ACA Exchange Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

HHS Announces That 11.8 Million Consumers “Signed Up” for an Exchange Plan

At the end of January of this year, independent analyses found that 11.8 million consumers “signed up” for a health plan through either the Federal Exchange or a State-based Exchange during the 2018 “open enrollment” period (held Nov. 1, 2017 to Dec. 15, 2017). Well, HHS just came out with the official “sign up” number, which is…wait for it…11.8 million consumers. 12.2 million consumers “signed up” for an Exchange in 2017.
- Analysis: HHS also announced the premium levels – as well as the premium subsidy amounts – for 2018, which allows us to compare the differences in premiums between 2018 vs. 2017, along with the differences in the premium subsidy amounts for 2018 vs. 2017. Why is this important? Because – at least to me – we see the impact of “silver loading,” and how the “silver loading” practice benefited consumers. From my perspective, I attribute the steady enrollment numbers (only a 3% reduction from 2017) to the fact that the premium subsidy amounts were higher for 2018, and I said as much in my update for the week of Feb. 5^th (see the attached update, the “ACA Exchange Update”). Below are a couple of interesting data points:

- - 8.7 million consumers signed up through the Federal Exchange, while 3 million consumers signed up through a State-based Exchange. Interestingly, we ALSO saw 3 million consumers sign up through a State-based Exchange in 2017. This is interesting because many analysts – including me – thought sign-ups through State-based Exchanges would be higher for 2018 relative to year’s past. But that did not happen.

- - 27% of the Exchange sign ups were NEW enrollees. That is higher than any past “open enrollment” period. To me, this definitely cuts against the argument that the Trump Administration “sabotaged” enrollment by significantly reducing the Exchange’s marketing and outreach budget. Look, I am NOT trying to defend the Trump Administration here. But literally EVERY article you may read will contend that the Administration tried to kill the ACA markets by reducing marketing and outreach funding. So unfortunately, everyone out there believes it. BUT, I believe this number is evidence that reducing the Exchange marketing and outreach funding had very little impact on enrollment this year.

- - One more comment on marketing and outreach: State-based Exchanges spent a-heck-of-a-lot of money on marketing and outreach. And what did it get them? Well, it certainly did NOT get them record-breaking enrollment numbers for 2018. The point I am trying to make is that I continue to believe that spending taxpayer dollars on marketing and outreach does NOT give you the bang-for-your-buck to justify the price-tag. Make no mistake, I believe that some spending on marketing and outreach is indeed necessary. And I support continued Federal spending on enrollment efforts. Just not so much as year’s past.

- - Sticking with marketing and outreach spending, for 2018, HHS spent $1 for every Federal Exchange enrollee, while HHS spent $11 for every Federal Exchange enrollee for 2017. The Federal Exchange only saw a reduction of 400,000 enrollees in 2018 vs. 2017. Again – at least to me – this is evidence that spending a-heck-of-a-lot of money on marketing and outreach does NOT get you increased enrollment.

- - 26% of Exchange enrollees were between the ages of 18 to 34. In prior year’s, this cohort made up 27% (for 2017) and 28% (for 2016) of the Exchange enrollees. Continued evidence that the Exchange markets remain “unbalanced” markets.

- - Premiums were 30% higher in 2018 than they were in 2017. BUT, Exchange enrollees paid less in premiums for 2018 vs. 2017 by $89 on average. Due in large part to the “silver loading” practice (which we will talk more about in next week’s update).

As I have explained in prior updates (like the one attached), it is NOT surprising to me that the Exchange sign up numbers are relatively the same as last year. Why? Because – to me – as long as the premium subsidies are flowing, we are going to continue to see between 10 and 12 million people seeking out the subsidized coverage that is made available through the Exchanges. Even if premiums in the Exchange markets go up, people will still come (because Exchange enrollees never feel the impact of higher premiums because the subsidies absorb the increases). The only changes I see to Exchange enrollment is if the unemployment rate drops to like 2% (which some economists are suggesting will happen in the next few years). Or, if we have a market crash, resulting in increased unemployment (which could always happen, especially with the increased uncertainty we have recently been experiencing). ALSO, if insurance carriers decide to leave the Exchange markets, that will certainly impact enrollment. BUT, if the carriers see the possibility of capturing 10 to 12 million customers, the carriers – at least some of them – are going to stay in the Exchange markets (because there is money to be made…especially if the Federal government is paying for their product).

Enhanced Direct Enrollment and 2019 “Open Enrollment”

Guidance relating to Enhanced Direct Enrollment came out on February 21^st when I was up to my eyeballs in “association health plan” comment letters. So, I did not raise this issue back then. But, considering we are talking about ACA Exchange enrollment, I thought it would be a good time engage in a deeper discussion of Enhance Direct Enrollment.
- Analysis: What is Enhanced Direct Enrollment? In short, Enhanced Direct Enrollment will allow a consumer to shop for an ACA Exchange plan without ever going to the Federal Exchange’s Healthcare.gov web site. Here, a third-party website will serve as the enrollment platform where a consumer can shop for Exchange plan coverage, and the consumer will STILL be able to access a premium subsidy. Here’s how it will work in practice:

- - A consumer will access the third-party web site on-line. The consumer will then enter the same information the consumer would have otherwise entered on Healthcare.gov. Then, through a secure, streamlined “web service,” the consumer’s information will be shared with HHS’s Federal Data Services Hub to determine if the consumer is eligible for a premium subsidy, and if eligible, the amount of the subsidy. If a consumer is found eligible, information will be sent back to the third-party web site, informing the consumer of the premium subsidy amount they may use to purchase an Exchange plan. Then, the consumer will shop for coverage, purchase a plan, and complete the enrollment process by, for example, paying their first month’s premium payment. All on the third-party web site.

Stakeholders have waited a long time for the Enhanced Direct Enrollment technology to be operational. Dating all the way back to 2014, stakeholders have pushed HHS to develop the technology, and to get the technology incorporated into Healthcare.gov’s IT infrastructure at least by the 2015 “open enrollment” period. But, the only direct enrollment process the previous Administration could provide to third-party web sites was something called the “double re-direct.” Why was it called the “double re-direct”? While third-party web sites were able to enroll consumers in an Exchange plan (where the consumer could still access a premium subsidy), when a consumer accessed the third-party web site, the site was required to direct the consumer to Healthcare.gov to enter their information for premium subsidy eligibility purposes, then the consumer was directed back to the third-party web site to shop for a plan, and once the consumer selected a plan, the consumer was directed yet again back to Healthcare.gov to complete their enrollment. As I am sure you have surmised, the Enhanced Direct Enrollment process will eliminate the double re-direct. Again, meaning that a consumer can stay on a third-party web site during the entire shopping experience for an Exchange plan. I believe this is significant because I think Enhanced Direct Enrollment will help facilitate more sign-ups next year (and in future years). And, as I have continually said in prior updates, I believe the taxpayer dollars spent on Enhanced Direct Enrollment will provide a better-bang-for-the-government’s-buck relative to spending on marketing and outreach (as discussed above). Why? Well for one, these third-party web sites are going to do their own marketing and outreach so they can attract consumers to their sites. To me, this means that these private-sector companies are going to be doing the marketing and outreach for the government…essentially, for free. And, such outreach and marketing efforts undertaken by private-sector companies will likely outperform similar efforts undertaken by the Federal government. Enhanced Direct Enrollment is also significant because – while only a few private-sector companies will have the technology and the system’s in place by the beginning of the 2019 “open enrollment” period to take advantage of the new Enhanced Direct Enrollment process – if this technology works, this will put us on a path to shutting down Healthcare.gov, at least for enrollment in Exchange plans. In other words, if Enhanced Direct Enrollment works – and if more private-sector companies get into the direct enrollment game – the Federal government could (and should) shift the responsibility of enrolling consumers in an Exchange plan to the private-sector. Healthcare.gov would continue to operate. BUT, Healthcare.gov would only serve as an enrollment platform for Medicaid beneficiaries. Last comment: Enhanced Direct Enrollment is NOT for every consumer. HHS has identified instances where a third-party web site will have to direct a consumer to Healthcare.gov or through the double re-direct process. For example, a third-party web site using the Enhanced Direct Enrollment pathway must conduct “identity proofing” to determine if a consumer is who they say they are, and also a U.S. citizen. If the third-party site has difficulty identifying the consumer, the site must direct the consumer to Healthcare.gov or direct them to the double re-direct process. Also, if the third-party site does not have the capabilities to enroll certain “types” of consumers (e.g., stepchildren, people who don’t provide a Social Security Number, incarcerated applicants, American Indian and Alaskan Native applicants), the site must direct these consumers to Healthcare.gov or to the double re-direct. Stay tuned for more on the Enhanced Direct Enrollment process in the coming months.

HHS Update

HHS Issues the Final 2019 Notice of Benefit and Payment Parameters

The main reason I didn’t get my update out yesterday is because I got word that HHS would be releasing the final 2019 Notice of Benefit and Payment Parameters (NBPP) around 4:30, which the Department did. I figured it would be better to wait to send out my update today, so I could take a look at the NBPP, and report on some of the more noteworthy provisions. After a late night, here are some of my thoughts:
- Analysis: Let me start with the changes to the “essential health benefits” (EHB) standard:

Changes to the EHBs – Beginning in 2020, States can opt to do 1 of 4 things: (1) States can examine what other State EHB-benchmark plans cover as “categories” of a particular EHB, and adopt that coverage “category” in their State. More specifically, a State could replace one or more of their EHB “categories” with EHB “categories” of another State. For example, a State could choose a “prescription drug” category that covers fewer drugs (or different drugs), or the State could choose the “categories” under the “mental health and substance abuse disorder” EHB that differs from their current “categories” under that particular EHB; (2) States could also select the entirety of another State’s EHB-benchmark plan (and effectively replace their existing EHB-benchmark plan with another State’s EHB-benchmark plan); (3) States can do nothing and stick with their existing EHB-benchmark plan; or (4) States can “build” their own EHB-benchmark plan, provided certain requirements that I discuss more fully below are met.Interestingly, the final regulations limit the extent to which a State can make their EHB-benchmark plan more comprehensive. Back in October – when I commented on the proposed NBPP (see the attached update) – I noted that based on my interpretation of the rules “States could strengthen their EHB-benchmark plan by adopting a benchmark plan that is more comprehensive than their own plan (or adopting more comprehensive “categories” under a particular EHB).” It appears, however, that HHS was concerned that States would actually strengthen their EHB-benchmark plan. As a result, in the final NBPP, HHS developed a “generosity standard,” which says that a State’s EHB-benchmark plan must NOT exceed the generosity of (1) the State’s 2017 EHB-benchmark plan or (2) any of the State’s base-benchmark options that were available for 2017. HHS explained that this “generosity standard” will limit State’s overall ability to select a new EHB-benchmark plan that includes additional benefits that are available in the State’s large group market, or benefits that were mandated by other States’ as of Dec. 31, 2011. In other words, HHS is saying that a State cannot supplement their existing EHB-benchmark plan by saying that they are adopting a new EHB-benchmark plan that includes benefits covered by a “large” group market plan that were not otherwise included in the prior year’s benchmark plan. HHS is also saying that a State cannot adopt another State’s benefit mandates that were in place as of Dec. 31, 2011 and add these benefit mandates to their new EHB-benchmark plan. Importantly, this “generosity standard” applies to every option discussed above. Let’s take a moment to dig into option #4, where a State can “build” their own EHB-benchmark plan. HHS explains any newly “built” EHB-benchmark plan MUST (1) equal the scope of benefits provided under a “typical employer” plan and (2) the plan MUST cover items and services included the 10 statutory EHBs. HHS explains that a “typical employer plan” can be 1 of 2 things: (1) a typical employer plan can be one of the State’s base-benchmark plans (which primarily is largest health plan by enrollment in “small” group market) or (2) a typical employer plan can be the most popular “large” group market plan offered in the State, provided the large group plan meets the “minimum value” test. There is no doubt that most news articles you will read on the final NBPP will say that HHS is allowing States to offer less comprehensive benefits. In some cases, there may be some truth to this because a State may choose another State’s EHB-benchmark plan that may be less comprehensive than the State’s existing EHB-benchmark plan, or a State may choose “categories” of EHBs that differ from their existing “categories.” In other words, there may be cases where a State has adopted an overly generous EHB-benchmark plan (in for example 2014, which has never been changed), but due to the changes in the final NBPP, the State may now want to adopt an EHB-benchmark plan that is not as robust as it was previously. BUT, the most important thing that we all have to remember is this: EVERY EHB-benchmark plan MUST cover the 10 statutory EHBs, and the plan MUST equal the scope of benefits provided under a typical employer plan. This means that States are NOT able to skirt the ACA’s EHB requirement, PERIOD. So, at-the-end-of-the-day, States are STILL providing comprehensive coverage that covers the 10 statutory EHBs and equals a typical employer plan (which I call the “Federal EHB standard”). It is critically important to understand that the previous Administration effectively expanded the Federal EHB standard by allowing States to develop their own EHB-benchmark plan, which could include benefit mandates in place as of Dec. 31, 2011. States could also come up with whatever “categories” they wanted under the 10 statutory EHBs, which simply increased what services under a particular EHB must be covered. This effectively allowed States to develop an even more comprehensive EHB standard than the standard Congress originally envisioned under the Federal EHB standard. But now, HHS is saying that States that adopted a more comprehensive EHB standard than the Federal EHB standard can change their overly comprehensive EHB-benchmark plan, BUT ONLY IF the EHB-benchmark plan covers the 10 statutory EHBs and the plan equals the scope of benefits provided under a typical employer plan, as the ACA statute requires. In my opinion, HHS is NOT allowing States to reduce benefits (because as stated, States cannot go below the 10 statutory EHBs nor can the State go below a typical employer plan). Instead, HHS is bringing the EHB standard more in line with what Congress originally intended.

What Else Was Included In the Final 2019 NBPP? (no news story)

The final 2019 NBPP is 523 pages long. It is NOT a fun read. And I certainly did not read all of it.
- Analysis: But, below are a couple of changes that I did read, and that I found interesting:

“Standardized Plan Options and VBID/HSA-Eligible HDHPs – The final NBPP is doing away with the “standardized” plan options. As you may recall, the “standardized” plan options were put into place by the Obama Administration. Stakeholders argued that – although “standardized” plans are intended to help consumers better understand the design of a particular health plan – providing preferential treatment to the “standardized” options stifled innovation. In addition, the “standardized” plan options limited a consumer’s ability to enroll in an HSA-eligible high-deductible plan (HDHP). But no longer. In the proposed NBPP, HHS requested comments on ways the Department can promote HSA-eligible HDHPs by (1) encouraging insurance carriers to offer an HDHP that is already paired with an HSA and (2) prominently displaying HSA-eligible HDHPs on Healthcare.gov. HHS also wanted to hear how the Department can encourage value-based insurance designs (VBID) in the individual and small group markets. Unfortunately, the final NBPP did NOT include any changes promoting VBID plan designs or HSA-eligible HDHPs. However, HHS appreciated the comments they received, and the Department indicated that it may act on some of the suggested ideas some time in the future. So we’ll keep an eye out for that.

Risk Adjustment – It appears that HHS is allowing a State to request a reduction in the risk adjustment “transfers” in a State’s individual and/or small group market by up to 50%, provided the State can produce evidence and analysis that shows that reducing such risk adjustment “transfers” will help stabilize the markets. It is my understanding that risk adjustment “transfers” include BOTH (1) “charges” that carriers must pay into the program (because these carriers insured low-risk consumers) and (2) “payments” made to the carriers by the government (because these carriers insured high-risk consumers). If a State is permitted to reduce the risk adjustment “transfers” in, for example, the State’s individual market, this would certainly benefit those carriers required to pay a “charge” into the program. But, those carriers who are otherwise eligible for a “payment” under the program would be required to take a hair-cut (by up to 50%). This reduction in risk adjustment “charges” is certainly welcome news to the smaller carriers – and new entrants to the market – who have been hit exceptionally hard by the risk adjustment program over the years. But, the incumbent carriers – like the local Blue plans who have routinely received risk adjustment “payments” over the past 4 years – are not going to be happy.

The Medical Loss Ratio (MLR) Rules – HHS finalized the following proposal: If a State feels that it needs to provide its carriers more flexibility as a way to help “stabilize” its individual market, the State can set their MLR thresholds at a percentage that is less than the statutory 80% MLR threshold.

Out-of-Pocket Maximums for Health Plans – Each year, HHS determines the threshold for the out-of-pocket maximum limits that both “individual” and “group” market plans MUST satisfy (this includes “large” group fully-insured and self-insured plans). For the 2019 plan year, the out-of-pocket maximum for a self-only plan is $7,900 (up from $7,350 for 2018) and $15,800 for family coverage (up from $14,700 for 2018).

Premium Subsidy Eligibility – Under existing regulations, if a subsidized Exchange planholder fails to file a tax return, this planholder is NOT eligible for a premium subsidy in the following benefit year. The planholder can “cure” this defect by filing their tax return. But, if a tax return is NOT filed, then NO premium subsidy eligibility. A rule was put into place under the Obama Administration requiring a planholder to remain subsidy-eligible unless and until the planholder received direct notice from the Exchange that they need to file a tax return (or they will lose their premium subsidy). HHS now says that this direct notification requirement will NO longer apply. HHS is also putting into place an additional “check” on consumers who attest to having income greater than 100% of the Federal Poverty Level (FPL), but where data available to the Exchange indicates that the consumer is below 100% of FPL. This is important to ensure that consumers who are eligible for Medicaid (i.e., people below 100% of FPL) are not receiving a premium subsidy.

HHS Also Extended “Transitional Policies” to the End of 2019

Over the past 4 years, you have heard me talk at length about the “transitional policy” created by the previous Administration, which allows non-ACA-compliant plans that were in existence prior to Jan. 1, 2014 to remain in effect, provided a State allows its carriers to continue to sell these non-ACA-compliant plans (and provided a carrier decides to continue to sell these non-ACA-compliant plans). Well, HHS just extended the life of these “transitional policies” for yet another year, meaning these non-ACA-compliant plans (where they are permitted) can stay in effect up until Dec. 31, 2019.
- Analysis: I may will dig deeper into this issue in a future update, but in the interest of time and space (this update is already too long), I will defer. But, I wanted to flag this because this is not an insignificant announcement for a number of reasons.

HHS Announced Additional “Hardship Exemptions” from the Individual Mandate

2 weeks ago I reported that HHS might come out with additional “exemptions” from the individual mandate penalty tax, and HHS ultimately came through, announcing 4 additional “hardship exemptions” that consumers in the individual market can claim.
- Analysis: The first 2 “hardship exemptions” are available to consumers (1) living in areas where NO insurance carriers are offering an Exchange plan (i.e., living in “bare counties”) and (2) living in areas where there is ONLY 1 carrier, and the consumer “can show that the resulting lack of choice has precluded them from obtaining [an Exchange plan].” These exemptions are not a big surprise. Republicans have been calling for exemptions in these circumstances for over 3 years now. For example, there have been multiple legislative proposals that would have added these types of exemptions to the law. And, ever since the Nov. 2016 elections, the Administration has hinted that these types of exemptions could be added to the list of “hardship exemptions,” on account of the statutory authority given to the Secretary of HHS.

The last 2 exemptions were – in a sense – unexpected (but logical once you hear them).

- - First, if a consumer lives in a State where the ONLY Exchange plans that are available cover abortion services, a consumer may refrain from purchasing coverage (because enrolling in a plan that covers abortion services is contrary to their beliefs). As stated, I didn’t see this one coming, but considering the abortion issue has been a lightning rod topic when it comes to the ACA, it is actually not overly surprising that this exemption was developed. What I find interesting here is that this exemption can only be claimed if the only Exchange plans that are available cover abortion services. So it begs the question, what States ONLY offer Exchange plans that cover abortion services? It has been reported that California, Oregon, and New York are 3 States that do NOT offer Exchange plans that do NOT cover abortion services. In other words, ALL of the Exchange plans sold in these 3 States cover abortion services. Which means, unless California, Oregon, and New York offers an Exchange plan that does not cover abortion services (which CANNOT happen for 2018 because – now that the 2018 calendar year has begun – the 2018 plan offerings CANNOT be supplemented), there are a lot of consumers in these States who could claim a “hardship exemption” from the penalty tax for 2018.

- - Second, if a consumer has a “personal circumstance” that creates a hardship in obtaining coverage (e.g., when a consumer needs specialty care by a specialty physician, but there are NO “affordable” plans that offer coverage for this specialty care), the consumer can claim a “hardship exemption” from the penalty tax. An Exchange is permitted to “take the consumer’s word for it” if the consumer explains in writing that they have experienced such a “personal circumstance hardship.”

State Activity Update

Maryland Governor Signs Legislation to Create a State-Funded Reinsurance Program; Ohio Submits an ACA Section 1332 Waiver Requesting the Waiver of the Individual Mandate Penalty Tax

The Maryland State-based Exchange will operate a State-funded reinsurance program. I call it State-funded, because unlike other States like Alaska, Oregon, and Minnesota, Maryland is NOT requesting the establishment of a reinsurance program through a 1332 Waiver. This means that Maryland is getting NO “pass-through” funding. To fund Maryland’s reinsurance program, health insurance carriers operating in the State will pay $380 million in taxes. This is somewhat interesting to me because the taxes to fund the reinsurance program will end up being passed through to the consumer. BUT, the premium increases on account of the taxes being passed through will not be as significant as the premium reductions from the reinsurance program, creating a delta of premium reductions that consumers will enjoy.
- Analysis: It will be interesting to see whether Maryland will seek a 1332 Waiver in the future (so the State can replace the taxes paid by the State’s carriers with the Federal “pass-through” funding). I assume Maryland did not go the 1332 route because the State thought it would take too long to get a Waiver – with a reinsurance program – approved. But, Maryland is not precluded from going to the 1332 route in the future. Speaking of going the 1332 route, Ohio submitted a 1332 Waiver requesting a waiver of the individual mandate penalty tax. As we all know, starting in 2019, the penalty tax will be $0, effectively meaning that the penalty tax is repealed. But, as you have heard me explain in prior updates, the individual mandate penalty tax (which you can find under section 5000A of the Internal Revenue Code) remains on the books. BUT, Ohio wants to erase Code section 5000A from the books for purposes of its citizens. Query why Ohio wants to rip out of the law Code section 5000A for its own purposes? Maybe it’s a political statement? In other words, maybe Ohio’s Republican Administration (run by Gov. John Kasich) wants to “message” that they are working hard to rid Ohio constituents of the “dreaded” individual mandate once and for all? But, there may actually be a practical reason for making this request (or at the least, it may not be a political messaging stunt). And that reason may be this: If the politics shift in future years such that there is a Democratic Administration AND a Democratic Congress, AND Code section 5000A is STILL on the books – yet zeroed out to $0 – Congress could “dial” back up the penalty tax to a substantive dollar amount, and the President could sign that change into law. BUT, if Ohio successfully eliminated Code section 5000A for its own citizens, then this new penalty tax (“dialed” back up to a substantive dollar amount by a future Congress and President) would NOT apply to Ohio citizens. A savvy play on the part of Ohio. You may also be asking: Won’t Ohio’s 1332 Waiver request violate 1332’s “guardrails,” which includes, among other things, that the Waiver cannot increase the number of uninsured relative to the ACA? It’s a great question, but here’s the answer: The Waiver already assumes that people will drop out of the individual market because the penalty tax is $0. Thus it follows that if the penalty tax is $0, eliminating Code section 5000A for purposes of Ohio will have NO impact on Ohioans’ behavior. In other words, people will have already dropped out the market because the individual mandate is effectively repealed on account of the $0 penalty amount, so eliminating the guts of the mandate from the law will NOT cause any more people to drop out. What about the other “guardrails”? Well, this Waiver will also have NO affect the “essential health benefits,” and it should have limited impact – if any – on cost-sharing. If premiums go up because the mandate is $0 – which will increase Federal spending in the form of the premium subsidies – premiums won’t go any higher on account of eliminating the guts of the mandate from the law for Ohioans, so there should be no increase in the deficit. I will be very curious to see whether and when HHS approves Ohio’s Waiver request. Based on the limited time I have thought about the Waiver, I actually think it passes muster. Stay tuned.