ACA Round-Up (11/10/21): Risk Adjustment Changes, Premium Credits, Section 1332, And More

Federal officials continue to release new reports and guidance related to the Affordable Care Act (ACA). This post summarizes a recent technical paper on possible changes to the ACA’s risk adjustment model, a temporary policy on premium credits in the small group market, and the latest on Section 1332 state innovation waivers. This post also highlights a new report on how the ACA helped prevent major coverage losses during the pandemic, proposed changes to women’s preventive services, and other recent guidance and tools.

Potential Changes To Risk Adjustment Program

On October 26, 2021, the Centers for Medicare and Medicaid Services (CMS) released a new technical paper outlining possible model changes to the ACA’s risk adjustment program. The risk adjustment program transfers funds from lower-risk, non-grandfathered plans in the individual and small group markets to higher-risk, non-grandfathered plans, both in and out of the marketplace. The goal of the program is to discourage cherry picking: plans that end up with healthier populations must compensate plans that have more costly enrollees. CMS operates the risk adjustment program in all states.

CMS has a long history of tweaking or reconsidering parts of the risk adjustment program model. Most recently, federal officials proposed, but did not finalize, updates in the 2022 notice of benefit and payment parameters. There, CMS would have adopted two-stage model specification in the adult and child models, added interacted hierarchical condition categories (HCC) count factors, and removed severity illness indicators beginning with the 2022 benefit year. CMS proposed these changes in light of concerns that the current models under-predict risk for low-cost enrollees and over-predict risk for high-cost enrollees. CMS also proposed removing current enrollment duration factors for the adult models and adding new monthly enrollment duration factors of up to six months only for enrollees with HCCs.

CMS opted not to adopt those changes after receiving stakeholder input (some substantive concerns with the proposals are summarized here) and instead maintained the risk adjustment model specifications from the 2021 payment notice. Given concerns that stakeholders did not have enough information or time to assess the proposed changes, CMS suggested it would issue a technical paper.

CMS made good on this suggestion in late October 2021. The 84-page technical paper is indeed highly technical, and I will leave the wonky details to others. But, in general, CMS provides additional information and analysis of the updates that were proposed (but not adopted) during the 2022 rulemaking process. For instance, an entire chapter is devoted to how these proposed changes, in combination, might affect benefit transfers. CMS will accept comments on the technical paper and appendices through November 26, 2021 and intends to release transfer estimates from a simulation in late 2021.

Separately, CMS analyzed current cost-sharing reduction (CSR) induced demand factors. These factors account for the idea that enrollees with lower cost sharing—because they receive CSRs that boost their plan’s generosity—will use more health care and have higher claims costs (relative to those with higher cost sharing). CMS has not updated the CSR-induced demand factors since the beginning of the risk adjustment program.

Federal officials decided to give this policy another look in response to public comment. In particular, commenters have raised concerns that the current CSR-induced demand factors may overcompensate silver plans and undercompensate plans at other metal levels. Insurers, commenters argued, are setting silver plan premiums too low (with the goal of attracting CSR-eligible enrollees). Too-low silver premiums reduce the value of the premium tax credit that qualifying enrollees receive (since premium tax credits are calculated based on a silver benchmark plan). Changes to the CSR-induced demand factors to correct this misalignment would reduce premiums for most marketplace enrollees.

In response, CMS ran analyses of CSR-induced demand factors and reported little evidence of higher induced demand for CSR enrollees. The most common high-CSR plan variants are reliably predicting actual plan liability and are thus generally not being overcompensated by the CSR-induced demand factors. That said, CMS acknowledges that some improvements could be made, and the technical paper identifies several potential options to update CSR induced demand factors. The three options are to 1) reframe and recalibrate the CSR-induced demand factors; 2) use platinum risk adjustment model factors; or 3) create separate risk adjustment models for CSR plan variants.

Changes on this issue, if any, are not expected before the 2024 benefit year. In the meantime, some states—such as Colorado and Pennsylvania—have taken other steps to address CSR-induced demand factors in a way that increased the value of premium tax credits for consumers.

Premium Credits In The Small Group Market

On November 1, 2021, CMS extended its temporary premium credit policy in the small group market for the remainder of the 2021 benefit year. This will help support small employers who are struggling to pay premiums and promote continuous coverage. CMS is not extending this relief to the individual market because doing so would be burdensome and impact the premium tax credit reconciliation process.

Under this policy, insurers can reduce employer premiums by a fixed percentage of the insurer’s choosing so long as credits are offered prospectively, for an entire month, only through the end of the 2021 calendar year, and uniformly in a nondiscriminatory manner to all employers in the state’s small group market. Insurers must receive approval in advance from relevant regulators and, where relevant, their state’s marketplace entity before offering a premium credit.

This policy is not new: CMS first adopted a premium credit policy in August 2020 and gave additional guidance on associated risk adjustment and medical loss ratio (MLR) data reporting requirements in an interim final rule later that month. In the 2022 payment rule, CMS extended the interim final rule’s reporting and rebate requirements during a declared public health emergency so long as CMS issued guidance announcing such a policy. CMS confirms that these policies must be followed for insurers in the small group market who offer a premium credit for 2021. Thus, for purposes of risk adjustment and MLR, insurers must report “adjusted plan premiums” (i.e., the amount of premium actually billed to enrollees inclusive of the premium credit).

The timing of the guidance (on November 1, 2021) is interesting because temporary enforcement is available only through the end of the 2021 calendar year. As such, insurers can only offer premium credits to small employers for December 2021.

Section 1332 Updates

On November 3, 2021, CMS alongside the Department of Treasury informed New Jersey that it will receive a total of $282 million in federal pass-through funding for 2021 pursuant to the state’s approved waiver under Section 1332 of the ACA. This is an increase of nearly $59 million relative to what New Jersey expected to receive for 2021.

CMS and Treasury agreed to recalculate the amount owed to states in federal pass-through funding for 2021 due to federal policy changes. The enhanced subsidies under the American Rescue Plan Act mean more people qualified for premium tax credits and existing enrollees qualified for more generous premium tax credits. And the broad COVID-19 special enrollment period led to higher-than-anticipated enrollment. States with approved reinsurance programs therefore saved the federal government even more money, and federal officials agreed that states should receive the benefit of greater federal savings in the form of additional pass-through funding.

All states with operational state-based reinsurance programs except New Jersey were notified of their additional federal pass-through funding on September 7. Those 13 states were awarded an additional $452 million in federal pass-through funding, with amounts that ranged from $2.5 million in Rhode Island to $139 million in Maryland. New Jersey’s pass through-funding was not announced at this time presumably because federal officials use a separate methodology to calculate the state’s pass-through amount in light of New Jersey’s supplemental subsidy program. CMS posted its updated methodology for calculating New Jersey’s pass-through funding for 2021 alongside the letter informing the state of the higher amount. CMS also posted revised state-by-state data on federal pass-through payments for all states for 2021.

Additional Guidance

The Biden administration has issued other ACA-relevant reports and guidance in recent weeks.

New ASPE Report On The Uninsured

On October 29, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) released a new report showing that the ACA helped prevent major coverage losses and stabilized coverage during the pandemic. This is because increased enrollment in Medicaid and marketplace plans likely helped offset decreases in job-based coverage. These findings are consistent with other recent analyses showing that the uninsured rate in 2020 remained stable despite economic upheaval and job loss from the pandemic. ASPE discusses the results of these surveys (including some of their limitations because of COVID-19) and bolsters its analysis with administrative data from federal programs.

ASPE further suggests that the current uninsured rate may be even lower than it was in early 2021 due to ongoing coverage gains under the Biden administration’s COVID-19 special enrollment period and higher enrollment in Medicaid. The report also identifies continued disparities in the uninsurance rate for people of color, low-income people, and people living in states without Medicaid expansion. Addressing these disparities is a long-standing stated goal for the Biden administration.

Potential Updates To Women’s Preventive Services

On October 28, the Health Resources and Services Administration (HRSA) asked for public comment on two updated draft recommendations for women’s preventive services. Under the ACA, non-grandfathered insurers and plans must cover HRSA-recommended preventive services for women without cost sharing. Since 2016, HRSA has contracted with the American College of Obstetricians and Gynecologists—which established the Women’s Preventive Services Initiative—to review clinical guidelines and new evidence and recommend changes to HRSA’s guidelines. HRSA then decides whether to adopt any updates or changes recommended by these expert stakeholders.

HRSA asks for comment on two recommended updates for the coverage of contraceptives and HIV screening for women. With respect to contraceptives, the committee recommends changes that would 1) allow women to purchase male condoms for pregnancy prevention; and 2) define contraceptive follow-up care to include the management and evaluation of and changes to a contraceptive (such as removal, continuation, or discontinuation of a contraceptive). With respect to HIV screening, the committee recommends updates to specify that screening should begin at age 15, with earlier detection based on a review of patient risk factors.

Comments on the recommendations are due on November 29. HRSA will take further action after that.

More Approved EDE Entities And ICHRA Guidance

CMS recently updated its list of third-party entities approved to use enhanced direct enrollment (EDE). The EDE pathway allows a consumer to complete the entire marketplace enrollment process on the website of a third party, such as a web-broker or insurer. Consumers can thus apply for coverage, be determined eligible for financial help, and enroll in a marketplace plan on a single third-party website without ever visiting or creating an account with HealthCare.gov. The list of approved EDE entities has continued to grow under the Biden administration despite concerns about this option for consumers.

As of October 29, CMS approved 61 entities to use EDE (up from 46 entities as of August 30). Of these 61 entities, most are insurers. Only nine entities are web-brokers and three entities are direct enrollment technology providers. Consistent with the data as of August 30, 11 of the entities are approved to host their own EDE platform (meaning those companies can lease out their platform to other EDE entities).

Also in late October, CMS posted data on individual coverage health reimbursement arrangements (ICHRAs) for the 2022 plan year. This includes a lowest cost silver plan premium look-up table and data dictionary. This data is used to help employers determine whether an ICHRA offer is considered affordable for purposes of the employer mandate. Additional resources on ICHRAs can be found here.