By John Reichard, CQ HealthBeat Editor
July 21, 2011 -- It's one of the biggest decisions they have to make under the health law—but Health and Human Services officials are remaining resolutely mum about whether Uncle Sam will deny insurers access to the health benefit exchanges it runs if they give consumers a lousy deal.
Steve Larsen, director of the Center for Consumer Information and Insurance Oversight, declined to tell reporters when that decision would be announced. Larsen wouldn't even say whether it would be announced this year.
Denying such information is consistent with the Obama administration's overall strategy: Keep from giving GOP candidates fresh opportunities to tag the controversial overhaul law with the "big government" label going into next year's elections.
Larsen spoke during a Q-and-A session with health reporters in which he delivered a status report on the big insurance regulatory structure HHS is creating under the law (PL 111-148, PL 111-152). Larsen's description showed HHS to be proceeding in workmanlike fashion—and keeping a low political profile as it goes about the work of implementing the law.
Larsen dealt with various regulatory mechanisms intended to give consumers better value for their insurance dollar: state health insurance exchanges, medical loss ratio rules, rate review rules and "essential benefits" rulemaking setting out minimum coverage standards that plans will have to meet under the law.
Shape of the Exchanges
The health care law requires the federal government to operate an exchange in a state that declines to do so or fails to make adequate preparations. How many states will be in that position is unclear. But many states have a long way to go to get exchanges ready by the Jan. 1, 2014 opening date under the law.
A big question is how the federal government will run exchanges and specifically whether it will be an active purchaser, meaning it can deny insurers a place in the exchange if they don't offer consumers a good deal. The recent HHS-proposed regulation on exchanges did not say.
Larsen said that "we will be releasing further guidance in some form—it's not clear whether it will even have to be a regulation—that would clarify how we will be setting up an exchange or portions of an exchange."
"I can't describe for you now the particular time frame," Larsen added. "I can only say that we know that's an issue that has to be resolved."
One possibility is that HHS would give the markets inside exchanges a chance to stabilize before becoming an active purchaser, Larsen said. The health care law includes a number of provisions to temporarily cushion insurers from losses after their entry into exchanges, an attempt to encourage their participation.
Starting out with what's called an "open model"—in other words, one in which exchanges don't exclude insurers based on the prices they charge—is "certainly part of the mix of thinking about which model" the federal government will employ, Larsen said. It's possible that both the federal government and state governments could decide to start with an open model and make a transition to becoming an active purchaser later, he said.
Larsen was asked to respond to criticism that the proposed exchange reg went too far in offering states flexibility and instead should have offered a standard model to prod states to take a particular approach.
"Like many, many of the decisions that we have to make with the regulation, we have to kind of balance competing and in some cases equally legitimate interests," Larsen responded. "We think that there's tremendous value if you have both models."
"At the end of the day we thought that it was more important to allow states to tailor their exchange to the circumstances in their state. We'll see how many offer the active purchaser model. I think some will."
The insurance and drug industries have locked arms in a nationwide campaign to keep state and local officials from becoming active purchasers. If the Obama administration is going to enter into that fight by becoming an active purchaser in federally run exchanges, it's in no hurry to show its hand. Larsen said that in general, states "are making good progress" in developing exchanges, but he declined to predict how many would be ready to run the marketplaces on their own by Jan. 1, 2014. Ten states have enacted legislation to create their own exchanges, and in "about the same number there's legislation pending or will again be pending when states reconvene in January," he said.
Larsen said that more than 40 states are talking to stakeholder groups about exchange development. "About half the states have a task force and regular interagency meetings to do exchange planning," he said. An important analytical job each state must do is an information technology "gap analysis" to determine the data processing needs of its exchange. Larsen said 30 states have begun that analysis and about half of those have completed it.
Later this summer HHS will start examining each state to determine how it is progressing in exchange development against specific benchmarks. "We may have a small number of states in which the state plays no role" in running the exchange, he said.
At the other end of the spectrum, he singled out Colorado as a state that is particularly far along in exchange development.
Larsen noted that states have access to federal funding to establish and run exchanges through 2014 and that the law does not cap the money available for these "establishment grants." The amount of money spent will depend on the number of applications HHS gets, he said.
Larsen was asked what would happen if a state created an exchange and it failed to provide consumers affordable coverage. Would the federal government then step in and run it? The HHS official said the department hasn't gotten far enough along in its thinking to have addressed that question.
Larsen noted that additional rulemaking and regulatory guidance governing exchanges are in the works. The rulemaking and guidance will address such issues as the quality improvement plans insurers participating in exchanges must have; how plans in exchanges will be ranked based on quality of care; and eligibility and enrollment functions.
Another regulation HHS officials say they will propose later this year governs the "essential benefits" that insurers must provide inside and outside exchanges. As part of that process, the Institute of Medicine is preparing a report on essential benefits, but Larsen noted that the report won't recommend a specific package of benefits but rather a process for determining what the essential benefits are.
Larsen was asked about a rumor that HHS will leave it to each state to decide what the essential benefits are in its state. "I'm not going to comment on the rumor," he said. But "there are certainly a range of approaches you can take." So far, HHS has shown a strong tendency to let states decide matters, an approach that helps the Obama administration counter criticism that the health care law puts federal bureaucrats in charge of what care people will get.
"We completed our evaluation of whether states have an effective rate review process," Larsen noted. Non-grandfathered plans that have a proposed rate increase over 10 percent must notify the public and justify the increase, starting Sept. 1. Many states have hired actuaries and consultants to beef up their review processes, he said. There are 40 states or so that now have an effective rate review process. "You're looking at real, concrete progress," he said.
This fall, the federal government will do the reviews in the 10 states that lack an effective rate review process. The health care law doesn't give states power to deny increases, but the hope is that insurers will reduce them if state or federal officials label proposed premium hikes as unreasonable.
Factors HHS considered in determining whether a state has an effective rate review process include whether it receives documentation from an insurer sufficient to determine that a rate hike is unreasonable, whether the state has effectively reviewed the documentation, whether the state reviews the reasonableness of the assumptions insurers make in proposing a rate increase, and whether the state sets forth a standard in law or regulation in determining whether a rate his is unreasonable.
Reportedly, the 10 states in which HHS will review rates are Alabama, Arizona, Idaho, Louisiana, Missouri, Montana and Wyoming in both the individual and small-group markets, and Iowa, Pennsylvania and Virginia in the small-group market.
Larsen emphasized that "for the first time there's going to be a uniform disclosure form" insurers must issue laying out for consumers why their rates are going up.
Medical Loss Ratio
Larsen was asked about the status of health plans for U.S. expatriates under the medical loss ratio requirements that establish minimum payouts by plans for health care and quality improvement. A questioner noted that the plans' exemption from the standards expires this year and said at least one of them, Cigna Corp., has said it would move its international operations involving hundreds of jobs overseas if it doesn't get a permanent exemption.
Larsen said HHS is aware of the plans' concerns and that "hopefully we can work through this in a way that avoids unfortunate consequences.
"We're very aware and tuned into concerns that they have," he added. "One of the things that has always guided our thinking when we're implementing the ACA is to maintain the promise" that people can hold on to the coverage that they have.
HHS expects to issue regulations by the end of the year addressing the status of "expat" plans and of "mini-med" plans under the MLR standards. Mini-med plans are those that offer relatively few benefits.
He also said that HHS will issue decisions within 10 days on requests from North Dakota, Iowa, and Kentucky for additional time to comply with MLR standards.