sponsored coverage (such as would be offered through the exchange marketplace Small Business Health Options Program) as follows:
Plan year means the year that is designated as the plan year in the plan document (emphasis added) of a group health plan, except that if the plan document does not designate a plan year or if there is no plan document, the plan year is—
(1) The deductible or limit year used under the plan;
(2) If the plan does not impose deductibles or limits on a yearly basis, then the plan year is the policy year;
(3) If the plan does not impose deductibles or limits on a yearly basis, and either the plan is not insured or the insurance policy is not renewed on an annual basis, then the plan year is the employer’s taxable year; or
(4) In any other case, the plan year is the calendar year.
For individual coverage:
Policy Year means in the individual health insurance market the 12-month period that is designated as the policy year in the policy documents (emphasis added) of the individual health insurance coverage. If there is no designation of a policy year in the policy document (or no such policy document is available), then the policy year is the deductible or limit year used under the coverage. If deductibles or other limits are not imposed on a yearly basis, the policy year is the calendar year.
Here’s my read on how the loophole might come into play. The italicized text basically allows plan issuers to define the plan or policy year as they choose. Theoretically, they could issue coverage on December 31, 2013 and designate it for plan or policy year 2013, thereby avoiding Affordable Care Act requirements for plan years beginning on or after January 1, 2014.
If health plan issuers opt exploit the loophole, there could well be litigation over how the relevant provisions of law are to be interpreted and applied, creating uncertainty and delay in the application of the Affordable Care Act’s health insurance market rules as well as the planned rollout of the exchange marketplace in 2014. The uncertainty also has the potential to complicate contract negotiations currently underway between “active purchaser” state exchanges and health plans seeking qualified health plan status with those exchanges. Plan issuers could opt to exercise the so-called loophole and issue “plan year 2013” coverage as late as December 31, 2013 if they are unable to reach negotiated contracts with these exchanges.
A study prepared for the health plan industry group America’s Health Insurance Plans by the actuarial consulting firm Milliman would appear to support the notion of having plans designated plan year 2013 still in force in 2014 and exempt from Affordable Care Act provisions such as offering essential health benefits (EHB) and minimum actuarial value of 60 percent of projected claims costs. “The final market and rating regulation released by the (federal) HHS at the end of February made clear that individual policies can stay in place until their scheduled renewals in 2014 instead of requiring all individual plans to convert to an ACA-compliant EHB plan on January 1, 2014,” Milliman opined in its projection of factors affecting premium rates in 2014 dated April 25, 2013.
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