State Activity Update

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

Unlike Idaho, Iowa Can Allow Its Citizens to Enroll In Non-ACA-Compliant Health Coverage

Iowa’s Governor just signed into law legislation that would allow Iowans who are looking for health coverage in the “individual” market to enroll in a health plan sponsored by Iowa’s Farm Bureau. Importantly, consumers wanting to enroll in the Farm Bureau plan do not have be farmers (e.g., the Farm Bureau plan would be available to self-employed farmers, but it would also be available to non-farmers). Most importantly, the Farm Bureau plan would NOT be subject to the ACA, meaning Iowans can enroll in non-ACA-compliant health coverage.
- Analysis: How can Iowa do this? After all, Idaho tried to allow its carriers to offer non-ACA-compliant plans, but HHS gave Idaho the Heisman? My Answer: The Iowa Farm Bureau plan is NOT technically considered “health insurance,” and therefore, the plan is NOT considered a “major medical plan” for purposes of Federal law. Why is this important? As I told you a couple of weeks ago when examining the Idaho non-ACA-compliant plan proposal (see the attached update), if the health plan is considered a “major medical plan” – or more precisely “health insurance” – under Federal law, the plan MUST comply with the ACA’s “insurance standards” (e.g., the “essential health benefits” (EHB) and “actuarial value” (AV) requirements, no underwriting based on health status, and a 3-to-1 age rating band). The plan MUST ALSO comply with the ACA’s “coverage requirements” (e.g., pre-ex protections, no annual and lifetime limits, and covering adult children up to age 26). Under the Idaho proposal, the health coverage that would have been offered by Blue Cross of Idaho would have been considered a “major medical plan” (i.e., “health insurance”) under Federal law, AND the plan would have allowed, among other things, annual and lifetime limits, a 5-to-1 age rating band, and the ability to exclude certain EHBs from the coverage. Unfortunately for Idaho, the failure to meet the ACA’s insurance standards and coverage requirements essentially means that these non-ACA-compliant plans CANNOT be sold (or if they were sold, Blue Cross of Idaho would be subject to a $100 per day/per violation penalty). How is Iowa different? It’s a long answer, but bear with me: States have the exclusive authority to regulate insurance offered within the four corners of their State. And based on this authority, a State is permitted to exempt any insurance product that is sold within the State from State insurance regulation. In other words, a State could say that a particular insurance product is NOT “insurance,” and therefore, the product is exempt from the State’s Insurance Code. A State can do this by creating a new section under its Insurance Code that establishes this insurance product, and the statutory terms could say something like: “This insurance product is NOT considered insurance and the product is NOT subject to any requirement under the State Insurance Code, provided the product satisfies A, B, C, D and X,Y, Z requirements as set forth in this new section of the Insurance Code.” This is what Iowa is doing. In short, Iowa is creating a new section of its Insurance Code which would allow for the creation of a health benefit plan that is “sponsored by an agricultural organization.” The statutory terms specifically state that the health benefit plan is “not insurance” subject to the State’s Insurance Code. And, the statutory terms set forth specific requirements that the agricultural organization must meet to be able to sponsor the health benefit plan. Note, this is NOT what Idaho did, which is why Iowa is different. Here is another reason why Iowa is different from Idaho: Iowa’s Farm Bureau plan is a health benefit plan “sponsored by an agricultural organization.” In other words, this plan is NOT health coverage that is offered by a “health insurance issuer” licensed by the State of Iowa. Why is this important? Answer: Because the Federal law definition of “health insurance” – which triggers the requirement to comply with the ACA’s insurance standards and coverage requirements – means health coverage “offered by a health insurance issuer licensed in the State.” Soooo, if a health benefit plan is NOT offered by a “health insurance issuer” licensed in the State of Iowa, then the coverage IS NOT subject to ACA (because the plan does NOT meet the definition of “health insurance” under Federal law). Note, Idaho’s non-ACA-compliant plans WOULD HAVE been offered by a “health insurance issuer” licensed in Idaho (i.e., Blue Cross of Idaho), thus making the health coverage “health insurance” under Federal law, and wait for it…subject to the ACA. Here is yet another reason why Iowa is different: The statutory terms specifically say that the Farm Bureau plan is a “self-funded arrangement.” This is further evidence that plan is NOT being offered by a “health insurance issuer” because a “self-insured plan” is by definition NOT offered by a “health insurance issuer.” HHS regulations have confirmed this (e.g., the regulations implementing the Medical Loss Ratio (MLR) rules state that “[s]elf-insured plans are not a health insurance issuer”). And viola, there you have it: Non-ACA-compliant health coverage that can be offered to people seeking coverage in the individual market (where such coverage would NOT trigger a $100 per day/per violation penalty for failure to comply with the ACA’s insurance standards and coverage requirements).

What About Other Activity In Other States? (no news story)

States like Maryland, Missouri, New Mexico, Wisconsin and others have already been looking into submitting a 1332 Waiver to establish a reinsurance program. Now that the enactment of a Federal ACA “market stabilization” package has failed, I expect more States will seek 1332 Waivers for reinsurance. If all of these States can show savings – like Alaska, Oregon, and Minnesota did – these States will receive Federal “pass-through” funding that essentially equals the delta between (1) what the Federal government would be paying to the State in the absence of a reinsurance program and (2) the premium reductions resulting from the establishment of the reinsurance program (i.e., the “pass-through” funding is primarily made up of spending that would have otherwise been paid in the form of the premium subsidies).
- Analysis: I believe more States will also seek 1332 Waivers if and when HHS issues “model Waivers.” States recently asked HHS to develop such model Waivers at last week’s NAIC meeting. I’ve noted that HHS has been busy developing these “model Waivers,” but it is unclear when we will see them. As I have also noted, States like California, Connecticut, Maryland, New Jersey, New York, and Washington State are trying to replace the ACA’s “individual mandate” penalty tax with their own State-based individual mandate, although the likelihood of success – even in these Blue States – are slim. When it comes to “association health plans” (AHPs), a number of States are seeking to enact legislation that would allow self-insured AHPs to offer health coverage within the State. Actually, part of the Iowa law (discussed above) would allow Iowa small employers to band together to establish an AHP (although this part of the Iowa law is pretty much consistent with the DOL’s proposed AHP regulations). One burning question is this: Will States follow Iowa and create a Farm Bureau-like plan in their Insurance Codes, effectively establishing a health benefit plan that is NOT “health insurance.” As you may know, Tennessee already has a Farm Bureau-like plan that was part of a law that pre-dates the ACA. Minnesota also has a State law that is somewhat similar to Iowa and Tennessee. The point here is that there are a number of States that have already done what Iowa is doing. Heck, the Tennessee Farm Bureau plan was a model for Iowa. Which – to me – means that any other State can establish a health plan like Tennessee and Iowa. You may be asking: Then why don’t they? My Answer: There are 2 important components that must be present – (1) the State would need a Legislature that is willing and able to approve legislation establishing a Farm Bureau-like plan, and (2) the State’s Governor has to be open to signing it into law. In a good number of Red States, the political environment may indeed be conducive to making this happen. In other States, not so much. Does the plan have to be sponsored by a “Farm Bureau”? In my opinion, NO. Yes, if a State has some sort of agricultural industry – which virtually every State does – the State could create a new section of its Insurance Code establishing a health plan “sponsored by an agricultural organization” to which non-agricultural individuals could enroll (assuming there is a credible “agricultural organization” in the State that could serve as the sponsor). BUT – and I am just thinking aloud here – a State like Maine could have a “fishing industry organization” be the sponsor of the self-funded health benefit plan. West Virginia could allow a “coal industry organization” to be the sponsor, or in Texas a “cattlemen industry organization.” Maybe I am getting a little far afield here, but I think you get the point, which is this: A State could create a new section of their Insurance Code and allow some sort of credible “organization” serve as the sponsor of a health plan that would offer non-ACA-compliant coverage.

Value – Based Care Update

“Transparency” of Medical Prices, Quality, and Health Outcomes: No Cure In Sight, But There Is a Commitment to Find a Solution

Price transparency is something that everyone supports, right?!? When we were drafting the ACA, there was bi-partisan support for increasing “transparency.” Early on in the drafting process – around the Spring of 2009 time-frame – staff tried to come up with ways to increase transparency of medical prices, and to also help with “medical literacy” (as we all know, health care is complex, so efforts were made to try to explain these complex issues in layman’s terms). Notwithstanding our genuine efforts to increase price transparency – and to help patients better understand the medical services they are consuming – the best we could come up with was the “Summary of Benefits and Coverage” (SBCs). Looking back now, I wish we came up with a better idea because I would argue that SBCs – in-and-of-themselves – add to the complexity. And there really isn’t meaningful price transparency provided through these notices.
- Analysis: In an era where high-deductible health plans (HDHPs) are becoming the norm – and at a time when our health care system extracts way too much money from Americans whose wages have stagnated over the past the 5 to 10 years – something has got to be done to provide meaningful price transparency for consumers. But how? Back when we were drafting the ACA, we said: “Hey, why don’t we just force insurance carriers and providers like hospitals and physicians to post their prices on a web site, so consumers could comparison-shop”? At the time (Spring 2009), we ran smack into the issues of confidentiality agreements, trade secrets, and the prohibition against abrogating contracts. And ever since 2009, staffers – and Administration and State officials – have run into these same issues. To me, this is the root of the problem. Carriers and the providers continue to refuse to disclose the price of medical services to consumers arguing that: “Informing our competitors of our ‘negotiated’ rates would put us at a competitive disadvantage, so we CANNOT share pricing information with the public, and we have confidentiality agreements in place that CANNOT be broken.” I say butkus to all of that. But, that is not going to get us price transparency, is it? Then what can be done? Well, when it comes to our nation’s “public health programs” (e.g., Medicare, Medicaid, and the VA), the Federal government could extract certain information without violating confidentiality clauses or abrogating contracts. How? By making government reimbursements or other direct payments to providers contingent on the providers disclosing specific information about their prices and also their health outcomes. More specifically, participating providers contract with the Federal government to provide services under our public health programs in exchange for reimbursements and other government payments directly made to the providers. So, as a “condition” to contracting with the Federal government, providers could be required to disclose specific information. Many others think this is a good idea. BUT, we generally know the prices of medical services provided under Medicare and Medicaid because the prices for medial services covered under these programs are already set. So – at least as it relates to our public health programs – the goal is getting meaningful information on things like “health outcomes” and “quality” to the programs’ beneficiaries. BUT, what continues to vex policy experts and industry stakeholders is how do you define “quality”? What kind of “health outcomes” should be measured? And what are the metrics for measuring positive health outcomes as well as negative outcomes? I wish I had answers to these questions, but sadly I do not. BUT, I am committed to finding answers, and I know there are many more people who are smarter than me committed to finding answers too. Fingers crossed that the industry can coalesce around uniform definitions and metrics sooner-rather-than-later. Because 2030 is out there. And all the reports I see indicate that somewhere around the 2030 time-frame, we are going to be in a world of hurt from a government spending perspective on health care.

Price Transparency Among Private Insurers and Providers: A Tough Nut to Crack (no news story)

As stated, I believe there are ways to increase transparency of “quality” and “health outcomes” as it relates to our nation’s public health programs. And – although I didn’t say it above – HHS can definitely do a better job of getting the prices for Medicare-covered services to private organizations so they can effectively disseminate this information to Medicare beneficiaries. HHS could also disclose the price and health outcomes of specific “medical episodes” like joint replacements, or arthritis and diabetes management, or services treating heart disease. It has been suggested that HHS pilot a “Centers of Excellence”-type program through CMMI for Medicare beneficiaries for specific episodes like joint and hip replacements and spine surgeries, where providers are included in the Centers of Excellence network if they meet certain performance measures and health outcomes, and if they agree to a negotiated “bundled payment” that would cover the cost of the services (from the beginning of the episode to the end of the episode).
- Analysis: But what about price transparency in the “private” insurance context (e.g., the private “individual” and “group” markets)? This is where the confidentiality clauses and trade secrets reign-supreme. And they have prevented Congressional staff, Administration officials, and State policymakers from requiring meaningful price transparency so consumers – as Secretary Azar put it – can be “in charge of their own healthcare dollars.” Secretary Azar has suggested, however, that there are “plenty of levers to pull that would help drive change.” But how? What levers? At this point, no one really knows other than Secretary Azar and his staff. But here are some things to think about: Back to my point about “conditioning” certain public health program reimbursements or direct government payments on disclosing certain information. Well, HHS could require providers that contract with the government to provide services under Medicare, Medicaid, or the VA to not only disclose certain information relating to these public programs, but these providers would ALSO be required to disclose the prices of medical services provided to private insurance policyholders in the individual and group markets. Now, I recognize that my suggestion above may be too far-reaching. And, I recognize that not all providers contract with Medicare, Medicaid, or the VA. So another approach to consider is this: Congress can look to the Tax Code. Maybe it’s the tax guy in me, but I believe that one of the most powerful ways to affect behavior is through the Tax Code – by taking away a tax benefit for failure to do something or offering a tax preference for certain behavior. In the case of price transparency, Congress could limit the deduction that providers can take for certain “ordinary and necessary” business expenses on their corporate income tax returns. And even though the Tax Reform legislation eliminated many of the tax preferences available to for-profit taxpayers (e.g., for-profit hospitals and professional service organizations like physician groups), there are still some tax preferences in the Code that Congress could reduce or eliminate unless a provider discloses specific pricing information. For example, private activity bonds are a big deal for hospitals. Maybe condition the maintenance of this tax benefit for those hospitals who disclose the prices for their medical services: If no disclosure of prices, no private activity bonds available to the hospital. Congress could go the other way and offer tax incentives to those providers who disclose specific pricing information. High-income-earning Sole Proprietors got the short-end-of-the-stick under Tax Reform, so maybe some relief can be provided to those physicians who disclose their medical prices. Not-for-profit hospitals also got little benefit out of Tax Reform, so maybe some sort of benefit can be thrown their way if these hospitals disclose the prices for their medical services. For example, maybe Congress can eliminate some of the limitations placed on executive compensation in non-profit organizations (including non-profit hospitals). So I agree with Secretary Azar. In my simple-mind, there are ways to extract the information from providers. They may be bold. But there are ways to do it. It will be interesting to see what Secretary Azar comes up with. It will also be interesting to see if Congress will follow Secretary Azar’s lead here. The cool thing is that Sens. Cassidy (R-LA), Grassley (R-IA), Young (R-IN), Bennett (D-CO), Carper (D-DE), and McCaskill (D-MO) have recently launched a “Health Care Price Transparency Initiative” that should lead to legislation that could be considered in, for example 2019, before we all get bogged down by the 2020 Presidential Elections. As stated above, we’ll keep talking about this issue.