Proposed 2024 Payment Rule, Part 3: Exchange Operational Standards And APTC Policies

On December 12, 2022, the U.S. Department of Health & Human Services (HHS) released a proposed rule to refine and update Plan Year 2024 standards for health insurers and Marketplaces under the Affordable Care Act (ACA). In addition to the proposed 2024 Notice of Benefit & Payment Parameters (NBPP) the agency also released a Fact Sheet, the 2024 Draft Letter to Issuers, the 2024 Actuarial Value Calculator and Methodology, guidance on annual adjustments to certain numerical payment parameters, and a response to Alabama’s request for risk adjustment flexibility. Comments on the proposals must be submitted within 45 days after official publication in the federal register.

The proposed rule builds on recently implemented requirements for standardized plans, network adequacy, and fair marketing standards. It continues this administration’s efforts to lower administrative barriers to enrollment and strengthen consumer assistance. It also includes modifications to risk adjustment, Advance Premium Tax Credit (APTC) policy, marketplace transitions, user fees, and other marketplace standards. Throughout the proposed rule and associated materials, the administration emphasizes its interest in enhancing health equity and reducing disparities in health coverage and access.

This third of three Forefront articles on the proposed 2024 NBPP focuses on Exchange operational standards and APTC policies, including the annual payment parameter guidance. The first article, by Sabrina Corlette, focused on proposed market reforms and consumer assistance provisions, and the second, by Matthew Fiedler, on proposed changes to risk adjustment rules.

Income Data Matching Issues

HHS proposes two changes to reduce consumers’ administrative burdens associated with income data matching issues.

Accepting Attestation When Tax Data Is Unavailable

HHS proposes to accept an applicant’s attestation as to their income when tax data from the IRS is not available. Under the ACA, APTC eligibility is generally determined using both the applicant’s attested income and tax return data provided by the IRS through the federal data services hub. If attested income is consistent with tax data, eligibility is based on tax data. If attested income is substantially lower than what’s shown in tax data, the Exchange generates a “data matching issue,” or DMI. The consumer then has 90 days (with a possible extension, as discussed below) to resolve the DMI by providing additional information to substantiate their attested income; if they don’t, APTC eligibility is determined based on tax data.

HHS’s proposal addresses a third scenario: where income information from the IRS is not available. Under current rules, Exchanges must generally treat missing tax data as though it’s inconsistent with attested income and thus create a DMI. HHS proposes that, in this circumstance, Exchanges would instead rely on attested income to determine APTC eligibility, with no DMI.

HHS notes that there are many reasons that tax data may not be available through no fault of the applicant. The applicant may not have been required to file a tax return in the prior year. IRS privacy rules may preclude sharing data with the Exchange if the family unit applying for coverage differs in any way from the group on the tax return due to marriage, divorce, birth, death, or other reasons. HHS also emphasizes its administrative cost to adjudicate DMIs, which amounts to approximately 300,000 hours of labor annually. The current rule, it argues, is “punitive to consumers and burdensome to Exchanges.”

Extending The Timeline For Resolving Income DMIs

HHS proposes to give all consumers a 60-day extension for resolving income DMIs. Under current rules, applicants generally have 90 days to resolve an income DMI but can request an additional 60 days by showing that they’ve made a good-faith effort to obtain the required documentation. HHS notes that this requirement imposes additional administrative burdens on consumers, who already must provide documentation to resolve the income DMI. HHS would eliminate that additional burden by giving everyone more time.

In reference to both DMI proposals, HHS notes that income DMIs disproportionately burden low-income consumers, who are both more likely to face DMIs and less likely to successfully resolve them. Income DMIs similarly burden people of color, and they harm the risk pool by discouraging enrollment by younger and healthier individuals.

HHS requests comments on these proposals.

Failure To File And Reconcile

HHS proposes to modify the rules for denying APTC to consumers who have failed to file a tax return and reconcile APTC received in the past—a policy referred to as failure to file and reconcile, or “FTR.” FTR rules have changed repeatedly over the years amid competing concerns about program integrity, administrative burden, and fairness. Now HHS proposes a new middle-ground to balance these goals.

HHS created FTR through regulation in 2012; the concept appears nowhere in statute. Under the ACA, consumers receiving APTC must file a tax return to reconcile the APTC against the PTC they are due based on their actual circumstances for the year. An individual who fails to reconcile is subject to the IRS’s normal enforcement tools for failing to properly file a return. The 2012 regulations created FTR as an additional penalty—individuals who failed to reconcile would also be denied APTC. This provided a further incentive to file and also a safeguard against consumers receiving too much APTC year after year.

But FTR rules also raised concerns about administrative burden and fairness. IRS privacy rules generally prohibit Exchanges from providing applicants with information about their FTR status, even when denying them APTC on that basis. Delays or errors in processing tax returns and sharing return information with the Exchange can cause incorrect denials, which may be difficult to resolve if the Exchange can’t discuss the reason for the denial. Responding to these concerns, in late 2016 HHS amended FTR rules to provide that a consumer could be denied APTC due to FTR only if they received a clear notice explaining the reason.

In the fall of 2017, HHS rolled out a raft of new FTR changes. First, HHS modified healthcare.gov’s application systems to allow consumers to temporarily retain APTC by attesting that they had reconciled. Second, HHS began paying a tax-privacy-compliant vendor to send the required notices to FFE and SBE-FP enrollees, though they were sent only by mail and were not available through the Marketplace portal. HHS also reiterated that Exchanges could not generally discuss FTR status with applicants. Finally, HHS proposed to eliminate the notification requirement in the 2019 NBPP, noting that doing so would reduce burden on Exchanges since they “have not yet implemented” the notification requirement. In 2018, HHS finalized that change despite expressions of concern about the impact on consumers from “[n]early all commenters.”

In 2021, amid reports of millions of tax returns sitting unprocessed due to the pandemic, HHS suspended enforcement of FTR for coverage years 2021 and 2022. In 2022, HHS extended the suspension to coverage year 2023 in light of continued IRS backlogs.

HHS now proposes a new middle ground to balance these various concerns. Instead of denying APTC when the IRS indicates that a consumer has failed to reconcile APTC for a single year, the Exchange would deny APTC only when the IRS reports that a consumer has failed to reconcile for two consecutive years. FTR enforcement would resume no earlier than coverage year 2024, and potentially later depending on how long it took the IRS and HHS to implement the new policy.

HHS explains that this policy would continue to protect against taxpayers accumulating huge tax debts while “reduc[ing] the punitive nature of the current process which may erroneously terminate APTC for consumers who have filed and reconciled.” HHS estimates that, for the open enrollment period (OEP) for 2020, approximately 116,000 re-enrollees lost APTC due to FTR, and only 14,000 of this group remained covered by March. Only 20,400 re-enrollees would have lost APTC under the proposed 2-year rule.

HHS requests comments on this proposal.

Special Enrollment Periods

HHS proposes several expansions to special enrollment periods (SEPs), including two changes to the loss-of-coverage SEP that are optional for Exchanges and two broadly applicable fixes to the plan display error SEP. The preamble describes these changes as aimed at reducing coverage gaps and reducing administrative burdens for consumers. These issues are especially salient given the potential end of the continuous coverage provision related to the COVID public health emergency and the importance of easing transitions into Exchange coverage.

Avoiding Coverage Gaps Following Mid-Month Termination

HHS proposes to modify the loss-of-coverage SEP to permit Exchanges to require QHP issuers to start coverage one month earlier in cases where the old coverage ends before the end of the month. Under current rules, the loss-of-coverage SEP generally makes coverage effective no sooner than the first day of the month following coverage loss. If the old coverage ends mid-month, this results in a coverage gap for the remainder of the month. For example, if on May 15 a consumer reports that they expect Medicaid coverage to end on June 4, and the consumer goes ahead and chooses an Exchange plan on May 15, Exchange coverage is effective no sooner than July 1.

Under the proposed rule, Exchanges could require issuers to allow consumers in this situation to start coverage sooner to avoid a gap. If a consumer reported loss of coverage and chose a plan during the month before the old coverage ended, Exchange coverage could begin on the first day of the month during which the old coverage ends. In the example above, the consumer reporting on May 15 that they expect coverage loss on June 4 and selecting a plan before the end of May could begin Exchange coverage on June 1. HHS notes that this change could be especially helpful during the continuous coverage unwinding in states that may terminate Medicaid mid-month.

Consumers opting for the earlier start date would have a short period of double coverage. Under IRS rules, the partial month of other coverage would not generally interfere with APTC or PTC eligibility for that month. The consumer may need to pay double premiums for the month, but generally not in the case of Medicaid, and in any case the choice would be the consumer’s.

Extending The SEP Following Loss Of Medicaid Coverage

The second proposed change to the loss-of-coverage SEP would permit Exchanges to extend the window to enroll following loss of Medicaid coverage from 60 to 90 days. Under current rules, consumers may generally apply for the Exchange coverage starting 60 days before the old coverage terminates and then for 60 days afterwards. This timeline may prove especially insufficient during the continuous coverage unwinding given outdated contact information for consumers and challenges in transferring Medicaid account information to Exchanges.

HHS proposes to mitigate this concern by permitting Exchanges to extend the SEP window following loss of Medicaid coverage to 90 days. This would increase the chances that consumers would learn of Medicaid termination and complete the application in time. HHS also notes that the 90-day period aligns with the 90-day Medicaid reconsideration period.

It is worth noting that Exchanges likely have existing authority to provide a SEP through 90 days past the loss of Medicaid coverage. Long-standing regulations regarding “exceptional circumstances SEPs” give Exchanges broad authority to designate SEPs for unusual situations like the continuous coverage unwinding. Making this an explicit option starting in 2024 may encourage SBEs to adopt it. That said, in the event that the continuous coverage unwinding commences in 2023, Exchanges may consider doing so earlier under existing authority.

Simplifying The SEP For Plan Display Errors

HHS proposes two fixes to the SEP for consumers who are misled in their enrollment decisions by a material error in displayed plan information. First, under current rules, the SEP is allowed only if the error relates to the “plan benefits, service area, or premium”—not to cost-sharing. HHS proposes to expand the scope of errors that can trigger the SEP to include cost-sharing information.

Second, the SEP is currently allowed only if the consumer or their dependent “adequately demonstrates to the Exchange that a material error…influenced [the enrollment] decision.” The plan or an assister or broker—who may be better positioned to document the issue on the consumer’s behalf—may not do so. HHS proposes to revise this rule so the SEP would apply whenever an enrollment decision was influenced by a material error, without restriction on who documented the issue.

HHS also requests comments on whether a consumer’s health care provider dropping out of network mid-year should constitute grounds for a SEP (as it does under Medicaid Advantage).

Technical Corrections

HHS also proposes technical corrections to clarify that the SEPs for gain or loss of cost-sharing reduction (CSR) eligibility are available if the enrollee or a dependent qualifies, not if the enrollee and a dependent qualifies.

HHS requests comments on these proposals.

Eligibility Appeals

HHS proposes to clarify that the appeals process for Exchange eligibility decisions permits review by the CMS Administrator. Long-standing HHS regulations lay out consumers’ rights to appeal Exchange decisions on matters like eligibility for APTC, SEPs, and exemptions. Current regulations note that these appeals may be brought to an appeals entity at the Exchange itself, to an appeals entity at HHS, or via judicial review if permitted by law.

The proposed rule clarifies that the appeal right includes the opportunity to request review by the CMS Administrator, who may then decide whether to review the eligibility decision. The CMS Administrator may also initiate review at her own discretion. The preamble explains that this change is being made to conform the Exchange appeals regulations more closely to other HHS appeals processes, and to clarify that accountability for HHS review is vested in a “principal officer.”

HHS requests comments on this proposal.

Re-Enrollment Hierarchies

HHS proposes to revise the rules for assigning plans to consumers who do not actively re-enroll. The proposal would give Exchanges more flexibility to switch consumers from a bronze plan to a silver plan to benefit from cost-sharing reductions. It also requires Exchanges to take into account network similarity when assigning new plans.

Under the ACA, Exchange enrollees can consent to being automatically re-enrolled into coverage. During the 2022 OEP, 28 percent of returning Exchange enrollees were automatically re-enrolled. Long-standing regulations prescribe “re-enrollment hierarchies,” a set of waterfalls that dictate plans selection for consumers depending on their specific circumstances and what plans remain available from their issuers. The current rules reflect a strong preference for keeping consumers in the same plan, with the same issuer, and at the same metal level. To the extent a consumer changes plans, the hierarchies focus on selecting the plan that is “most similar” to the consumer’s current plan.

HHS solicited comments on changes to the re-enrollment hierarchy in the proposed 2023 NBPP but did not adopt any changes in the final 2023 NBPP.

HHS now proposes two changes. First, HHS would give Exchanges more flexibility to switch consumers from a bronze plan to silver plan to benefit from CSRs. This reflects the concern that consumers who are eligible for high-value silver CSR variants may be “leaving money on the table” by enrolling in a bronze plan instead. Under the proposal, a consumer could be switched even if their current bronze plan remained available, so long as the silver premium net of APTC was no greater than the bronze premium.

Second, HHS would update the hierarchies to incorporate a preference for plans with a similar network to the consumer’s current plan.

HHS acknowledges that these proposals could create operational challenges for plans and states. It seeks comments on the proposals.

HHS also solicits comments on a broad range of additional changes to the re-enrollment hierarchies, including considering cost sharing, the use of actuarial values (AVs), special rules for consumers eligible for 73 percent AV CSRs, the use of network IDs to account for different product types, and incorporating broader use of net premiums and total out-of-pocket cost.

Finally, HHS solicits comments on auto-enrollment policies beyond the re-enrollment context. For example, consumers could be moved into a zero-dollar plan (a plan with a net premium of zero after APTC for the consumer) if they are delinquent on premium payments or fail to make a binder payment.

Improper Payment Reporting Pilot

HHS proposes to establish a two-year pilot to develop and test procedures for measuring improper payments of APTC by SBEs. The Payment Integrity Information Act of 2019 (PIIA) requires HHS to measure and report on APTC improper payments. In the proposed 2023 NBPP, HHS proposed to establish a comprehensive regime for measuring SBE improper payments, including extensive data collection of application information and eligibility determinations, detailed annual reporting, compliance measures, corrective action plans, and integration with independent auditing requirements. This proposal would have built on some existing pilot programs with SBEs. In response to the proposal, many commenters raised concerns about cost and feasibility for SBEs, especially within the proposed timeline and given recent challenges due to the COVID pandemic. The final 2023 NBPP did not finalize this proposal, with HHS noting that additional piloting seemed necessary.

HHS now lays out the pilot program, which is called the Improper Payment Pre-Testing and Assessment (IPPTA). The IPPTA would be a two-year program spanning 2024 and 2025, with each SBE required to participate for one year or the other. As with last year’s proposal, the IPPTA would require SBEs to provide details about their business rules and data structures. But in contrast to the extensive collection of consumer data under last year’s proposal, each SBE would share application and eligibility information for only 10 or so tax households that represent a variety of eligibility and enrollment scenarios. The information collected would be used to evaluate the SBE’s performance and develop procedures that could be part of a permanent program for sharing data and measuring improper payments.

HHS requests comments on this proposal.

Deadline For Issuers To Report Enrollment And Payment Inaccuracies

HHS proposes to simplify the deadline by which QHP issuers must report errors in enrollment payment data in order to receive corrected payments from HHS. Under current rules, issuers must report such errors by either three years after the plan year ends or by the date on which HHS notifies the issuer that the audit process for that plan year has been completed—whichever is later. The proposed rule would eliminate the second term, so such reporting would always be due three years after the end of the plan year.

While this change is aimed primarily at issuers, the preamble obliquely suggests that it could affect consumers as well by causing amended Forms 1095-A to be issued within the window for amending tax returns. HHS does not provide any information about the prevalence of the issue. If this proposal substantially increases the number of consumers needing to amend tax returns, that could be of broader interest.

HHS requests comments on this proposal.

Flexible Timing For Establishing SBEs

HHS proposes to loosen the timelines for approving Exchange Blueprints and operational readiness assessments for states transitioning to state-run exchanges. The past few years have seen a flurry of states pursuing these transitions.

Under the ACA, a state wishing to establish a State-based exchange (SBE) or a State-based exchange on the Federal platform (SBE-FP) must submit an Exchange Blueprint and receive HHS approval of the Blueprint and of the state’s operational readiness. Current rules require approval or conditional approval 14 months before the exchange’s first OEP for states establishing full SBEs, and two months before OEP for SBE-FPs. Both deadlines are just one month after the respective deadlines for Blueprint submission.

HHS proposes to make this timeline more flexible. The deadlines for Blueprint submission would remain unchanged, but approval or conditional approval would now be required before the first OEP, rather than months in advance of it.

HHS notes that this change is based on experience with state transitions over the past several years. Becoming an SBE or SBE-FP is “an iterative process that…involves significant collaboration between HHS and States to develop plans and document readiness.” HHS expects that the change will be “be more protective of the significant investments of personnel time and State tax dollars a State must make to stand up a new Exchange.”

Nevada, Pennsylvania, New Jersey, New Mexico, Maine, and Kentucky have all completed transitions to full SBE since 2020, and Virginia is moving in that direction for 2024. Other states are considering it, including Wisconsin and Oregon.

HHS requests comments on this proposal.

User Fees

HHS proposes to slightly reduce the Exchange user fees in FFEs and SBE-FPs. The FFE user fee would fall from 2.75 percent in 2023 to 2.5 percent in 2024, and the SBE-FP user fee would fall from 2.25 percent to 2 percent. These changes would continue the trend of gradual reductions in recent years.

The user fees are paid by Exchange issuers to support the operations of the FFE and federal platform. The fee is calculated as a percentage of Exchange premiums collected. The fee is generally passed along as higher premiums, the cost of which is borne by the federal government through higher APTC and by unsubsidized consumers.

The preamble indicates that these levels would provide funding sufficient to “fully fund user-fee eligible Exchange activities,” which include eligibility and enrollment processes; outreach and education; managing navigators, agents, and brokers; consumer assistance tools; and QHPs certification and oversight. The preamble notes that that the reduction is feasible in part due to increased enrollment resulting from the recent extension of PTC enhancements.

HHS requests comments on these proposals.

Guidance On Annual Adjustments To Certain Numerical Payment Parameters

Along with the proposed regulations discussed above, HHS also released its annual subregulatory guidance providing the updated values for certain ACA policy parameters. The guidance includes parameters that are updated using a factor called the “premium adjustment percentage” (PAP), which measures premium growth in the group market between 2013 and the preceding year (in this case, 2023). For 2024, the PAP is 1.4899877401, meaning that premiums grew about 49 percent between 2013 and 2023. (For reference, this comes out to an average annual growth rate of about 4.06 percent.) The PAP for 2023 was about 1.44, meaning that premiums (and the PAP) grew about 3.4 percent annually between 2022 and 2023.

Using the PAP, the guidance provides (or allows calculation of) the following parameters for 2024:

Caps On Health Plans’ Maximum Out-Of-Pocket Limitations (MOOPs)

The ACA requires health insurance in the individual and group markets and self-insured group health plans to cap enrollees’ out-of-pocket spending on covered services. This maximum out-of-pocket (MOOP) cannot exceed a certain amount, which is adjusted for self-only vs. other coverage and for CSR plans on the Exchange. The MOOP caps are updated each year in proportion to the PAP, resulting in the following values for 2024:

• CSR plans for consumers with household incomes between 100 percent and 150 percent of the federal poverty level (FPL): $3,150 for self-only coverage, $6,300 for other coverage
• CSR plans for consumers with household incomes between 150 percent and 200 percent of FPL: $3,150 for self-only coverage, $6,300 for other coverage
• CSR plans for consumers with household incomes between 200 percent and 250 percent of FPL: $7,550 for self-only coverage, $15,100 for other coverage
• All other plans: $9,450 for self-only coverage, $18,900 for other coverage

Required Contribution Percentage For Catastrophic Plan Eligibility

Under the ACA, an individual aged 30 or over may enroll in a catastrophic health plan only if other coverage options are deemed “unaffordable,” meaning that the premium exceeds the individual’s income times a “required contribution percentage.” The required contribution percentage was set at 8 percent for 2014 and is updated annually based on the ratio of premium growth since 2013 (the PAP) to total personal income growth over the same period. The guidance reports that personal income grew about 49.6 percent between 2013 and 2023. This slightly exceeds premium growth over the same period. As a result, the required contribution for 2024 is just below its original value at 7.97 percent.

Employer Mandate Penalties

Under the ACA, the penalty amounts for the employer shared responsibility provision (commonly called the employer mandate) are updated annually using the PAP. The updated penalty amounts are calculated and published by the IRS and do not appear in the HHS guidance. But the PAP’s release allows the penalties for 2024 to be calculated. The penalty under Code section 4980H(a), for applicable large employers that fail to offer coverage to their full-time employees, appears set to be $2,980 per full-time employee. The penalty under Code section 4980H(b), for applicable large employers that offer coverage to their full-time employees, appears set to be $4,470 per full-time employee who receives the PTC.