The 2022 Final Payment Notice (Sorta)

On January 14, 2021, the Centers for Medicare and Medicaid Services (CMS) released its final 2022 Notice of Benefit and Payment Parameters rule, joined in part by the Treasury Department. Historically, the “payment notice” adopts major changes for the next plan year in areas such as the exchanges and the risk adjustment program. Here, however, the final 2022 payment notice adopts only a subset of the policies considered in the proposed 2022 payment notice. This subset of policies includes the most controversial changes that had been included in the proposed rule. The final rule was accompanied by a fact sheet and a press release.

The final rule’s changes, if maintained, establish a pathway for states to transition away from a centralized marketplace like HealthCare.gov to decentralized enrollment via insurers and web-brokers; adopt a much-criticized interpretation on the Section 1332 guardrails; and impose a lower exchange user fee; among other changes. The final rule did not address other proposed changes, including special enrollment periods, direct enrollment display standards, prescription drug reporting requirements, or the premium adjustment percentage. Rather, CMS will continue to review comments on the proposed rule and finalize remaining policies in a second final rule to be published in the future. This second final rule will be adopted under the Biden administration, which is likely to opt against finalizing certain changes outlined in the proposed rule.

The final rule is narrow (relative to the proposed rule) due to the short timeframe in which it was released and considered. The proposed payment rule was released on November 25 with comments due on December 30. In what must be some kind of rulemaking record, the  542 comments on the proposed rule were supposedly considered in the eight days between December 30, 2020 and January 7, 2021 when the rule was received by the Office of Management and Budget (OMB). OMB’s review was completed a mere five days later, on January 12, and the rule was released on January 14.

Even with that quick turnaround, the Trump administration almost missed its window for fully finalizing the rule. This is because rules are not considered final until published in the Federal Register. Here, the final 2022 payment rule will be published in the Federal Register on January 19, just one day shy of President-elect Biden’s inauguration. If this were not the case and publication had been delayed, the Biden administration could have simply withdrawn the rule or finalized it differently, pursuant to its own policy goals (consistent with the administrative record).

The final 2022 payment rule will not, however, go into effect until March 15, 2021. This means the final rule will likely be subject to a “regulatory freeze” that the Biden administration is expected to adopt. This freeze will postpone the effective date of final-but-not-yet-in-effect rules for a period of time (e.g., 60 days), as has been done by many prior administrations. Although this will prevent the final 2022 payment rule from taking effect, CMS will still need to turn to notice-and-comment rulemaking procedures to withdraw or amend this final rule.

Because the rule’s effective date will be delayed, one option is for CMS to give notice that it intends to reconsider the policies outlined in the final rule, discuss changes it may be considering, and solicit additional public comment (through, say, another 30-day public comment period). CMS could then adopt its changes in a new final rule, perhaps even the same rule that finalizes the rest of the policies outlined in the 2022 payment rule.

(Separately, Congress could vote to invalidate the final rule under the Congressional Review Act (CRA), but this is not recommended. As discussed more here, the CRA allows entire rules to be invalidated by a simple majority vote in Congress. But use of the CRA also poses risk because it prohibits agencies from issuing a future rule that is “substantially the same.” This standard is not defined in the statute nor has a court interpreted it. Because the Biden administration will presumably want to adopt its own guidance on Section 1332, direct enrollment, and the user fee, the final 2022 payment rule is not a strong candidate for the CRA and the final rule should instead by amended through the regulatory process.)

Other materials, such as the draft letter to insurers, key dates, and the actuarial value (AV) calculator have since been released, albeit separately from the payment rule. Many of these documents will need to incorporate the changes that CMS did not address in this final 2022 payment rule. Thus, final versions of these documents should not be expected until the next round of rulemaking.

State Exchange Direct Enrollment Options

Though “nearly all commenters” raised concerns about “potential harmful impacts to consumers,” CMS finalized its new option to allow states to opt into an Exchange Direct Enrollment (Exchange DE). Under this option, states can transition away from a single, centralized exchange (HealthCare.gov) to enrollment via private sector entities (insurers, web-brokers, and agents and brokers). The exchange—whether the federally facilitated exchange (FFE), a state-based exchange that uses the federal platform (SBE-FP), or a state-based exchange (SBE)—would link its back-end eligibility system to the private DE entities. These private entities would then operate the enrollment pathways where consumers would shop, select a plan, and enroll in coverage.

This option was clearly inspired by Georgia’s approved Section 1332 waiver, which allows Georgia to eliminate the use of HealthCare.gov and replace it with a decentralized enrollment system of web-brokers and insurers. (On the same day that the final rule was released, Georgia’s waiver approval was challenged in court; that litigation will be summarized in a separate post.) The final rule extends this option to other states without the need for a waiver—even though many of the procedures outlined below are reminiscent of a waiver. Indeed, all states must coordinate with CMS on an implementation and transition plan and execute a federal agreement with terms and conditions. CMS makes clear that the implementation plan and timeline will be developed at its discretion in consultation with the state. CMS appears to have authorized a waiver process in everything but name.

The exchange (whether HealthCare.gov or an SBE) will still have to maintain a website listing basic information about qualified health plans (QHPs) for comparison purposes (including displaying information in a standardized format and with the summary of benefits and coverage and quality ratings). But the exchange need only link to approved partner websites for the full enrollment process. The exchange also remains responsible for 1) meeting (and ensuring that DE partners meet) all statutory and regulatory requirements related to QHP applications and enrollment; 2) conducting eligibility determinations; 3) verifying applicant information; and 4) issuing advance premium tax credit (APTC) to insurers.

The IRS will continue to administer APTC reconciliation on individual tax returns. Exchanges (rather than DE entities) must also continue to comply with other parts of the ACA by granting exemption certifications, developing an electronic subsidy calculator, establishing a navigator program, and operating a consumer hotline.

Exchanges are responsible for conducting Medicaid and CHIP eligibility assessments or determinations and referring individuals to state Medicaid agencies. But if DE and EDE entities are the only enrollment mechanism, ensuring that eligible beneficiaries know they are eligible for Medicaid or CHIP will be challenging. One analysis suggested that Medicaid-eligible individuals faced additional barriers to enrolling when relying on a DE website.

States with an SBE can pursue this “SBE-DE” option beginning with the 2022 plan year, while states with the FFE or SBE-FP can pursue an “FFE-DE” or “SBE-FP-DE” option beginning with the 2023 plan year. As with the proposed rule, CMS was unable to estimate how many states will implement the Exchange DE option but does not expect any current SBE to take advantage of this option for 2022. States with their own exchange must update their exchange blueprint, have at least one approved DE entity that meets federal DE requirements for the FFE, and ensure that consumers have at least one DE option available to view detailed information for all available QHPs in the state.

A Flawed Rationale?

CMS puts a tremendous amount of faith in the power of DE entities. DE and EDE pathways have been allowed for years but accounted for only 29 percent of all FFE enrollment for the 2020 plan year and 37 percent of all FFE enrollment for the 2021 plan year. CMS has suggested that DE and EDE attracted a higher proportion of new consumers compared to other enrollment channels for 2020 and 2021, but overall new enrollment declined for 2021. Although EDE enrollment increased for 2021, this pathway continues to account for only about one-third of FFE enrollment nationwide. If DE options were as attractive as CMS seems to believe they are, presumably new consumers would be enrolling at a greater rate or existing consumers would have shopped with their feet and moved from HealthCare.gov to DE or EDE options.

CMS believes that the Exchange DE option has several advantages over exchanges. The agency believes that exchanges are costly and burdensome to establish, result in “choke points” when too many consumers try to use the website at the same time, and face challenges in innovating. CMS also cites savings to the federal government (through reduced use of the HealthCare.gov website and call center), the need to let consumers see “a broader array of plan options” (including on- and off-exchange plans as well as ancillary products), and what it refers to as a medical loss ratio accounting disparity for exchange user fees that “arguably” disadvantages EDE entities.

Commenters raised concerns that the new, fragmented process would lead to consumer confusion and that the option’s negative consequences outweigh its benefits. While CMS made several assurances that disruption to consumers could be minimized, an EDE entity was among those cautioning that eliminating the exchanges as enrollment platforms would be disruptive for most consumers, who have become accustomed to enrolling on an exchange.

An “overwhelming majority” of commenters argued that DE entities have potential conflicts of interest that could lead these entities to steer consumers to products that offer a higher commission, even if a different product is more appropriate for their needs. Other concerns included misinformation and deceptive marketing practices, the potential for high out-of-pocket costs if consumers are unaware of available APTC, the need to protect consumer privacy and security, the inability of DE entities to ensure Medicaid referrals, and disproportionate effects on vulnerable communities (such as people with preexisting conditions, people of color, and people with limited English proficiency). Each of these concerns, CMS insists, could be addressed during implementation of the Exchange DE option.

Setting aside the relative merits of DE and EDE, it is perplexing that CMS will let states fully eliminate HealthCare.gov (or another consumer-facing enrollment website) as an enrollment pathway when most consumers are enrolled that way. Doing so elevates DE entities—which already exist alongside HealthCare.gov—over HealthCare.gov, a trusted source of coverage for millions of Americans. Even commenters that supported the concept of the Exchange DE option raised concerns about implementation, urging CMS to further consult with stakeholders or consider requiring a primary website so consumers do not have to enter their information multiple times to complete multiple eligibility applications. Some encouraged CMS to delay implementation of the option to conduct additional analysis and a more robust public comment process.

Legal Questions

Many commenters challenged CMS’s contention that it has the authority to allow states to eliminate the exchange enrollment pathway. Commenters asserted that the Exchange DE option is inconsistent with Sections 1103, 1302, 1311, and 1312 of the ACA; violates the spirit and intent of the law; and is an illegal delegation of an essential government function to private entities.

CMS takes the position that the Exchange DE option will continue to meet all federal requirements of the ACA, even if some are met by the federal government and some are met by states or private entities. CMS insists that the ACA does not require the federal government or states to operate an enrollment website. This is because, in its view, Section 1311(c)(5) and (d)(4)(C) of the ACA does not require an exchange to host a single, consumer-facing website to receive applications or support plan shopping and selection. Rather, in CMS’s view, an exchange must provide consumers with the ability to view comparative information on QHP options but can otherwise direct consumers to other entities to submit an application and actually enroll in a QHP.

Beyond these provisions, Section 1401 of the ACA—which governs the availability of subsidies—requires individuals be enrolled in a QHP “through an Exchange.” In a footnote, CMS interprets this language to allow enrollment directly through a QHP insurer or a web-broker so long as the insurer or web-broker meets federal requirements. Extending this interpretation, enrollment through the Exchange DE option would qualify as enrollment “through an Exchange” for purpose of federal subsidies.

Commenters also argued that the Exchange DE option cannot be authorized without a waiver under Section 1332 and that this waiver approval process is required to adopt a proposal similar to that in Georgia. In its approval of Georgia’s waiver, CMS explicitly waived Section 1311(b), (c), (d), (e), and (i) of the ACA. CMS considered requiring states to submit a Section 1332 waiver request to pursue an Exchange DE option but did not do so, concluding instead that “there is no requirement” in the ACA that must be waived to allow a state to implement the DE option. CMS also distinguished Georgia’s waiver from the Exchange DE option, asserting that federal requirements apply differently, and that Georgia’s waiver truly limits access to HealthCare.gov while the Exchange DE option does not.

Section 1332 Waivers

CMS and Treasury proposed to codify certain parts of the Trump administration’s guidance interpreting Section 1332 of the ACA. Section 1332 allows states, with federal approval, to waive certain ACA requirements if a state demonstrates that their proposal meets certain statutory procedural and substantive “guardrails.”

CMS and Treasury adopted prior regulations to implement Section 1332’s procedural requirements but not the statute’s substantive guardrails, which remained in guidance only. Guidance was issued by the Obama administration in 2015 and then rescinded and replaced by the Trump administration in 2018. Despite CMS’s urging, only Georgia has been approved for a broad waiver under the 2018 guidance. Of the other 15 states with a Section 1332 waiver, all but one is for a reinsurance program.

Citing the need to give states certainty about the future of Section 1332 waivers, CMS and Treasury proposed to incorporate the 2018 guidance into regulations. The proposed rule would have done so via an explicit reference to the 2018 guidance (i.e., states would have to submit analyses and data so federal officials could assess whether the proposal meets the substantive guardrails “consistent with the [2018 guidance]”). Such references were incorporated throughout the implementing regulations for Section 1332.

Although the practical impact is generally the same, CMS and Treasury amended that approach in the final 2022 payment rule. Instead of incorporating the 2018 guidance by reference, the final rule instead writes in the substantive standards, thereby codifying the 2018 guidance’s guardrail interpretations into regulations. (This change was likely made because commenters criticized the incorporation of the guidance by reference as inconsistent with existing federal regulations.)

So, for each substantive guardrail under the Section 1332 statute, the regulations now reflect the Trump administration’s (much-criticized) interpretation of those guardrails as laid out in the 2018 guidance. For instance, the final rule specifies that the guardrail on “comprehensiveness” is satisfied by a state waiver plan that provides access to coverage options that are at least as comprehensive as the coverage options provided without the waiver, to at least a comparable number of people as would have had access to such coverage absent the waiver. The final rule adopts a similar approach with respect to the affordability and coverage guardrails. The final rule also explicitly defines coverage (in a way that includes short-term limited duration insurance) and allows flexibility in identifying state legal authority for a waiver. Both changes are consistent with the 2018 guidance. Finally, the rule changes the standards for monitoring and compliance and periodic evaluation to require the Secretaries to assess compliance on bases that include any interpretive guidance (though not specifically the 2018 guidance).

In making these changes, CMS and Treasury invoke both the comments on the proposed 2022 payment notice and the 2018 guidance (where there were about 2,100 public comments). Until now, the agencies have never accounted for, or otherwise responded to, the comments on the 2018 guidance itself; in issuing that guidance, the agencies provided a 60-day comment period, but the guidance went into effect immediately.

A “majority” of commenters did not support either the 2018 guidance or its incorporation into federal regulations. All of those commenters expressed concern about the guidance’s legality regarding its interpretation of Section 1332’s substantive guardrails. Others criticized the expansive view of “coverage” to include options that allow underwriting and the impact this could have on uninsured and underinsured rates. Some urged the agencies to rescind and abandon the 2018 guidance itself. CMS and Treasury responded to these comments in the preamble but declined to change any of substantive policies or interpretations in the 2018 guidance even though only “a few” commenters expressed their support for the guidance and its incorporation into regulations.  

User Fee For Federally Facilitated Exchange

The final rule reduces the exchange user fee for the 2022 plan year. The FFE will charge insurers a user fee of 2.25 percent (down from the current 3 percent) of total monthly premiums for 2022. In states with an SBE-FP, insurers will pay a slightly lower user fee of 1.75 percent (down from the current 2.5 percent) of total monthly premiums for 2022. These current user fee amounts were, themselves, a reduction from prior user fee levels beginning with the 2020 plan year; the FFE user fee was 3.5 percent for 2014 through 2019. CMS estimates that the reduced user fee (combined with transitions to SBE-FPs or SBEs) will result in savings to insurers of about $270 million in 2022 and about $60 million in 2023 (down from $400 million in the proposed rule).

If FFE or SBE-FP states adopt the Exchange DE option, the user fee in those states will be 1.5 percent of total monthly premiums for 2023. This user fee is lower because the exchange will no longer be providing consumer-facing enrollment-related activities (such as the call center and website).

Comments on the user fee were mixed. Some supported lower user fee rates so long as FFE operations are not adversely impacted while others urged CMS to restore the user fee to its prior levels. Some asked CMS to maintain the current user fee levels or reduce the user fee by a smaller amount. Still others urged CMS to provide more information on how user fees are spent; doing so would help the public better assess whether the user fee levels or appropriate or not. CMS insists that its user fees will be sufficient to support enrollment through the FFEs and SBE-FPs.

The proposed 2022 payment rule had addressed other user fee-related policies to 1) eliminate flexibility for the collection of state user fees; and 2) extend the current FFE user fee adjustment rules for contraceptive claims to SBE-FPs. The final 2022 payment rule did not address these issues, which will be adopted in the next round of rulemaking or abandoned by the Biden administration.

Payments From HRAs And QSEHRAs

QHP insurers must accept a variety of payment methods so individuals without a bank account or credit card can pay their premiums. Under the final rule, individual market QHP insurers must additionally accept payments made by an enrollee or on behalf of an enrollee directly from an individual coverage HRA or QSEHRA. This may include employee-initiated payments made through pre-paid debit cards or direct payments from an employer or other plan sponsor. QHP insurers must accept these premium payments when made using a method described in current regulations.

Comments on this proposal were mixed. Some supported the requirement to help overcome confusion about whether an insurer had to accept payments from an individual coverage HRA or QSEHRA. Others urged CMS to require insurers to accept aggregate payments made on behalf of multiple enrollees. CMS did not agree with the latter comment, and the final rule did not require QHP insurers to accept aggregate payments from individual coverage HRAs or QSEHRAs. CMS believes that these products are in their infancy, so such a requirement does not make sense at this time.

Still other commenters suggested that individual coverage HRAs and QSEHRAs constitute third party payments that insurers do not have to accept. CMS disagreed with this contention, taking the view that these accounts are structured to reimburse employees for medical expenses paid by the employee. Insurers must thus accept all individual coverage HRA or QSEHRA payments transmitted directly by an enrollee or employer so long as those payments are made in an approved form.

Network Adequacy

The final rule confirms that QHP insurers are not required to use a provider network. But insurers that do use such a network must meet federal network adequacy standards. QHP insurers do not have to satisfy these network adequacy standards if, in fact, a QHP does not use a provider network. However, all other QHP certification requirements apply to plans without a provider network.

Only 12 plans without a provider network have ever been approved as QHPs in the FFE. All of those plans were approved in Wisconsin for the 2016 plan year.