Christine M. ClementsA. Xavier BakerHarsh P. Parikh

The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule  to stabilize the individual and small group markets to entice issuers to continue participation in the exchanges in 2018 despite continued uncertainty surrounding repeal and replacement proposals for the Affordable Care Act (ACA). The proposed rule, published today, would make the following changes to the individual and small group markets:

  • Open Enrollment: The proposed rule would shorten the Open Enrollment period from November 1, 2017 – January 31, 2018 to November 1, 2017 – December 15, 2017. This would align open enrollment for exchanges with both the employer market (including the Federal Employees Health Benefits Program) and Medicare Advantage open enrollment periods. CMS hopes that the modifications in enrollment period will mitigate adverse selection by requiring individuals to enroll in plans before the benefit year begins and pay premiums day 1 of the benefit year rather than allowing individuals who learn they will need services in late December and January to enroll at that time.
  • Special Enrollment Period: In response to perceived abuses of special enrollment periods (SEPs)—which allow individuals to enroll outside of the open enrollment period when there is a special circumstance (e.g., new family member)—the proposed rule would require verification of an individual’s SEP eligibility 100% of the time beginning in June 2017. Currently, eligibility for an SEP is verified only 50% of the time. Under pre-enrollment verification for new customers, consumers would submit their information and select a plan but their enrollment would be “pended” until completion of the verification. Consumers would have 30 days to submit information to verify their eligibility. The start date of the coverage would be (as it is today) the date of plan selection, but it wouldn’t be effective until the “pend” had been lifted following verification. The rule is limited to pre-enrollment verification of eligibility to individuals newly enroll through SEPs in marketplaces using the HealthCare.gov platform. The proposed rule would also limit certain individuals’ ability to switch to different levels of coverage during an SEP. The SEP provisions of the proposed rule may offer the most significant relief of all the proposed changes.
  • Network Adequacy: In an effort to make it easier for issuers to meet network adequacy requirements to participate in exchanges, the proposed rule would remove federal time and distance standards for provider networks in favor of state law requirements. It also would allow issuers to “write-in” essential community providers (ECPs) who were not identified on HHS’s website as available ECPs for 2018 and would lower the standard from 30% ECP enrollment in a network to 20%. According to CMS, “the proposed rule takes an important step in reaffirming the traditional role of states to serve their populations.”
  • Guaranteed Availability: Because of federal guaranteed availability requirements, issuers have long complained that enrollees could stop paying premiums and, instead, elect to sign up for coverage again under a different product from the same issuer without any penalty (because guaranteed availability prevented the issuer from denying the individual enrollment in the product despite failure to pay premiums for a different product). The proposed rule attempts to remedy this; issuers could take the premiums paid for a “new” policy and apply them to the debt owed for the other product and would not have to effectuate coverage based on the failure to pay premiums for any product from that issuer in the last 12 months. Issuers can terminate coverage for failure to pay premiums after 90 days, so the most an issuer could recover in such a circumstance would be 3 months’ premium. This only would apply where an individual attempts to purchase a health insurance product from the same issuer he did not pay in the last 12 months and assuming the individual and not another party acting on his behalf pays the premium under the new product. Some exchanges may have only one issuer, while others may have more than one—in which case, the individual could avoid repaying the premium debt by purchasing a product from a different issuer. Nonetheless, this proposal is helpful, assuming state law doesn’t preclude requiring the individual to repay the owed premium.

Although the rule does not propose a change, CMS notes that it is exploring additional requirements in the individual market that would promote continuous coverage. For example, with respect to SEPs that require evidence of prior coverage, CMS is considering requirements for the individual market that would require individuals to show evidence of prior coverage for a longer “look back” period. CMS could require prior coverage for 6 to 12 months, although CMS might consider an individual to have had prior coverage if there was a small gap in coverage (e.g., up to 60 days). Alternatively, for individuals who are not able to provide evidence of prior coverage during such a look back period, an exception could allow them to enroll in coverage if they otherwise qualify for a SEP, but impose a waiting period of at least 90 days before effectuating enrollment or assess a late enrollment penalty. Such policies could provide a disincentive for individuals to drop out of coverage, thus promoting continuous coverage. Note that many current ACA replacement proposals include similar continuous coverage requirements and reflect pre-ACA rules.

Stakeholders may provide comments to the proposed rule by March 7, 2017. Assuming the proposed rule is finalized, it does not leave a lot of time for issuers to adjust their 2018 offerings, as the plans must be submitted to CMS in May (this is an issue mainly for the actuarial value change, which would allow issuers to slide down from 68% to 66% coverage of costs for silver plans).

The proposed rule follows Executive Order 13765 that directed agencies “to exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of” any provision of the ACA that imposes a financial or regulatory burden on any stakeholder including patients, physicians, hospitals and other providers, as well as insurers, medical device manufacturers, and pharmaceutical companies.

Thus, while the proposed rule may be welcomed as quick action by the new Administration to address concerns about market stability, it will not encourage new entrants to the market and is unlikely to keep issuers from exiting the markets.  As Crowell & Moring’s Christine Clements explained to the National Law Journal, “ this proposed rule has some helpful elements and has features that issuers have asked for to varying degrees, it’s not going to change the overall uncertainty of where the marketplaces, where the exchanges are going.  We need to know what the administration is going to propose. Only then will there be more stability.”

As such, the proposed rule likely falls short in encouraging greater choice that will draw consumers and vibrant competition back into the marketplaces and thereby stabilize the individual and small group markets. The rule doesn’t offer much to issuers aside from marginal tweaks relating to enrollment periods, networks, actuarial value, and premium payments. The fundamental challenges that plague the exchanges remain intact (e.g., younger, healthier people aren’t enrolling) and the rule doesn’t address macro concerns about whether the Trump Administration will scrap the ACA’s individual mandate or otherwise take actions that destabilize the health insurance market as a whole.