Manatt on Health Reform: Weekly Highlights - July 2016 #2

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

The President voices support for a public option; Vermont selects a Medicaid ACO; and Alabama ends enhanced primary care reimbursements.


HHS Highlights Decrease in the Median Deductible for Marketplace Plans

The median individual annual deductible for 2016 policies is $850, down from $900 in 2015, according to HHS data demonstrating how financial assistance (cost-sharing reductions) reduces deductibles, out-of-pocket maximums, and other cost-sharing obligations. HHS also notes that consumers are further protected from their deductibles because the average policy covers seven common healthcare services, in addition to preventive services, with no or low cost-sharing prior to the requirement to meet the deductible. Overall, HHS reports that a third of enrollees have annual deductibles of less than or equal to $250 and over half have annual deductibles under $1,000 after accounting for financial assistance. Enrollees in silver plans that do not qualify for cost-sharing reductions have a median annual deductible of $3,000.

President Outlines Next Steps for Health Care Reform, Including “Public Option”

President Obama supports implementation of a public plan to compete alongside private insurers in ACA Marketplaces, according to his article in the Journal of the American Medical Association. To build on the success of the ACA, the President also recommends: addressing high prescription drug costs by increasing transparency around manufacturers’ costs and increasing the rebates that manufacturers are required to pay for drugs prescribed to certain Medicare and Medicaid beneficiaries; ensuring all states expand Medicaid; and increasing financial assistance available in the Marketplace to address affordability concerns. The President described coverage expansions and delivery system reform accomplished under the ACA and acknowledged that it will take “continued hard work” to achieve these goals in full, including the Administration’s objective to have at least half of traditional Medicare payments flowing through alternative payment models by the end of 2018.


IRS Proposes Clarifications to Benchmark Calculations and Premium Tax Credit Eligibility

The IRS issued a notice of proposed rulemaking (NPRM) that would provide technical clarifications across a range of issues affecting individuals’ eligibility for and amount of ACA premium tax credits, including how benchmark plan premiums are calculated. Notably, the regulations would ensure that benchmark plan premiums, which help determine the amount of premium tax credit for which an individual is eligible, include the cost of pediatric dental benefits, which currently are sometimes not included in the benchmark plan. This would effectively increase the amount of premium tax credit for which an impacted consumer may be eligible. The proposed rules would also provide additional leeway for individuals transitioning from Marketplace coverage with tax credits to Medicaid or CHIP. If a Marketplace is delayed in terminating tax credits leading to an extra month of dual enrollment, enrollees would not owe back the tax credits for that month. The rule also addresses how to calculate the affordability of employer-sponsored insurance and how to conduct the reconciliation of advance premium tax credits in some special cases. If finalized, much of the rule would be effective for the 2017 tax year, though changes to benchmark plan premium calculations would generally take effect in the 2019 tax year and certain provisions that expand eligibility for premium tax credits would apply retroactively to the 2014 tax year.

Subsidies Make Marketplace Premiums Comparable to Employer-Sponsored Insurance

The availability of premium tax credits has made premium costs for Marketplace enrollees with low- and moderate-incomes comparable to premiums paid by individuals with employer-sponsored insurance (ESI), according to the results of a survey conducted by The Commonwealth Fund. The survey found that 66% of Marketplace enrollees earning below 250% of FPL spend less than $125 per month on premiums, compared to 60% of ESI enrollees. Lower-income enrollees in Marketplace and ESI coverage were similarly less likely to report having deductibles greater than $1,000. However, at higher incomes, Marketplace enrollees were significantly more likely than ESI enrollees to report having a high-deductible plan (68% versus 42%). The survey also found that 75% of ESI enrollees said it was somewhat easy or very easy to afford their premiums, compared to 49% of Marketplace enrollees.

Missouri: State to Begin Reviewing Health Plans’ Rates

Governor Jay Nixon (D) signed SB 865 into law authorizing the State Department of Insurance (DOI) to conduct rate reviews of health plans, offered both on and off the Marketplace, beginning in 2018. While the DOI may determine that a rate is “unreasonable” and make that determination public, health plans will be permitted to implement these rates. Texas, Wyoming, and Oklahoma are the three remaining states without State rate review authority; Alabama established rate review authority earlier this year.

Oregon: CO-OP Announces Closure, 23,000 Policyholders Impacted

Oregon's Health CO-OP announced it will close due to financial difficulties, impacting 23,000 policyholders on Oregon's individual and small group markets. The CO-OP is working with the State to allow individual plan policyholders to keep their coverage and deductibles through the end of December 2016; all group plans will expire on July 31, 2016, requiring businesses to find new plans that take effect August 1, 2016. The State cited contributors to the CO-OP’s financial instability, including a federally mandated $900,000 risk adjustment program payment and an $18.4 million financial loss on the individual market in 2015.

Oregon: Department of Insurance Approves 2017 Rates

The Division of Financial Regulation has approved rate changes for 2017 plans that range from a 9.8% to 32% increase in the individual market and from an 8.9% reduction to a 17% increase in the group market. The average monthly premium for a 40-year-old consumer living in Portland enrolled in a standard silver plan will be between $312 and $442 on the individual market and between $255 and $362 on the small group market.

Washington: Auditor’s Report Recommends Steps to Ensure Exchange’s Sustainability

A State audit reviewing the costs and sustainability of the Washington Health Benefit Exchange found that the Exchange must establish a capital reserve and long-term financial plan and correct past and future reimbursement errors to ensure continued successful operations. According to the audit, the reimbursement agreement between the Exchange and Medicaid did not fully account for all operating costs associated with services provided to Medicaid enrollees, leading to an $89.2 million shortfall in Medicaid reimbursements between January 1, 2014 and June 30, 2016. The audit also deems the Exchange’s operating costs as reasonable and estimates that the Exchange’s decision to stop billing and collecting individual insurance premiums will save $9.1 million in bank fees, wages and call center costs through 2017. The report notes that the Exchange could save between $750,000 and $1.3 million annually by partnering with Covered California (California’s State-based Marketplace) on a shared call center vendor. The audit is a result of 2013 State legislation requiring the State auditor to review the Exchange’s operational costs.


Alabama: Medicaid Reduces Primary Care Payments

Medicaid-participating providers will no longer receive enhanced payments for certain primary care visits and services, a cost-cutting measure triggered by an $85 million shortfall in the State’s most recent Medicaid budget. The change goes into effect August 1 and is expected to save the State $14.7 million. State Medicaid Commissioner Stephanie Azar and Governor Robert Bentley (R) have proposed additional cuts to Medicaid in response to the budget, including the elimination of prescription drug coverage. In a statement released in response to the rate cuts, Governor Bentley said his goal is to continue the State’s transition to managed care delivered through regional care organizations, though the State has sought to delay that transition due to Medicaid’s funding levels. The enhanced primary care rates were originally required under and fully funded by the federal government, though Alabama has funded the program with State dollars and federal matching dollars since 2015.

Ohio: Medicaid MCO Tax Ending, Projected Revenue Down $1.1 Billion

A State tax on Medicaid managed care organizations in effect since 2009 will be eliminated by June 30, 2017 due to non-compliance with federal regulations. The tax was projected to generate $558 million in State revenue and $195 million in county revenue in fiscal year 2018. The elimination of the tax is expected to decrease projected net State revenue by $1.1 billion for the next two-year budget cycle. The federal government first advised Ohio that the tax was noncompliant in 2014 and said it should be ended after “the next legislative session.”

Vermont: Department of Health Selects OneCare Vermont as “Next Generation” Medicaid ACO

The State Department of Health has selected OneCare Vermont to become the Medicaid accountable care organization (ACO). The State’s “Next Generation” Medicaid ACO program aims to align with the federal Medicare ACO program and establish regular, prospective, and capitated Medicaid payments to OneCare to move toward value-based purchasing and away from the State’s current fee-for-service model. This proposed financial structure and the recent agreement that the State’s three ACOs (including OneCare) will be centrally managed by a new entity called the Vermont Care Organization (VCO) help to position the State to implement its proposed all-payer healthcare model. The State remains in negotiations with the federal government over its proposed all-payer system and its Next Generation Medicaid ACO model.

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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