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Obama Administration Proposes Giving More Money to Insurers

By Rebecca Adams, CQ HealthBeat Associate Editor

November 25, 2013 -- Federal officials released a proposed rule last week that would increase the amount of money the administration will give insurers to compensate for any losses they have on health plans in the new marketplaces.

Republicans protested that the proposal also would exempt labor unions from having to pay a tax under the health care law (PL 111-148, PL 111-152). Sen John Thune, R-S.D., called the exemption "crony capitalism at its worst."

The rule "would exclude from the obligation to make reinsurance contributions those self-insured plans that do not use a third party administrator for their core administrative processing functions."

A Centers for Medicare and Medicaid Services (CMS) official said that in addition to multi-employer plans used by unions the change also applies to a number of local and state governments and universities.

The proposal is part of a scramble by the administration to compensate insurers for unexpected losses they may face because of recent health law implementation problems,

Administration officials said last week that they were exploring ways to provide more money to health insurance plans because President Barack Obama unexpectedly announced a change in requirements for benefits in health plans next year.

Federal rules previously had said that health plans must provide a minimum set of benefits starting on Jan. 1, unless the plans had been in existence in March 2010 when the health care law was enacted and haven't changed substantially. As a result, insurance companies sent notices to millions of customers saying that their plans would be cancelled at the end of the year. Then Obama said last week that insurance policies could be extended for another year if insurance commissioners and insurers agreed.

The 255-page proposed rule recently released by the CMS outlines several ways that the administration is thinking about providing more money to insurers. The agency is giving the public 30 days to comment on it before the administration finalizes a rule.

Insurers said they were pleased that the administration has outlined its thinking.

"We appreciate that the administration is taking steps to stabilize the market and minimize disruption for consumers," said Robert Zirkelbach, spokesman for America's Health Insurance Plans.

The extra cash will come through the federal reinsurance program, which pays the costs of unusually expensive patients, and the federal risk corridor program, which limits insurers' losses and profits.

Federal officials proposed paying for a greater number of high-cost cases in 2014. They said they are considering paying costs above $45,000 next year instead of the original plan to pay expenses over $60,000 under the reinsurance program.

The reinsurance program is limited to $20 billion for three years under the law. The proposed rule also takes the insurance industry's recommendation of ensuring that all of the contributions collected for a benefit year are spent that year instead of some of the money being used the following year.

For 2015, CMS officials proposed paying half of the costs above $70,000 for patients with high medical expenses, up to a $250,000 cap that is similar to one that appears to remain intact for 2014.

The risk corridor program includes targets for insurers' expected profits, after their costs are considered. If less money comes in, then the federal government splits the losses with the companies. If the companies make more money, then they have to give some back to the federal government.

One way that CMS officials may give insurers more funding is by increasing the amount of money the federal government will pay for losses that are more than 3 percent higher in 2014 than what insurers expected. Under previously published rules, the federal government would pick up half of the costs for losses that were between 3 percent and 8 percent higher. For losses that were 8 percent higher, the agency would pay 80 percent of the losses.

The proposed rule asked the public to comment on some ideas that the agency suggested to boost those payments through a change to the formula. Agency officials also invited the public to put forward their own ideas.

As part of the proposed fixes, the agency would increase the amount of costs that insurers could subtract from their revenue. Under previous rules, insurers' costs would be capped at 20 percent of after-tax profits.

The agency also suggested another way that they are considering providing more funds to insurers. CMS officials said they might adjust a requirement under the medical loss ratio provisions of the health care law that forces insurers to spend at least 80 percent of the money they get from customers on medical claims. "We seek comment on the best way to make such a modification," the rule said.

The rule proposes to freeze user fees on health plans in the new federally-administered marketplaces at 3.5 percent in 2015, just as in 2014.

Insurers say that changes to risk corridors and reinsurance are critical because of recent implementation problems with the law.

Specifically, the troubled startup of the website could lead to an older and sicker mix of enrollees on which 2015 rates will be based, America's Health Insurance Plans said in an "issue brief." Also, the decision by the Obama administration to let insurers and state regulators renew canceled policies in the individual market could lead to fewer younger and healthier enrollees coming into exchange plans.

"If fewer younger and healthier people choose to purchase coverage in the exchange due to these changes, premiums will increase in the marketplace and there will be fewer choices for consumers," the brief says.

Risk corridor and reinsurance will now play a more critical role in assuring a stable long term market, it added. "Without additional support, consumers may face higher premiums and fewer choices in future years."

The proposal also contains a wide range of other issues, including information on cost-sharing and provisions affecting the small business marketplace. For instance, a SHOP marketplace could allow an employer to define up to four different contribution levels, depending on whether the worker was full-time or part-time and whether the employee chose self-only or family coverage.

Some industry officials and consumer advocates are dismayed at the short time period allotted to comment on the rule, which includes the phrase that the agency plans to "seek comment" 66 times.

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