CMS and OPM Issue Proposed Rules Governing Insurance Exchanges and Multi-State Plans

by King & Spalding
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On Friday, CMS issued a proposed rule offering further details on the operations of the health insurance exchanges established under the health reform law (Exchanges) including the parameters related to the risk adjustment, reinsurance, and risk corridors programs.   Of particular note, CMS proposed to impose on insurers participating in a Federally-facilitated exchange a fee of 3.5% of premiums collected.  On the same day, the Office of Personnel Management (OPM) issued a proposed rule, to implement the Multi-State Plan Program (MSPP) under which OPM contracts with private health insurance issuers to offer at least two multi-State plans on each of the State Exchanges.  These multi-State plans (MSPs) are intended to “foster competition among plans competing in the individual and small group health insurance markets.”  Per OPM’s proposal, MSPP issuers will not have to cover all 50 States immediately but will instead have the option of phasing coverage in starting with at least 31 States in its first year and covering all States by its fourth year.  In addition, the MSPs can offer a benefits package that either follows a State's essential health benefit (EHB) benchmark plan for the State in which it is operating or any EHB benchmark chosen by OPM that is based on one of the three largest federal employee health plan options. 

Of the many proposals issued Friday, the one that garnered the most attention was CMS’s proposal to impose a 3.5% “user fee” on insurers that wish to participate in a Federally-facilitated Exchange to help defer CMS’s administrative costs.  In particular, CMS proposed “a monthly user fee rate equal to 3.5 percent of the monthly premium charged by the issuer for a particular policy under the plan.”  The Associated Press reported that “critics of the law were quick to point out” that the “proposed administrative fee in the new exchanges would be higher than the 2 percent to 3 percent overhead commonly cited for running Medicare.” The insurance industry warned that the fees could increase costs to consumers while CMS countered that insurers will benefit in various ways from selling their policies through the Exchanges.

In addition to the 3.5% user fee, CMS also offered further detail and parameters related to: the risk adjustment, reinsurance, and risk corridors programs; cost-sharing reductions; advance payments of the premium tax credit; a Federally-facilitated Small Business Health Option Program; and the medical loss ratio program. According to CMS, “[t]he cost-sharing reductions and advanced payments of the premium tax credit, combined with new insurance market reforms, will significantly increase the number of individuals with health insurance coverage, particularly in the individual market.”  In addition, “[t]he premium stabilization programs – risk adjustment, reinsurance, and risk corridors – will protect against adverse selection in the newly enrolled population.” 

Reporter, Daniel J. Hettich, Washington, D.C., +1 202 626 9128, dhettich@kslaw.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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