Posted February 27, 2014 by Megan DiMartino
By Allison Bell, lifehealthpro.com
Concerns about pharmaceutical manufacturers, community pharmacies and patients who need specific brand-name drugs dominated discussion yesterday during a hearing on proposed Medicare Part D prescription drug program regulations.
But witnesses did touch on provisions relating to insurance plan design, especially in the written versions of their testimony.
The House Energy & Commerce health subcommittee brought Jonathan Blum, the Medicare program director, in to defend the proposed Part D regulations, which were released in January.
Congress created the Part D program with a provision in the Medicare Modernization Act of 2003. The act created a private Medicare drug plan market that is similar in some ways to the new Patient Protection and Affordable Care Act (PPACA) public major medical insurance exchange system.
The Centers for Medicare & Medicaid Services (CMS), the U.S. Department of Health and Human Services (HHS), wants the Medicare drug plans sold in 2015 to publish any information about drug manufacturer price concessions, or rebates, in a consistent fashion, and to pass most or all of the savings on to plan enrollees or to the Medicare program itself.
CMS has also proposed that the Part D program should reduce menu clutter by limiting each carrier to offering no more than two Medicare drug plans in the same market.
Some carriers now offer three plans in some markets, and, historically, insurers made the third plan different from the second by offering extra coverage for enrollees who “enter the doughnut hole” — the gap between the point at which routine drug coverage ends and catastrophic coverage begins.
PPACA is eliminating plans’ ability to promote doughnut hole benefits by phasing out the doughnut hole, and enrollment in the “third plans” now accounts for just 2 percent of enrollment in stand-alone plans, officials say.
At the hearing, lawmakers cited estimates from analysts at Avalere Health and other organizations suggesting that the new “meaningful difference” rules might raise premiums and require most drug plan enrollees either to change plans or to stay in plans being merged into other plans.
Blum shrugged off predictions that the proposed changes would do much to increase premiums.
In the past, he said, analysts made similar predictions when CMS cut the number of drug plans a carrier could offer in a market to three, from five.
“The Part D premium has stayed constant,” Blum said.
Some lawmakers suggested that requiring plans and pharmaceutical companies to report negotiated drug prices in a consistent way and include rebates in the prices paid by enrollees and government agencies would constitute a kind of interference in the negotiations that is banned by the Medicare Part D program statutes.
Blum said CMS believes the enrollees, and the programs that help pay for Medicare coverage for some low-income enrollees, should get the rebate savings.
Posted February 20, 2014 by PHaynes
Today the U.S. Departments of Labor, Treasury, and Health and Human Services have announced the publication of final regulations implementing a 90-day limit on waiting periods for health coverage. Under PPACA (the Patient Protection and Affordable Care Act), employers and plan sponsors are prohibited from sponsoring/offering health plans that have waiting periods in excess of 90 days (for the first plan year on/after January 1, 2014).
Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi, states that “[t]his is a common sense measure that helps workers access employer-sponsored health insurance while providing employers flexibility.”
The final regulations require that no group health plan or group health insurance issuer impose a waiting period that exceeds 90 days after an employee is otherwise eligible for coverage. The rules do not require coverage be offered to any particular individual or class of individuals.
To ensure that eligibility conditions based solely on the passage of time are not used to evade the waiting period limit, the rules state that such conditions cannot exceed 90 days. Other conditions for eligibility are generally permissible, such as meeting certain sales goals, earning a certain level of commission, or successfully completing an orientation period.
Additionally, requiring employees to complete a certain number of hours before becoming eligible for coverage is generally allowed as long as the requirement is capped at 1200 hours. The rules also address situations in which it cannot be determined that a new employee will be working full-time.
The departments are issuing a companion proposed rule that would limit the maximum duration of an otherwise permissible orientation period to one month. This proposal will be open for public comment.
Both the final and proposed rules will be published in the Feb. 24, 2014 edition of the Federal Register and can also be viewed at the links below.
- Final rule: http://www.dol.gov/opa/media/press/ebsa/20140220-redfeg1.pdf.
- Notice of proposed rulemaking: http://www.dol.gov/opa/media/press/ebsa/20140220-redfeg2.pdf.
Final IRS Regulations on Employer Shared Responsibility Provide Important Transition Relief and Make Other Important Changes to the Proposed Rules
Posted February 17, 2014 by Megan DiMartino
In a long-anticipated development, the IRS has finalized regulations for employer shared responsibility under Code § 4980H (also known as “play or pay”). Issued along with updated Q&As, the regulations provide important transition rules, including several forms of relief for employers first subject to penalties in 2015 and a delay in applicability (to 2016) for certain smaller employers. The regulations also make important changes, additions, and clarifications to the prior proposed regulations. As background, under the shared responsibility rules, certain larger employers that do not offer affordable, minimum value coverage to full-time employees and dependents will be subject to penalties if any full-time employee obtains Exchange coverage with premium tax credits. (This is why it is so important to identify and track full-time employees.) The penalties were set to take effect in 2014 but were delayed until 2015, along with the Code §§ 6055 and 6056 information reporting requirements. Here are highlights of the final regulations:
- Employers Subject to Code § 4980H. Shared responsibility applies to “applicable large employers” (ALEs), generally those with 50 or more full-time employees, including full-time equivalent employees (FTEs), during the prior year. The determination of ALE status is retained as proposed, but the final regulations provide some additional rules and clarifications. For example, for employees not offered coverage at any point in the prior calendar year, penalty relief is provided for an employer’s first year as an ALE, provided the employer offers coverage on or before April 1 of that year. Also, as explained below, ALEs with fewer than 100 full-time employees will not be subject to penalties until 2016.
- Full-Time Employee Status. For Code § 4980H purposes, full-time employee status is based on an employee working an average of at least 30 hours per week (or a monthly equivalent of 130 hours). The final regulations build on the proposed regulations with respect to the identification of full-time employees, as follows:
- Two methods are provided for determining full-time employee status. The first—called the monthly measurement method by the final regulations—requires full-time employees to be identified based on actual hours of service for each month. The optional “look-back measurement method” is retained from the proposed regulations and allows full-time status during a future period (referred to as stability period) to be based on the hours worked in a prior period (referred to as the measurement period). (The look-back measurement method is available only for purposes of computing liability under Code § 4980H, and not for purposes of determining ALE status.)
- For certain employment positions where the hours worked vary significantly or are otherwise uncertain, employers may treat employees as variable-hour employees and not offer coverage during the first year of employment while hours are measured during an initial measurement period. The final regulations retain this treatment of variable-hour employees but explicitly set forth certain factors to take into account in determining whether an employer can reasonably expect an employee’s hours to be variable.
- The final regulations continue to provide for seasonal employees to be treated under the same rules applicable to variable-hour employees but define seasonal employee to include one in a position for which the customary annual employment is six months or less.
- The final regulations provide additional rules for how the look-back measurement method applies when an employee experiences a change in employment status (e.g., from full-time to part-time). Also, the final regulations clarify how an employer determines full-time status of new employees who are neither variable-hour nor seasonal employees and who have not yet completed a standard measurement period. A definition of part-time employee has also been added under the regulations.
- Affordability Safe Harbors. The final regulations retain the three affordability safe harbors (which consider whether required employee contributions are less than 9.5% of any of the following: the employee’s Form W-2 wages, the employee’s rate of pay, or the federal poverty line for individuals). These safe harbors are optional; an employer may choose to use one or more safe harbors for all of its employees or for any reasonable category of employees, if it does so on a uniform and consistent basis for all employees in a category. The regulations clarify that reasonable categories generally include specified job categories, nature of compensation (e.g., salaried or hourly), geographic location, and similar bona fide business criteria. In a notable change from the proposed regulations, the final regulations permit an employer to apply the rate of pay safe harbor to an hourly employee even if the employee’s rate of pay is reduced during the year. Also, in applying the federal poverty line safe harbor, employers are permitted to use the poverty guidelines in effect six months prior to the beginning of the plan year, in order to provide adequate time to establish premium amounts in advance of a plan’s open enrollment period.
- Offer of Coverage. To comply with Code § 4980H, a full-time employee must be offered an effective opportunity to accept or decline coverage at least once with respect to the plan year. Under the final regulations, an effective opportunity to decline is not required if minimum value coverage is offered either at no cost to the employee or at a cost that meets the federal poverty line safe harbor. The regulations also clarify that evergreen elections (coverage elections from a prior year that continue for succeeding plan years, unless employees affirmatively elect to opt out of the plan) are permissible for Code § 4980H purposes.
- Definition of Dependent. In order to avoid potential Code § 4980H penalties, an offer of coverage must be made to full-time employees and dependents. The proposed definition of dependent—to mean children under Code § 152(f)(1) who have not attained age 26—was generally retained but, although that Code provision includes foster children and stepchildren, the final regulations specifically exclude both categories from the definition of dependent (but only forCode § 4980H purposes). Also, the final regulations clarify that a child is a dependent for the entire month during which the child attains age 26.
- Assessment and Payment of Penalties. According to the preamble and Q&As, the IRS will contact employers to inform them of their potential liability and provide an opportunity to respond before any formal tax assessment or notice and demand for payment is made. Employer contact for a given calendar year is not expected to occur until after both (1) the due date for employee tax returns (which may claim premium tax credits for that year), and (2) the due date for employer information returns identifying full-time employees and describing the coverage that was offered (if any). The Treasury Fact Sheet indicates that final reporting regulations will be issued “shortly” that “aim to substantially simplify and streamline the employer reporting requirements.”
- Transition Rules Extended and Expanded. Transition rules under the proposed regulations are generally retained and extended, with important additional transition relief granted. For example, the prior relief for non-calendar-year plans has been extended for 2015 plan years and the requirements have been eased to allow more employers to qualify. Notably, the election change transition relief for non-calendar-year cafeteria plans is not extended to plan years beginning in 2014. (The preamble explains that the initial implementation of the individual mandate and Exchanges were one-time events only affecting employee decisions during 2013 non-calendar plan years.) The following additional transition relief is included in the final regulations:
- ALEs with fewer than 100 full-time employees (including FTEs) during 2014 will not be subject to Code § 4980H penalties in 2015 (and for those who sponsor plans with non-calendar-year plan years, also including any portion of the 2015 plan year that falls in 2016). Certain conditions apply to qualify for this relief, including the employer not reducing its workforce size or employee hours without a bona fide business reason and maintaining the previously offered coverage.
- An ALE will not be subject to the potentially larger subsection (a) penalties under Code § 4980H, if it offers specified coverage to at least 70% of full-time employees and dependents during the 2015 plan year (instead of the otherwise required 95% level). Importantly, employers that qualify for this relief may still be subject to potential subsection (b) penalties under Code § 4980H.
- Recognizing that many employers offer coverage for a new year effective as of the first day of the first pay period beginning on or after the first day of the year, an employer that offers coverage no later than the first day of the first payroll period that begins in January 2015 will be treated as having offered coverage on every day of January 2015.
Posted February 11, 2014 by PHaynes
Posted February 10, 2014 by PHaynes
The “Employer Mandate”, originally due to take effect for January 1, 2014, but was delayed under prior guidance. The requirement that large employers provide their workers with health benefits in 2015 will be phased in in 2015 and 2016.
This latest delay (“phase-in”) is being advertised by the administration as an “aid to business” that will help/permit businesses with some much-needed time to adapt to the new requirements. (Considering PPACA was signed into law in March of 2010, one has to wonder how much more time is necessary and if it truly is “business” that needs the time or the administration that needs more time to develop mechanisms to receive and capture data necessary to determine if employers are complying).
Employer Mandate “Phase In” by Employer Size
Employers with 50 to 99 full-time employees will not face penalties for not offering coverage to full-time employees and their dependents up to age 26 until the first plan year beginning on or after January 1, 2016. These employers will need to certify that they are not reducing the size of their workforce to stay below 100 employees.
Employers with 100 or more full-time employees and their dependents up to age 26 will not face penalties if they offer coverage to 70% of their full-time employees in 2015. They will need to offer coverage to 95% of full-time employees beginning in 2016.
The full-time employee definition remains at 30 hours or more per week. The definition of dependent has been revised to exclude stepchildren and foster children. It continues to exclude spouses.
Assistant Treasury Secretary for Tax Policy Mark J. Mazur offered this: “While about 96% of employers are not subject to the employer responsibility provision, for those employers that are, we will continue to make the compliance process simpler and easier to navigate. Today’s final regulations phase in the standards to ensure that larger employers either offer quality, affordable coverage or make an employer responsibility payment starting in 2015 to help offset the cost to taxpayers of coverage or subsidies to their employees.” See the Treasury Department’s fact sheet here (html) and in PDF form here.
During 2015, the new regulations allow employers to offer coverage to only 70% of their workers, and they will have to provide coverage to 95% of full-time workers in 2016. [You may recall that the requirement that companies with more than 50 full-time workers provide insurance or pay a fine is designed to prevent employers from dropping health benefits once the government offers subsidies to help individuals buy coverage (the so-called exchanges, now called Marketplaces)].
The fines, for non-complying employers, will remain at $2,000 per employee, with the first 30 employees not counting towards the fine.
Posted February 4, 2014 by Megan DiMartino
Most of the commentators on the exchange roll out caution against the “death spiral,” in which failing to attract the young and healthy raises overall premiums. This further deters low-cost people from enrolling, resulting in even higher premiums.
This is absolutely true in a normal market. But a new report from the actuarial consulting firm Milliman shows how the Affordable Care Act has turned normal market principles on their head.
Here is the problem. Because health insurers are no longer allowed to ask any questions about an applicant’s health, they have absolutely no way of knowing who they are enrolling in terms of past or present illnesses or health conditions. They might attract a group of pretty healthy people or a group of pretty sick people, but they won’t know until people start filing claims. So it is impossible to accurately set premiums, at least for the first few years.
Another problem is that some insurers may attract a whole lot of very sick people while others attract mostly healthy people. In a particular state BlueCross may be known as the best place to go if you have cancer or heart disease, while Aetna may be famous for its discounts on gym memberships. The healthy people will be drawn to Aetna while the really sick people prefer the Blues. If companies could set premiums to accurately reflect their enrolled population, BlueCross premiums would be outrageously expensive while the Aetna premiums would be cheap.
ObamaCare tries to fix these problems in several ways.It incorporates a “reinsurance” program to reimburse companies for some of the costs of very high claims. John Graham has written about this here. This is a temporary program that phases out once participating insurance companies have a better handle on whom they are enrolling.
It also includes what it calls a “risk corridor” program, so that if some companies get hit with a surge of bad risks, they are assured of being compensated for their extraordinary expenses. This, too, is a temporary program. It is supposed to be paid for by an assessment on all insurance companies, but it is currently looking like the entire ObamaCare market is made up of bad risks, so the administration is now expecting that all of the participating companies will need to be compensated, rather than just a few. And there is not enough money from the assessments to pay for that, so they are looking for additional taxpayer money to ensure company profitability. This idea is extremely controversial as an “insurance company bailout.”
It also underscores the essential problem of government control over prices — once the government has control over what companies can charge, it also must ensure that companies are profitable. We saw this with state hospital rate-setting systems. So suddenly, even poorly run, inefficient companies are assured of profitability, and the decision to close one becomes a political, not an economic, decision.
The final fix is a “risk adjustment mechanism.” Since ObamaCare uses “community rating” each enrollee pays the same premium regardless of his or her claims cost or health status. But some enrollees will cost a whole lot more than others and the companies that cover them need to get more money for doing so. This program is the focus of the Milliman study, and we will look at that below.
Now, notice that these programs are all aimed at protecting individual insurance companies from the consequences of ObamaCare enrollment and rating restrictions. None of them ensure the solvency of the market as a whole. Indeed, they do just the opposite — they encourage the sickest people to enroll by subsidizing them while discouraging the healthiest people to enroll by overcharging them. So, while individual companies may be exempt from the “death spiral,” the program as a whole is not.
Milliman calls these three risk adjustment provisions the “3Rs.” The first two of these are scheduled to phase out, but the last is permanent and has the biggest effect on company profitability. Milliman says –
The results of our analysis are, in most cases, the precise opposite of what one would expect without these programs. In several important ways, the nuances and interactions inherent in the 3Rs can generate impacts that actually turn traditional risk management practices upside down.
For example, carriers would expect to have an 8.8% loss on males age 60 and above, but the risk adjustments turn that into a gain of 7.3%. For males age 25-29, an expected gain of 34.3% becomes a loss of 3.2% after the risk adjustments. So a company that wants to make money has every incentive to avoid the young males and attract the oldest ones. The report provides a comparison of males and females for each age cohort.
Health and Human Services has developed a risk adjustment model that assigns one or more of 127 “Hierarchical Condition Categories” (HCCs) to each enrollee and gives each enrollee a “risk score,” which results in higher or lower adjustment payments to the health plan. Milliman says that people with “seven conditions would actually produce profit margins in excess of 1,000% of premiums.” But Milliman cautions –
Bear in mind that in practice there may be very few members with some conditions, and these members may be difficult or impossible to identify in advance.
They add –
At the other end of the spectrum, insurers that cover only members without a condition recognized by the HHS HCC model will make payments into the risk adjustment pool large enough to produce an average pretax loss of approximately 5.0% of premium.
They note that the level of adjustment is greater than the “average relative costs of those conditions,” and that the various risk adjustments “do not interact, so issuers can be reimbursed twice for many high-cost claimants.” As a result, “those paying into the pool tend to pay too much and those receiving funds tend to receive too much.”
So what does all this mean?
There is no such thing as a “price” in the Affordable Care Act. First, people will pay in premiums whatever the government thinks they should pay. Favored groups will pay very little while disfavored groups will pay a whole lot more — for the exact same coverage. But even those payments have nothing to do with what the insurance companies will receive. The actual payment for coverage depends entirely on how much the Department of Health and Human Services “adjusts” the payment, based on a complex and ever-changing formula of risk adjustments.
The business model for health insurance companies has been completely turned on its head. Not only has all incentive been removed to enroll the young and the healthy, but so has any incentive to reduce costs or increase efficiency.
These incentives are precisely the opposite of what needs to happen to make the program work. For ObamaCare to be sustainable it must bring in the young and the healthy, and it must encourage efficiency and cost containment.
Unfortunately, the health insurance industry is now locked into this system. Their very survival now depends on having the government provide “risk adjustment payments” (i.e. annual bailouts). They now have only one customer — the Secretary of Health and Human Services. No one else matters.