VI. Regulatory Impact Analysis
A. Statement of Need
As noted previously in the preamble, the Exchanges have experienced a decrease in the number of participating issuers and many States have recently seen increases in premiums. This proposed rule, which is being published as issuers develop their proposed plan benefit structures and premiums for 2018, aims to ensure market stability and issuer participation in the Exchanges for the 2018 benefit year. This proposed rule also aims to reduce the fiscal and regulatory burden on individuals, families, health insurers, patients, recipients of health care services, and purchasers of health insurance. This proposed rule seeks to lower insurance rates and ensure a dynamic and competitive market in part by preventing and curbing potential abuses associated with special enrollment periods and gaming by individuals taking advantage of the current regulations on grace periods and termination of coverage due to the non-payment of premiums.
This proposed rule would address these issues by changing a number of requirements that HHS believes will provide needed flexibility to issuers and help stabilize the individual insurance market, allowing consumers in many State or local markets to retain or obtain health insurance while incentivizing issuers to enter, or remain, in these markets while returning autonomy to the States for a number of issues.
B. Overall Impact
We have examined the impacts of this rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory Flexibility Act (RFA)
(September 19, 1980, Pub. L. 96-354), section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 804(2)), and Executive Order 13771 on Reducing
Regulation and Controlling Regulatory Costs (January 30, 2017).
Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.
Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action that is likely to result in a proposed rule–(1) having an annual effect on the economy of $100 million or more in any one year, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as “economically significant”); (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year), and a “significant” regulatory action is subject to review by the OMB. HHS has concluded that this rule is likely to have economic impacts of $100 million or more in at least one year, and therefore meets the definition of “significant rule” under Executive Order 12866. Therefore, HHS has provided an assessment of the potential costs, benefits, and transfers associated with this proposed rule.
The provisions in this proposed rule aim to improve the health and stability of the Exchanges. They provide additional flexibility to issuers for plan designs, reduce regulatory burden, seek to improve the risk pool and lower premiums by reducing gaming and adverse selection and incentivize consumers to maintain continuous coverage. Issuers would experience a reduction in costs related to network adequacy reviews. Through the reduction in financial uncertainty for issuers and increased affordability for consumers, these proposed provisions are expected to increase access to affordable health coverage. Although there is some uncertainty regarding the net effect on enrollment, premiums and total premium tax credit payments by the government, we anticipate that the provisions of this proposed rule would help further HHS’s goal of ensuring that all consumers have quality, affordable health care and that markets are stable and that Exchanges operate smoothly
In accordance with Executive Order 12866, HHS has determined that the benefits of this regulatory action justify the costs.
C. Impact Estimates and Accounting Table
In accordance with OMB Circular A-4, Table 2 depicts an accounting statement summarizing HHS’s assessment of the benefits, costs, and transfers associated with this regulatory action.
The proposed provisions in this rule would have a number of effects, including reducing regulatory burden for issuers, reducing the impact of adverse selection, stabilizing premiums in the individual insurance market, and providing consumers with more affordable health insurance coverage. The effects in Table 2 reflect qualitative impacts and estimated direct monetary costs and transfers resulting from the provisions of this proposed rule.
1. Guaranteed availability of coverage
The proposed regulation would allow issuers to apply a premium payment made for new coverage under the same or a different product to the outstanding debt associated with nonpayment of premiums for coverage from the same issuer enrolled in within the prior 12 months. This means that issuers would be able to require a policyholder whose coverage is terminated for non-payment of premium in the individual or group market to pay all past due premium owed to that issuer after the applicable due date for coverage in the prior 12-month period in order to resume coverage from that same issuer. Individuals with past due premium would generally owe no more than 1 to 3 months of past-due premiums. The issuer would have to apply its premium payment policy uniformly to all employers or individuals regardless of health status. This would reduce the risk of gaming and adverse selection by consumers while likely also discouraging some individuals from obtaining coverage.
A recent study21 surveying consumers with individual market plans concluded that approximately 21 percent of consumers stopped premium payments in 2015. Approximately 87 percent of those individuals repurchased plans in 2016, while 49 percent of these consumers purchased the same plan they had previously stopped payment on.
Based on available data, we estimate that approximately one in ten enrollees had their coverage terminated due to non-payment of premiums in 2016. We estimated that approximately
86,000 (or 16 percent) of those individuals terminated due to non-payment of premium in 2016
21 2016 OEP: Reflection on enrollment, Center for U.S. Health System Reform, McKinsey&Company, May 2016, available at http://healthcare.mckinsey.com/2016-oep-consumer-survey-findings.
and living in an area where their 2016 issuer was available in 2017 had an active 2017 plan selection with the same issuer at the end of the open enrollment period. Additionally, for those individuals living in an area were their 2016 issuer was the only issuer available in 2017, 23 percent of those individuals terminated due to non-payment in 2016 had an active 2017 plan selection this issuer at the end of the open enrollment period – equating to approximately 21,000 individuals. In the absence of data, we are unable to determine the amount of past due amounts that consumers would have to pay in order to resume coverage with the same issuer, though individuals would generally owe no more than 3 months of premiums. We are seeking comments on this impact.
2. Open Enrollment Periods
The proposed regulation proposes to amend §155.410(e) and change the annual open enrollment period for coverage year 2018 to begin on November 1, 2017 and end on December 15, 2017. This is expected to have a positive impact on the risk pool by reducing the risk of adverse selection. However, the shortened enrollment period could lead to a reduction in enrollees, primarily younger and healthier enrollees who usually enroll late in the enrollment period. The change in the open enrollment period could lead to additional reductions in enrollment if Exchanges and enrollment assisters do not have adequate support, which could lead to potential enrollees facing longer wait times. In addition, this change is expected to simplify operational processes for issuers and the Exchanges. However, the Federal government, Statebased Exchanges, and issuers may incur costs if additional consumer outreach is needed.
We are seeking comments regarding the potential effects of the shortening of the open enrollment period on all stakeholders.
3. Special Enrollment Periods
Special enrollment periods ensure that people who lose health insurance during the year (for example, through non-voluntary loss of minimum essential coverage provided through an employer), or who experience other qualifying events such as marriage or birth or adoption of a child, have the opportunity to enroll in new coverage or make changes to their existing coverage. While the annual open enrollment period allows previously uninsured individuals to enroll in new insurance coverage, special enrollment periods are intended to promote continuous enrollment in health insurance coverage during the plan year by allowing those who were previously enrolled in coverage to obtain new coverage without a lapse or gap in coverage.
However, allowing previously uninsured individuals to enroll in coverage via a special enrollment period that they would not otherwise qualify for can increase the risk of adverse selection, negatively impact the risk pool, contribute to gaps in coverage, and contribute to market instability and reduced issuer participation.
Currently, in many cases, individuals self-attest to their eligibility for most special enrollment periods and submit supporting documentation, but enroll in coverage through the Exchanges without further pre-enrollment verification. As mentioned earlier in the preamble, in 2016 we took several steps to further verify eligibility for special enrollment periods and planned to implement a pilot program to conduct pre-enrollment verification for a sample of 50 percent of consumers attempting to enroll in coverage through certain special enrollment periods. The provisions in this proposed rule would increase the scope of pre-enrollment verification, strengthen and streamline the parameters of several existing special enrollment periods, and limit several other special enrollment periods. Starting in June 2017, individuals attempting to enroll through certain special enrollment periods would have to undergo pre-enrollment verification of eligibility, so that their enrollment would be delayed or “pended” until verification of eligibility is completed. Where applicable, the FFE would make every effort to verify an individual’s eligibility for the applicable special enrollment period through automated electronic means instead of through documentation. Based on past experience, we estimate that the expansion in pre-enrollment verification to all individuals seeking to enroll in coverage through all applicable special enrollment periods would result in an additional 650,000 individuals having their enrollment delayed or “pended” annually until eligibility verification is completed. As discussed previously in the Collection of Information Requirements section there would be an increase in costs to the federal government for conducting the additional pre-enrollment verifications. Statebased Exchanges that begin to conduct pre-enrollment verification would incur administrative costs to conduct those reviews. We anticipate that there would be a reduction in costs to issuers since they would not have to process any claims while the enrollments are “pended”.
The proposed changes would promote continuous coverage and allow individuals who qualify for a special enrollment period to obtain coverage, while ensuring that uninsured individuals that would not qualify for a special enrollment period obtain coverage during open enrollment instead of waiting until they get sick, which is expected to protect the Exchange risk pools, enhance market stability, and in doing so, limit rate increases. On the other hand, it is possible that the additional steps required to verify eligibility might discourage some eligible individuals from obtaining coverage, and reduce access to health care for those individuals, increasing their exposure to financial risk. If it deters younger and healthier individuals from obtaining coverage, it could also worsen the risk pool.
If pre-enrollment verification causes premiums to fall and all individuals that inappropriately enrolled via special enrollment periods continue to be covered, there would be a transfer from such individuals to other consumers. On the other hand, if some individuals are no longer able to enroll via special enrollment period, they would experience reduced access to health care.
The net effect of pre-enrollment verification and other proposed changes on premiums and enrollment is uncertain. If there is a significant decrease in enrollment, especially for younger and healthier individuals, it is possible that premiums would not fall, and potentially might increase. We seek comment on the impacts of these provisions.
4. Levels of coverage (Actuarial Value)
In this proposed rule, we are proposing amending the de minimis range included in §156.140(c), to a variation of – 4/+2 percentage points, rather than +/- 2 percentage points for all non-grandfathered individual and small group market plans that are required to comply with AV (We also propose to change the de minimis range for the expanded bronze plans from +5/-2 percentage points to +5/-4 percentage points to align with the policy in this rule) for plans beginning in 2018. While we are proposing to modify the de minimis range for the metal level plans (bronze, silver, gold, and platinum), we are not proposing to modify the de minimis range for the silver plan variations (the plans with an AV of 73, 87 and 94 percent) under §§156.400 and 156.420 at this time. In the short run, the impact of this proposed change would be to generate a transfer from consumers to insurers. The proposed change in AV could reduce the value of coverage for consumers, which could lead to more consumers facing increases in out-ofpocket expenses, thus increasing their exposure to financial risks associated with high medical costs. However, in the longer run, providing issuers with additional flexibility could help stabilize premiums, increase issuer participation and ultimately provide some offsetting benefit to consumers. We estimate that the proposed change in AV could lead to up to a 1 to 2 percent reduction in premiums. This, in turn, would increase enrollment. A reduction in premiums would likely reduce the benchmark premium for purposes of the premium tax credit, leading to a transfer from credit recipients to the government. An increase in enrollment would likely result in an increase in total premium tax credit payments by the government. The net effect is uncertain. We seek comments on the impact of this proposed change.
5. Network Adequacy
Section 156.230(a)(2) requires a QHP issuer to maintain a network that is sufficient in number and types of providers, including providers that specialize in mental health and substance abuse services, to assure that all services will be accessible without unreasonable delay. In this proposed rule, we are proposing that, for the 2018 plan year, HHS would defer to the State’s reviews in States with authority and means to assess issuer network adequacy; while in States without authority and means to conduct sufficient network adequacy reviews, HHS would rely on an issuer’s accreditation (commercial or Medicaid) from an HHS-recognized accrediting entity. As discussed previously in the Collection of Information Requirements section, this would reduce related administrative costs for issuers. Unaccredited issuers would be required to submit an access plan as part of the QHP Application. Reduced burden for issuers could ultimately lead to reduced premiums for consumers.
Depending on the level of review by State regulators and accrediting entities, this could have an impact on plan design. Issuers could potentially use network designs to encourage enrollment into certain plans, exacerbating selection pressures. The net effect on consumers is uncertain. We are seeking comments on the potential impacts.
6. Essential Community Providers
Section 156.235(2)(i) stipulates that a plan has a sufficient number and geographic distribution of ECPs if it demonstrates, among other criteria, that the network includes as participating practitioners at least a minimum percentage, as specified by HHS. For the 2014 plan year, this minimum percentage was 20 percent, but starting with the 2015 Letter to Issuers in the Federally-facilitated Marketplaces, we increased the minimum percentage to 30 percent. In this proposed rule, we are proposing that, for certification and recertification for the 2018 plan year, we would instead consider the issuer to have satisfied the regulatory standard if the issuer contracts with at least 20 percent of available ECPs in each plan’s service area to participate in the plan’s provider network. In addition, we are proposing to reverse our previous guidance that we were discontinuing the write-in process for ECPs, and would continue to allow this process for the 2018 plan year. If an issuer’s application does not satisfy the ECP standard, the issuer would be required to include as part of its application for QHP certification a satisfactory narrative justification describing how the issuer’s provider networks, as presently constituted, provide an adequate level of service for low-income and medically underserved individuals and how the issuer plans to increase ECP participation in the issuer’s provider networks in future years. We expect that issuers would be able to meet this requirement, with the exception of issuers that do not have any ECPs in their service area.
Less expansive requirements for network size would lead to both costs and cost savings. Costs could take the form of increased travel time and wait time for appointments or reductions in continuity of care for those patients whose providers have been removed from their insurance issuers’ networks.
Cost savings for issuers would be associated with reductions in administrative costs of arranging contracts and, if issuers focus their networks on relatively low-cost providers to the extent possible, reductions in the cost of health care provision. In addition, fewer issuers would need to submit a justification to prove that they include in their provider networks a sufficient number and geographic distribution of ECPs to meet the standard, as discussed previously in the
Collection of Information Requirements section.
We seek comments on the impacts of this proposed change.
The net effect of these proposed provisions on enrollment, premiums and total premium tax credit payments are ambiguous. On the one hand, premiums would tend to fall if more young and healthy individuals obtain coverage, adverse selection is reduced and issuers are able to lower costs due to reduced regulatory burden, and offer greater flexibility in plan design. On the other hand, if changes such as shortened open enrollment period, pre-enrollment verification for special enrollment periods, reduced actuarial value of plans, less expansive provider networks result in lower enrollment, especially for younger, healthier adults, it would tend to increase premiums. Lower premiums in turn would increase enrollment, while higher premiums would have the opposite effect. In addition, lower premiums would tend to decrease total premium tax credit payments, which could be offset by an increase in enrollment. Increased enrollment would lead to an overall increase in healthcare spending by issuers, while a decrease in enrollment would lower it, although the effect on total healthcare spending is uncertain, since uninsured individuals are more likely to obtain health care through high cost providers such as emergency rooms.
D. Regulatory Alternatives Considered
In developing the policies contained in this proposed rule, we considered maintaining the status quo with respect to our interpretation of guaranteed availability, network adequacy requirements and essential community provider requirements. However, we determined that the changes are urgently needed to stabilize markets, to incentivize issuers to enter or remain in the market and to ensure premium stability and consumer choice.
With respect to our proposal regarding essential community providers, we considered proposing a minimum threshold other than 20 percent, but believe that reverting to the previously used 20 percent threshold that issuers were used to would better help stabilize the markets, while adequately protecting access to ECPs.
We also considered keeping the original open enrollment period for 2018 coverage, but determined that an immediate change would have a positive impact on the risk pool by reducing the risk of adverse selection and that the market is mature enough for an immediate transition.
In addition, we considered increasing the scope of pre-enrollment verification for certain special enrollment periods to 90 percent instead of 100 percent. This would have allowed us to maximize the verification of eligibility while providing some population for claims comparison as envisioned by the scaled pilot. We are seeking comment on the issue, but believe that in order to minimize the risk of adverse selection, complete pre-enrollment verification for certain special enrollment periods is necessary. We also considered maintain the existing parameters around special enrollment periods so that the individual market special enrollment periods would continue to align with group market policies. However, HHS determined that aspects of the individual market and the unique threats of adverse selection in this market justified a departure from the group market policies.
With respect to our proposal regarding AV, we considered proposing that the change would be effective for the 2019 plan year. However, given input from stakeholders regarding the 2018 AV Calculator, we determined it was better to make the proposal effective for the 2018 plan year.
E. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601, et seq.) requires agencies to prepare an initial regulatory flexibility analysis to describe the impact of the proposed rule on small entities, unless the head of the agency can certify that the rule would not have a significant economic impact on a substantial number of small entities. The RFA generally defines a “small entity” as
(1) a proprietary firm meeting the size standards of the Small Business Administration (SBA), (2) a not-for-profit organization that is not dominant in its field, or (3) a small government jurisdiction with a population of less than 50,000. States and individuals are not included in the definition of “small entity.” HHS uses a change in revenues of more than 3 to 5 percent as its measure of significant economic impact on a substantial number of small entities. This proposed rule would affect health insurance issuers. We believe that health insurance issuers would be classified under the North American Industry Classification System code 524114 (Direct Health and Medical Insurance Carriers). According to SBA size standards, entities with average annual receipts of $38.5 million or less would be considered small entities for these North American Industry Classification System codes. Issuers could possibly be classified in 621491 (HMO Medical Centers) and, if this is the case, the SBA size standard would be $32.5 million or less14. We believe that few, if any, insurance companies underwriting comprehensive health insurance policies (in contrast, for example, to travel insurance policies or dental discount policies) fall below these size thresholds. Based on data from MLR annual report submissions for the 2015 MLR reporting year, approximately 97 out of 528 issuers of health insurance coverage nationwide had total premium revenue of $38.5 million or less. This estimate may overstate the actual number of small health insurance companies that would be affected, since almost 74 percent of these small companies belong to larger holding groups, and many, if not all, of these small companies are likely to have non-health lines of business that would result in their revenues exceeding $38.5 million.
F. Unfunded Mandates
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a proposed rule that includes any Federal mandate that may result in expenditures in any 1 year by State, local, or Tribal governments, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. Currently, that threshold is approximately $146 million. Although we have not been able to quantify all costs, we expect the combined impact on State, local, or Tribal governments and the private sector to be below the threshold.
Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule that imposes substantial direct costs on State and local governments, preempts State law, or otherwise has Federalism implications.
In HHS’s view, while this proposed rule would not impose substantial direct requirement costs on State and local governments, this proposed regulation has Federalism implications due to direct effects on the distribution of power and responsibilities among the State and Federal governments relating to determining standards relating to health insurance that is offered in the individual and small group markets. However, HHS anticipates that the Federalism implications (if any) are substantially mitigated because under the statute and our proposals, States have choices regarding the structure, governance, and operations of their Exchanges. This rule strives to increase flexibility for States-based Exchanges. For example, we recommend, but would not require, that State-based Exchanges engage in pre-enrollment verification with respect to special enrollment periods; and we would defer to State network adequacy reviews provided the States have the authority and the means to conduct network adequacy reviews. Additionally, the Affordable Care Act does not require States to establish these programs; if a State elects not to establish any of these programs or is not approved to do so, HHS must establish and operate the programs in that State.
In compliance with the requirement of Executive Order 13132 that agencies examine closely any policies that may have Federalism implications or limit the policy making discretion of the States, HHS has engaged in efforts to consult with and work cooperatively with affected
States, including participating in conference calls with and attending conferences of the National Association of Insurance Commissioners, and consulting with State insurance officials on an individual basis.
While developing this proposed rule, HHS has attempted to balance the States’ interests in regulating health insurance issuers with the need to ensure market stability. By doing so, it is
HHS’s view that we have complied with the requirements of Executive Order 13132.
H. Congressional Review Act
This proposed rule is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801, et seq.), which specifies that before a rule can take effect, the Federal agency promulgating the rule shall submit to each House of the Congress and to the Comptroller General a report containing a copy of the rule along with other specified information, and has been transmitted to Congress and the
Comptroller for review.
I. Reducing Regulation and Controlling Regulatory Costs
Executive Order 13771, entitled Reducing Regulation and Controlling Regulatory Costs, was issued on January 30, 2017. Section 2(a) of Executive Order 13771 requires an agency, unless prohibited by law, to identify at least two existing regulations to be repealed when the agency publicly proposes for notice and comment or otherwise promulgates a new regulation. In furtherance of this requirement, section 2(c) of Executive Order 13771 requires that the new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations. OMB’s interim guidance issued on February 2, 2017, explains that for Fiscal Year 2017 the above requirements only apply to each new “significant regulatory action that imposes costs.” It has been determined that this proposed rule is not a “significant regulatory action that imposes costs”
and thus does not trigger the above requirements of Executive Order 13771.”