CMS Letter to State Insurance Commissioners Offers Transitional Policy to Prevent Health Insurance Issuers from Cancelling Plans for 2014

by King & Spalding
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On November 14, 2013, the CMS Center for Consumer Information and Insurance Oversight issued a letter to State Insurance Commissioners  announcing a “transitional policy” to permit health insurance issuers to continue plan coverage for individuals and small businesses that was in effect on October 1, 2013, that otherwise would have been terminated or cancelled in 2014 for failure to comply with “specified market reforms” adopted under the Affordable Care Act.  These policies that are renewed starting between January 1, 2014 and October 1, 2014, will not be deemed by the agency to be out of compliance with such “specified market reforms,” which include, among other sections of the Public Health Service Act, the requirements relating to fair health insurance coverage, guaranteed availability of coverage, and the prohibition of pre-existing condition exclusions or other discrimination based on health status with respect to adults (except with respect to group coverage). 

CMS states that its policy not to enforce certain provisions in the Affordable Care Act for a transitional period is in response to the situation in which many individuals and small businesses are “dissuaded from immediately transitioning” to coverage under the health insurance exchange because they are finding that such coverage is more expensive than their current coverage.

Many health plan issuers had already planned to terminate or cancel plans starting in 2014 that would have been out of compliance with the Affordable Care Act and in many cases had already informed enrollees of such.  If issuers wanted to continue offering current plans, it is thus unclear whether they will have enough time to go through the necessary steps to continue to offer such coverage (such as negotiating 2014 rates with providers) that would begin in less than two months.  Moreover, as a condition for continuing coverage under an existing plan, issuers are required to send a notice to all small businesses and individuals who either already received a termination or cancellation notice or would otherwise would have received such a notice informing them: (i) of any changes in the options available to them; (ii) which of the market reforms would not be reflected in the existing plan that would continue; (iii) their potential right to enroll in a qualified health plan offered through the exchange and notice of potential financial assistance; (iv) how to access such coverage through the exchange; and (v) their right to enroll in coverage outside of the exchange that complies with the “specified market reforms.” 

There is also concern in the industry that this transitional policy will drive sicker individuals to plans in the exchange while healthier individuals will remain in their existing plans for 2014.  CMS seems to address this concern by reminding issuers that “the risk corridor program should help ameliorate unanticipated changes in premium revenue.  We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.” 

Finally, in acknowledgement of the role of state insurance regulators with respect to action by insurers under the transitional policy, the CMS letter notes that state agencies responsible for enforcing these market reforms are "encouraged" to adopt the same transitional policy.

A copy of CMS’s letter to the State Insurance Commissioners is available here.

Reporter, Kate Stern, Atlanta, +1 404 572 4661, kstern@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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