Implementing Health Reform: Excepted Benefits, Employer Mandate, And Cost-Sharing Reduction Payments – Saxon

Originally posted by Timothy Jost on February 15, 2015 on www.healthaffairs.org.

Three developments in the second week in February, 2015, remind us that implementation of the Affordable Care Act is a multi-department effort.

Supplemental Excepted Benefits

The first of these is a new guidance on “excepted benefits.” The Affordable Care Act does not regulate excepted benefits — various categories of health-related benefits that are not traditional medical coverage. Excepted benefits were excepted from the requirements of the 1996 Health Insurance Portability and Accountability under ERISA, the Internal Revenue Code, and the Public Health Services Act and continue to be excepted from the requirements of the Affordable Care Act. The agencies that administer these laws, however, must define the scope of excepted benefits to clarify the benefits not subject to the ACA. To that extent, therefore, they regulate those benefits.

On February 13, 2014, the IRS, Department of Labor, and HHS issued a frequently asked question guidance concerning a specific category of excepted benefits, supplemental excepted benefits. Supplemental excepted benefits are provided under a separate policy, certificate, or contract of insurance and supplement Medicare (so-called Medigap) or Tricare coverage, or provide “similar” supplemental coverage to a group health plan.

The excepted benefits regulations provide that coverage supplemental to a group health plans “must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles.” Under earlier guidance coverage supplemental to a group plan will qualify as excepted benefits if:

The policy, certificate, or contract is issued by an entity that does not provide the primary coverage under the plan;
The supplemental coverage is designed specifically to fill gaps in primary coverage, such as coinsurance or deductibles;
The cost of the supplemental coverage is not more than 15 percent of the cost of primary coverage; and
Supplemental coverage in the group insurance market does not differentiate among individuals in eligibility, benefits, or premiums based upon a health factor of the individual or a dependent.

The FAQ notes that at least one insurer is currently selling supplemental coverage that covers a single benefit rather than cost-sharing. The FAQ states that coverage of particular benefits, rather than coverage of cost-sharing, can qualify as supplemental excepted benefit coverage only if it covers benefits that are not essential health benefits (EHB) in the state where it is being marketed and has been filed and approved by the state (as may be required under state law). Such a policy could, for example, cover complementary and alternative medicine modalities, bariatric surgery, or abortion benefits that were not part of a state’s EHB. The guidance states that the agencies intend to issue regulations addressing this but in the interim will exercise their regulatory discretion in accordance with this guidance and urge the states to do so as well.

Employer Mandate Compliance

In another development, the IRS on February 11 issued an updated information sheet on employer mandate compliance. This guidance does not offer any new information as far as I can tell, but it is a useful and concise summary of the employer mandate and its enforcement.

Reconciling Cost-Sharing Reduction Payments

Finally, on February 13 the Centers for Medicare and Medicaid Services of HHS released at its REGTAP website a guidance on the timing of reconciliation of cost-sharing reduction payments for the 2014 benefit year. Cost-sharing reduction payments are payments made to health insurers to reimburse them for reducing the out-of-pocket costs of enrollees in marketplace qualified health plans (QHPs) with incomes below 250 percent of poverty to make health care affordable to those enrollees. Cost sharing reductions are also offered American Indians and Alaska natives.

The total amount of cost-sharing that an enrollee will incur cannot be known until the end of a benefit year, but insurers must cover reduced cost sharing in their payments to providers on a continual basis. Cost-sharing reduction payments are made, therefore, to insurers monthly on an actuarially estimated basis. At the end of the benefit year, however, estimated payments must be reconciled with actual payments due. Reconciliation for 2014 was to be performed in April of 2015, as it takes some time for claims for a benefit year to finally “run out.”

Reconciliation was to have been accomplished by comparing the cost-sharing that actual enrollees paid under the cost-sharing reduction variation that applies to their category with what they would have paid under the standard variation of their plan. This involves a “double adjudication” of claims applying both variations, and apparently some insurers were not able to do this. On a transitional basis, CMS allowed insurers to use a simplified methodology based on actuarial estimates of certain key cost-sharing parameters.

When enrollment in a QHP standard plan is insufficient to derive statistically credible estimates of actuarially derived cost-sharing (12,000 member months are required as a minimum), insurers must use a formula based on the plan variation’s actuarial value (the “AV methodology”) to estimate payments. But this approach does not produce accurate results. CMS has concluded many insurers have been unable to upgrade their systems in time for reconciliation using double adjudication, and that many of those using the AV methodology are not achieving accurate results.

To improve accuracy, CMS has decided to delay reconciliation for 2014 until April 30, 2016 and to allow plans that had selected the simplified methodology to switch to the more accurate standard methodology. Insurers may not switch from the standard to the simplified methodology. Because the delay is expected to result in more accurate payments, it should not disadvantage either the government or insurers. The guidance announces this delay.

Download the full article here.