The (Ongoing) Saga of ACA: New Proposed Regulations

On October 27, the Centers for Medicare & Medicaid Services (“CMS”) issued new proposed regulations regarding the operation of health insurance exchanges under the Affordable Care Act (“ACA”).

Much of this 365-page document consists of more routine updates to rules governing the operation of exchanges under ACA. In addition to these routine provisions, however, the proposed regulations contain a number of more subtle – but, nonetheless, potentially significant – changes to the rules governing health insurance markets in the U.S.

The overarching theme of these changes is that states – and insurance companies – should be given more control over the rules governing health insurance and that the federal government should step back from more granular guidance issued since the enactment of ACA. The assertions behind these changes are that states understand their own specific markets and that granting more flexibility to insurance companies may encourage them to continue offering coverage on the ACA exchanges.

Here is an overview of some key provisions in the proposed regulations:

•      States will have more flexibility in identifying the benchmarks used to determine coverage of the ten categories of essential health benefits (“EHBs”) required under ACA. The benchmark plan used is the building block to determine the coverage that must be provided by insurance under the ACA and impacts the value provided both by insurance companies and large, self-insured employer plans.

Under the proposed regulations, states will be allowed to use, as a benchmark, any plan covering at least 5,000 enrollees or the benchmark plan used by any other state. Under current rules, states must use plans that cover a more significant number of enrollees. States will also have more flexibility to reduce the value of coverage for any category of essential health benefits and replace that value in another category; under current rules such cross-substitution is not permitted.

This may be the most significant item in the proposed regulations. If one state takes an aggressive position in redefining (and reducing) the value of essential health benefits, the new, lower standard could trigger a nationwide “race to the bottom” by other states and by self-insured employer-sponsored plans.

•      States will also have more flexibility in reviewing (or not reviewing) increases in insurance premiums and defining the profits that carriers can retain before triggering the ACA MLR (medical loss ratio) requirements that excess profits be rebated to insured individuals.

•      Rules governing health insurance “navigators” will be loosened.

Navigators are tasked, under ACA, with helping consumers shop for insurance. Under the proposed regulations states will be able to select one entity to provide these services and current requirements (that each state is required to have at least two navigators, that navigators must have a physical presence in-state, and that at least one navigator must be a community-focused, nonprofit entity) will be eliminated.

•      Insurance companies will be able to offer coverages that are not “meaningfully different” and will be under fewer requirements to explain the differences in the plans offered.

•      The proposed regulations contain a number of provisions modifying rules governing verification of individuals’ eligibility for the advance payment of tax credits under ACA used to purchase insurance.

•      The functionality (and usefulness) of the special ACA insurance exchange for small businesses (the “SHOP” exchange) has been significantly reduced.

Most of the changes in the proposed regulations will be effective in 2019; however, the changes to the SHOP exchange rules go into effect in 2018.

These proposed regulations can – depending on your perspective – either be seen as representing an exercise in passing the buck or in appropriate delegation of rulemaking authority. The proposed regulations do not, directly, make significant changes to the health insurance coverages offered under ACA. Rather, they give states and insurance companies the ability to make changes. It will take months – or years – to see how the autonomy provided in these proposed regulations is used.