CMS Releases Proposed Rule on Health Insurance Market Reforms

by King & Spalding

On November 20, 2012, CMS released a proposed rule implementing several key provisions of the Affordable Care Act (ACA) relating to health insurance market reforms.  Among other things, the proposed rule would implement ACA’s policies regarding the following:

  • Fair Health Insurance Premiums.  Health insurance issuers would be permitted to vary premiums for coverage in the individual and small group markets based only on a limited set of factors, including age, tobacco use, family size and geography.  Thus, other currently used factors, such as health status, pre-existing conditions, claims history, gender, occupation and duration of coverage, would be prohibited.  The practice of “re-underwriting,” or increasing premiums at renewal for existing customers who incurred claims or experienced worsening health during a policy year, would also be prohibited. 
  • Guaranteed Availability of Coverage/Guaranteed Issue.  Health insurance issuers would be directed to offer coverage to and accept any individual or employer in the state that applies for coverage, with limited exceptions.  The exceptions would allow issuers to limit enrollment to (1) certain open and special enrollment periods, (2) an employer’s eligible individuals who live, work or reside in the service area of a network plan, and (3) certain situations involving network capacity or financial capacity.  Thus, issuers could not deny coverage based on health status, risk or medical claims and costs.  The proposed rule would also provide individuals new special enrollment opportunities in the individual market when they experience certain losses of other coverage. 
  • Guaranteed Renewability.  Health insurance issuers would be required to renew or continue the coverage at the option of the plan sponsor or individual, with certain exceptions such as for nonpayment of premiums or fraud or intentional misrepresentation of material fact under the terms of coverage.  This provision is based largely on the corresponding HIPAA provision for group market guaranteed renewability under 45 C.F.R. § 146.152, but would expand the scope to include the individual market. 
  • Risk Pools.  Generally, health insurance issuers would be required to consider all of their enrollees in all health plans offered by the issuer to be members of a single risk pool in the individual market and small group market (unless a state merges those markets into one pool).  This provision would prevent insurers from using separate pools within markets to avoid market reforms and charge persons with greater health problems higher premiums by increasing their premiums at higher rates than other, healthier risk pools.  
  • Catastrophic Plans.  The proposed rule codifies ACA Section 1302(e), which outlines standards for offering catastrophic plans.

These reforms would be effective for plan years (group market) and policy years (individual market) beginning on or after January 1, 2014. 

The proposed rule is available by clicking here.   

Reporter, Kerrie S. Howze, Atlanta, + 1 404 572 3594,

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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