The 2019 Affordable Care Act Payment Rule: Summary and Implications for States

Sabrina Corlette, Georgetown Center on Health Insurance Reforms

On April 9, 2018, the U.S. Department of Health & Human Services (HHS) released its final Notice of Benefit and Payment Parameters for 2019, referred to here as the Payment Notice. This is an annual rule that includes a wide range of policy and operational changes for the Affordable Care Act (ACA) marketplaces, insurance market reforms, and premium stabilization programs. Among other things, the final rule aims to expand the role of state departments of insurance and marketplaces in ACA oversight and administration.

Concurrent with the 2019 Payment Notice, HHS also released sub-regulatory guidance, including the final annual letter to issuers, key dates for health plans participating in the individual and small-group markets in 2019, and an expansion of the circumstances under which individuals can qualify for exemptions to the ACA’s individual mandate.

This expert perspective focuses on major provisions of the Payment Notice and accompanying guidance documents that require state decision-making or have other significant implications for states. More detailed summaries of the rule may be found here, here and here.

Provisions Affecting Health Insurance

Transitional Health plans

HHS has published guidance to extend the administration’s transitional policy, which allows insurers to re-enroll members in pre-ACA health plans (often referred to as “grandmothered” plans). If allowed by state regulators, insurers may re-enroll members in these plans through October 1, 2019, so long as all such policies end by December 31, 2019.

Essential Health Benefits

The final Payment Notice makes significant changes to the way in which states can select an essential health benefit (EHB) benchmark plan for plan year 2020 and annually thereafter. It also grants insurers greater flexibility to substitute benefits across the ten EHB benefit categories, if permitted by the state.

New Benchmark Selection Flexibility

The final rule permits states to change their EHB benchmark plan using one of the following three options:

• Selecting the EHB-benchmark plan that another state used for the 2017 plan year;
• Replacing one or more EHB categories of benefits in its EHB benchmark plan used for the 2017 plan year with the same categories of benefits from another state’s EHB-benchmark plan used for the 2017 plan year; or
• Otherwise selecting a set of benefits that would become the state’s EHB-benchmark plan.

The scope of benefits in the benchmark must be equal to that provided in a typical employer plan. HHS has defined “typical” to include either (1) one of the 10 plan options available for 2017 or (2) the largest health insurance plan by enrollment in any of the 5 largest large-group products by enrollment. If the state chooses a large-group plan as its EHB option, it must have significant enrollment in the state, meet the ACA’s minimum value standard, benefits cannot be excepted benefits (e.g., stand-alone dental or vision plans, fixed indemnity products, and certain flexible spending arrangements), and the plan must be from 2014 or later.

The generosity of the state’s new benchmark plan cannot exceed the generosity of the most generous of the plan options described above. Further, if the state selects a benchmark plan or category from another state that includes benefit mandates enacted after December 31, 2011, then the selecting state will have to defray any additional costs associated with those mandates.

States must make their new benchmark selection by July 2, 2018 in order to have it in place for the 2020 plan year. States may choose the process by which they choose a benchmark plan, so long as they provide reasonable notice on a public-facing website and opportunity for comment and comply with new data collection requirements. HHS has also released an example of the methodology state actuaries can use to compare the benefits of its benchmark selection.

Benefit Substitution

The final Payment Notice would allow insurers to substitute covered items and services both within and across the ten EHB benefit categories, beginning in 2020. However, insurers will only be allowed to do so if permitted by the state and after the state has notified HHS of its decision.

Rate Review

In conjunction with states, HHS is required to establish a process for the annual review of unreasonable health plan premium increases. In the 2019 Payment Notice, HHS is changing the definition of an “unreasonable” rate increase from 10 to 15 percent, effective January 1, 2019. HHS has also released new guidance for states that want a threshold higher than 15 percent (states seeking a definition lower than 15 percent are no longer required to request HHS approval).

Additionally, starting in 2019, states will be permitted to set a rate filing deadline later than the federal deadline for insurers who offer only off-marketplace plans. And HHS has reduced the timeframe for states to provide notice to HHS before posting final rate information, from 30 to 5 business days.

Medical Loss Ratio

The 2019 Payment Notice makes it easier for states to request a reduction in the medical loss ratio (MLR) standard for the individual market by reducing the amount of data states must submit to HHS. Further, the Final Notice clarifies that HHS may adjust the individual market MLR in any state if it determines that there is a “reasonable likelihood” that lowering the standard below 80 percent will help stabilize the market. HHS has released new guidance for states outlining in more detail the process by which they can request an MLR adjustment.

Risk Adjustment

The final Payment Notice would give states the authority to reduce risk adjustment transfers in the small-group and individual markets.[1] Specifically, states can request an up to 50 percent reduction in risk adjustment transfers, but must submit evidence and analysis to HHS justifying the proposed reduction. States must further demonstrate that the reduced risk adjustment payments would result in less than a 1 percent increase in affected insurers’ premiums. States must submit requests by August 1, two calendar years before the start of the applicable benefit year. For example, a state would have to submit a request by August 1, 2018 if it wants to reduce risk adjustment transfers for the 2020 plan year.

Provisions Affecting the Marketplaces

Certification of Qualified Health Plans

HHS is continuing its policy of increased deference to state oversight of plans participating on the health insurance marketplaces (known as QHPs). The Payment Notice provides state-based marketplaces that use the federal platform (SBM-FPs) with new flexibility to determine how to implement the ACA’s network adequacy and essential community provider standards, so long as those states have an adequate review process. However, after receiving comments about limited state resources and staff, HHS decided not to finalize a proposal to defer to states for review of QHP accreditation, service areas, and compliance reviews.

Eligibility Standards

Under current rules, the marketplaces must generally discontinue an enrollee’s advance premium tax credits payments (APTC) if they have failed to file a tax return reconciling APTC received for a prior year.  However, the marketplace may discontinue APTC under this rule only if it first sends a direct notification to the enrollee informing them that their eligibility is at risk and why. Providing this notification has proved challenging for state-based marketplaces because their systems were not built to comply with Internal Revenue Service requirements for tax information privacy. The Payment Notice removes the direct notification requirement for 2019. As a result, state-based marketplaces must now discontinue APTC for a consumer who has failed to reconcile APTC regardless of whether they are able to provide a clear notification.  In the past, many state-based marketplaces have instead sent a general notice that lets consumers know their APTC could be discontinued for several reasons, of which the failure to file and reconcile their last year’s return would be just one.

Income Inconsistencies

Under current rules, marketplaces are required to generate a data matching issue in certain cases where the consumer projects having income significantly lower than is indicated by electronic data sources.  The Payment Notice requires the marketplaces to also generate a data matching issue for consumers if (1) the consumer attests to income between 100 and 400 percent of the federal poverty line (FPL); (2) the marketplace has data indicating income is below 100 percent FPL; (3) the marketplace has not assessed that the consumer has income making them eligible for Medicaid or CHIP; and (4) the income projected by the consumer exceeds the income reflected in the data available from electronic data sources by not less than 10 percent (or a threshold dollar amount). If the consumer cannot provide documentation demonstrating income above 100 percent FPL, the marketplace would be required to discontinue APTC and cost-sharing reduction subsidies. Lawfully present immigrants who are ineligible for Medicaid are exempted from this policy, since the statute makes them eligible for APTC and cost-sharing reductions at incomes below 100 percent FPL.

HHS rejected requests from state-based marketplaces to be exempted from this policy due to the costs and time needed to implement it, arguing that requiring documentation for such data matching inconsistencies is critical for “program integrity,” including in Medicaid expansion states.

Navigator Programs

The 2019 Payment Notice eliminates the requirement that marketplaces have at least two Navigator entities, and that one must be a community-based, consumer-focused non-profit organization. State-based marketplaces may continue to support two or more Navigator entities, but they are not required to do so. Additionally, HHS is removing the requirement that Navigator entities maintain a physical presence in the state’s service area.

Special Enrollment Periods

HHS has finalized modifications to special enrollment periods (SEPs) rules to clarify that a new dependent can be added to the enrollee’s existing plan or enrolled in a separate plan. The rule also aligns coverage effective dates for those who enroll through a SEP triggered by birth, adoption, placement for adoption, or placement in foster care. State-based marketplaces had asked for flexibility in implementing this proposal, and HHS will allow them to take additional time, “as needed,” to comply with the change.

Small Business Health Options Program

State-based marketplaces operating small business health options program (SHOPs) will no longer be required to provide employee eligibility, premium aggregation, and online enrollment functionality for plan years beginning on or after January 1, 2018. Further, because the federally facilitated marketplace will no longer perform these functions, states operating a SBM-FP for SHOP (Kentucky and Nevada) will no longer be able to use the federal system for those functions.

Flexibility for State Marketplaces

HHS has sought input on how it can best support SBM-FP efforts to use commercial eligibility and enrollment platforms. In this final Payment Notice, HHS notes that while it remains unable to offer state-specific customization of healthcare.gov, it intends to explore options for streamlining current requirements and leveraging the private sector, including through enhanced direct enrollment through web-brokers or insurers.

Conclusion

The annual Payment Notice sets policy for the ACA’s marketplaces, insurance reforms, and premium stabilization programs, and this 2019 rule is the first one issued by the Trump administration. The final rule reflects the administration’s interest in expanding the role of states in providing oversight and administering the ACA. With that expanded role comes a need for states to make important decisions about plan benefit design, affordability, and marketplace operations, in some cases within a very short timeframe.

[1] States with merged individual and small-group markets will also have the opportunity to request reductions in risk adjustment transfers.