The Department of Health and Human Services (HHS) has issued the final Notice of Benefit and Payment Parameters (NBPP) for 2021 — the annual rule governing health insurance plans and health insurance marketplaces. While the final rule contains several changes, it does not significantly alter automatic re-enrollment for individuals who purchase through the health insurance marketplaces, which the federal government had proposed earlier this year.
The annual NBPP is of particular importance to insurers, insurance regulators, and marketplace officials who rely on the rule and its regulations to set the playbook by which health plans will be required to operate in the following year. The rule also sets requirements for system changes that marketplaces may have to implement as soon as the upcoming enrollment season.
The annual rule was issued May 7, 2020, the latest date that this annual rule has ever been released. As a result, the final regulations come very close to – or for some states after – the filing deadlines by which health insurers must submit their planned offerings for 2021. The delay caused health insurers to develop plans while operating under a level of uncertainty of what might be included in the final rule. Once released, insurers had little, if any, time to adjust their proposed filings in accordance with the changes finalized by the regulation.
Acknowledging the tight timeframe for implementing changes before the 2021 plan year, HHS delayed implementation of several of the requirements imposed under this rule until 2022 – including new requirements for medical loss ratio (MLR) calculations and changes to policies related to special enrollment periods (SEPs).
Delayed implementation of changes and deadlines required of insurers and insurance marketplaces is especially pertinent as markets face ongoing uncertainty resulting from the COVID-19 pandemic. As the country works to curb the spread of the disease, many questions remain about the pandemic’s long-term effects on insurance markets.
- How will consumers who lose employer-sponsored coverage and transition to individual plans affect the commercial insurance market?
- What will be the financial impacts of COVID-19 related treatments, including a possible vaccine?
- What will be the cost of consumers’ delaying or foregoing care?
- How will greater utilization of telehealth services impact costs?
Meanwhile, the health insurance marketplaces are operating in a new environment with increased enrollment of new consumers, all while modifying their operations, which include marketing and outreach strategies that comply with enhanced social distancing standards.
Major changes included in the rule are summarized below.
Annual reporting of state-mandated benefits. Federal law requires that health insurance plans sold in the individual and small group markets cover essential health benefits (EHB) and 10 broad health benefit categories, including hospitalizations, emergency services, and prescription drugs. States may impose benefits requirements in addition to the federal EHB requirement. Typically, benefit mandates lead to increased costs for health insurance. To insulate the federal government from increased expenditures on health insurance subsidies, which are calculated based on the cost of insurance premiums, states must defray the cost of any state-mandated benefits issued after Dec. 31, 2011, either by issuing payments to enrollees or insurers to cover the cost of these mandates. State-mandated benefits are also not allowed to be considered as part of federal advance premium tax credit (APTC) calculations or as part of cost-sharing limitations imposed on qualified health plans (QHPs).
Citing concerns that states may not be defraying the costs of state-requirement benefits, beginning in July 2021, states will be required to submit an annual report on state-mandated benefits outside of EHB. In the first year, states are required to include a comprehensive list of all state benefit requirements for QHPs sold in in their individual and small group markets. This will set a baseline – going forward states will only be required to submit an update to the report to include any new, amended, or repealed benefits. If no changes are made during a given year, a state may submit the same report. The report must accurately report information available within 60 days prior to the annual submission deadline. The rule also clarifies that insurers may refer to states to produce any cost analysis associated with additional benefits, rather than perform the calculations themselves.
The new requirement comes despite a majority of comments opposed to increased reporting, noting a lack of evidence that states were not in compliance with defrayal requirements and that such a requirement would be onerous and duplicative of processes already in place to assess the effects of state-mandated benefits. HHS asserts the reporting requirement should be complimentary to work already being conducted by states to assess these benefits and will help promote a uniform approach to assuring compliance with federal requirements across all states. The rule also stipulates that HHS will be providing additional technical assistance to states to address concerns over the lack of clarity about defrayal processes and identification of state-benefits that fall outside of EHBs.
Consideration of pharmacy price concessions and wellness incentives in medical loss ratio (MLR) calculations. Beginning in 2022, insurers will be required to deduct prescription drug price concessions from incurred claims considered as part of MLR calculations. Such concessions may include drug rebates or incentive payments given directly to insurers as well as those secured and retained by entities providing pharmacy benefit management (PBM) services or PBM-like entities. This is a change from previous requirements that only mandated inclusion of concessions received directly by an insurer and aligns with MLR policies already in place under Medicare and Medicaid. The change intends to even the playing field between insurers with PBM contracts and promote a uniform standard for what factors are considered when performing MLR calculations. HHS is considering additional rulemaking to provide precise definitions for prescription drug rebates and price concessions in advance of implementation of the new requirement.
HHS has also finalized changes that individual market insurers may include the cost of certain wellness incentives as quality improvement activities (QIA), which are considered medical care for the purposes of MLR calculations. Wellness incentives include rebates, discounts, waivers of cost-sharing, or other incentives provided as part of participation in a wellness program. This change conforms with how MLR calculations are assessed in the group market.
Inclusion of drug rebates into cost-sharing calculations. The rule permits, but does not require, insurers to count direct support offered by drug manufacturers (e.g., drug rebates, coupons) toward calculation of an enrollee’s cost-sharing responsibility. The rule clarifies that neither HHS nor the departments of Labor or Treasury will take enforcement action against insurers who exclude the value of direct support from cost sharing, even in cases where supports may incentivize take-up of brand-name drugs when generic alternatives area available.
HHS notes advantages to policies that include rebates as part of calculations (e.g., cost protections for consumers who use/need brand-name drugs) as well as policies that mandate exclusion of rebates (e.g., to incentivize use of generics where available). Application of the rule ultimately defers to state law and any restrictions states may impose on how direct supports are included in cost-sharing calculations. Insurers must apply their policies on direct support uniformly across all QHPs. HHS expects that issuers “prominently include” information on websites and other educational collateral explaining how drug manufacturer rebates are included in cost-sharing calculations.
Greater flexibility on plan selection available during a special enrollment period (SEP). Current rules maintain tight restrictions on the types of plans enrollees may select if enrolling during a SEP; usually requiring that consumers enroll in a plan at the same metal tier (of the same value) as previously held coverage. This is to ensure that consumers do not take advantage of SEPs to enroll in more generous plans because of an emerging health care need, as well as to provide greater consistency for insurers operating in the market. However, in a case where a SEP is triggered by an increase in income, the income change may render a consumer ineligible for cost-sharing reductions (CSRs), an additional subsidy given to individuals earning between 100nto 250 percent of the federal poverty level to cover out-of-pocket costs of care.
Loss of CSR eligibility may significantly alter affordability of certain health plans for a consumer. To account for this change, beginning with plan year 2022, consumers who lose CSR eligibility may enroll in a plan at a different metal level. The rule also allows consumers who are newly eligible for coverage to enroll in the same QHP as any dependents who are currently enrolled in QHP coverage through a health insurance marketplace.
Expedited effective dates for coverage obtained during a SEP. Current enrollment policies can lead to significant delays in effectuation of health insurance coverage. For instance, enrollees who enroll in coverage from the day 16 through 31 of any given month typically would not start coverage until the first of the month subsequent to the month that immediately follows their enrollment (e.g., if a person enrolled on June 16, coverage would not begin until Aug. 1).
Recognizing advancements in the time it takes issuers to process enrollments, in plan year 2022 insurers participating in the federally-facilitated marketplace (FFM) will be effectuating coverage on the first of the month following enrollment, regardless of the date the individual enrolled. State that operate their own marketplaces (SBMs) have flexibility to impose their own guidelines on effectuation dates – several have already accelerated the timeline for their issuers.
Limited flexibility for consumers eligible for retroactive coverage. A consumer may be incorrectly determined ineligible for coverage, in which case they can appeal the coverage decision. In some of these cases, the person may ultimately be eligible for coverage retroactive to a certain point before a determination of the eligibility was finalized.
Earlier rules had given consumers some flexibility over the start date at which consumers could retroactively elect coverage – which gave consumers some options in case they were in need of retroactive coverage, yet had concerns about paying premiums owed to cover all the months of retroactive coverage. The new rule eliminates this flexibility, and requires consumers to either begin their coverage retroactive to the entire period for which they should have been eligible for coverage or to begin coverage prospectively. The change is expected to have minimal effect as less than .05 percent of consumers with verification issues opted for retroactive coverage in 2018 and 2019.
SEP timeframe for Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). Current rules allow that consumers may qualify for an SEP upon becoming newly eligible for a QSEHRA, a type of health reimbursement arrangement (HRA) whereby employees can use the funds in the HRA to purchase health coverage sold through the health insurance marketplaces (for more information on QSEHRAs, read New Federal Health Reimbursement Proposal Adds New Variables to State Health Insurance Markets). The rule clarifies that the SEP applies even in cases where the QSEHRA’s plan year does follow the calendar year, the typical standard for the coverage year.
Maintains FFM user fee. Health insurers will be assessed at a rate of 3 percent to participate on the FFM, also known as healthcare.gov. For states that use a hybrid marketplace model, known as state-based marketplaces on the federal platform (SBM-FPs), HHS will retain 2.5 percent with 0.5 percent available to states to perform functions related to outreach, marketing, and plan management. Thirty-two states used the FFM in 2020, while six were SBM-FPs. (For more on health insurance marketplace models read Where States Stand on Exchanges.)
Eases process for coverage terminations and verifications. Consumers who are eligible for Minimum Essential Coverage (MEC), including most employer-sponsored coverage, Medicare, and Medicaid – are not eligible to receive federal subsidies to purchase coverage through the health insurance marketplaces. In the case where a marketplace determined that a person was dually enrolled in an exchange plan and MEC, a marketplace was required to redetermine the enrollee’s eligibility for subsidies before terminating that person’s coverage. This rule eliminates the requirement that marketplaces re-determine eligibility before termination, so long as the enrollee has opted in to be automatically terminated from coverage in this circumstance.
The rule clarifies that coverage terminations will be processed retroactive to the date of death in the case of an enrollee who has expired. The rule also clarifies that termination initiated by an enrollee will be effective retroactive to the date that the enrollee first attempted to end coverage, though SBMs are granted flexibility in how to apply this policy.
Finally, currently marketplaces must verify whether consumers are eligible for qualifying employer-coverage as part of determining whether consumers are eligible for marketplace subsidies. In some cases, insufficient data is available to perform this function, in which case marketplaces may use random sampling to verify eligibility. Due to limitations in sampling processes, including availability of adequate data, HHS is continuing its current policy to not enforce action against states that do not conduct random sampling.
Customization of QHP Quality Rating System (QRS) Display. Health insurance marketplaces are required to display quality ratings for insurance plans on their websites. The quality ratings are determined based on the federal QRS, which sets universal standards for the quality of health plans sold across all states. While the rule maintains federal governance over the QRS, it does grant SBM states flexibility in how they choose to display quality data. For example, SBMs may opt to include state-specific information related to quality in addition to QRS data.
Encouraging value-based insurance design. The rule does not explicitly mandate or incentivize adoption of value-based strategies, but does encourage insurer adoption of value-based insurance design principles consistent with policies supported by the University of Michigan Center for Value-Based Insurance Design, including benefit models that offer high-value services to consumers with little to no cost-sharing.
Adjusts factors used for risk adjustment calculations. Under the federal risk adjustment program, the federal government redistributes funds between health insurers that take on lower-risk enrollees, to those with a higher risk mix. Calculations are based on a complicated formula that computes risk based on various disease categories known as Hierarchical Condition Categories (HCCs). The rule updates the HCCs to conform with updated codes used to categorize diseases (a shift from ICD-9 to ICD-10 codes for disease classification). Other changes include a recalibration of how hepatitis C treatments factor into risk calculations and inclusion of pre-exposure prophylaxis (PReP), an HIV-prevention drug, as a preventative service. Collectively, these changes intend to ensure that risk adjustment calculations more accurately reflect current medical diagnoses and practices to ensure better assessment of risk taken on by insurers. The impact of these changes will vary by insurer and enrollee population.