By Katherine Hayes, Nancy Lopez, Joel Teitelbaum, Taylor Burke, Mark Dorley, Jane Hyatt Thorpe, Lara Cartwright Smith, Michal McDowell, and Sara Rosenbaum

Background

Beginning January 1, 2014, millions of previously uninsured individuals will gain access to health insurance coverage under the Affordable Care Act (ACA). On November 20, 2012, the Obama Administration proposed a series of regulations that move the nation significantly toward full implementation. These proposed rules will be analyzed at greater length in coming GPS Implementation Brief updates. In the meantime, this overview summarizes the major federal implementation matters that the Administration has recently released or is expected to address in policy or program implementation in the coming weeks and months as the 2014 full implementation date approaches. Together, these matters address access to affordable, high quality coverage, greater health information transparency and quality improvement, access to health care and to resources that help improve health, and improved accountability and transparency among the nation’s nonprofit hospitals.

1. The Minimum Essential Coverage Requirement

The Issue: The ACA requires individuals to maintain “minimum essential coverage” or pay a tax penalty. Minimum essential coverage includes government-sponsored coverage such as Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), veteran’s health benefits, employer-sponsored coverage, and other coverage as approved by the Secretary. Persons with religious objections to insurance, individuals not lawfully present in the U.S., and individuals who are incarcerated are exempt from the requirement. Individuals who are still unable to afford coverage may receive a waiver of the tax penalty.

What’s Expected: Proposed rules further defining minimum essential coverage, providing additional guidance on exempt populations, providing the process for seeking exemption, and other guidance relating to penalties.

Implementing Federal Agencies: HHS and Treasury.

2. Health Insurance Market Reforms and Wellness Programs

The Issue: The ACA fundamentally reshapes the regulatory framework for the sale of health insurance in the group and individual market beginning in 2014. (Implementing regulations have been issued for ACA reforms that already have taken effect, such as coverage of young adults through their parents’ plans and coverage of preventive benefits). The ACA also permits employers to institute employee wellness programs that under certain circumstances tie bonuses and penalties to actual health outcomes.

Under the federal McCarran-Ferguson Act, states retain primary responsibility for enforcing insurance regulation, and the ACA does not change states’ primary role in insurance standard-setting and oversight. Because states have this front-line responsibility, they will be responsible for primary oversight of the key 2014 insurance reforms. Thus, the reforms must first be clarified by federal implementing agencies and second, incorporated by states into their insurance oversight frameworks, either by statute, regulation, or policy guidance.

Recent developments: On November 20, 2012, the Administration released a proposed rule addressing a range of issues: guaranteed availability and renewability; barring price discrimination based on age, gender or health status; and fairness in rate review. At the same time, companion rules spelled out the conditions under which employers could operate wellness programs without discriminating against employees on the basis of health status. Finally, as part of a separate proposed rule released on November 30, 2012, CMS made proposed adjustments in the calculation of Medical Loss Ratios (MLR).

Key Implementing Agency: HHS/Centers for Medicare and Medicaid Services (CMS).

3. Essential Health Benefits

The Issue: The ACA requires that all non-grandfathered health plans sold in the individual and small group markets (under 100 employees) cover “essential health benefits” (EHBs). The Act’s EHB provisions describe 10 major classes of benefits that must be covered (including preventive services), are expected to mirror a “typical” employer plan, and also bar discrimination on the basis of disability. Preliminary guidance was issued in late 2011 and early 2012 which proposed that states select their own EHB “benchmark” plan from a range of potential options, including a default selection of the largest selling plan in the small-group market for states that fail to make a selection. Half of all states have submitted their EHB benchmark selections to HHS.

Recent developments: On November 20, 2012, the Administration issued a proposed rule implementing the EHB standard and proposing a timeline for accreditation. In addition, CMS issued guidance to state Medicaid programs regarding “benchmark” plans and how these plans relate to the EHB reforms.

Key Implementing Agency: HHS/CMS.

4. Health Insurance Exchanges and Qualified Health Plans: Federally Facilitated Exchanges and Multi-State Plans

The Issue: The ACA requires each state to have an operational health insurance exchange by January 2014. Exchanges are expected to create an affordable insurance marketplace through which qualified individuals and small employers (fewer than 100 employees) will be able to purchase “qualified health plans” (QHPs). States can elect to fully operate their own exchange or partner with the federal government to run their exchange. If a state chooses not to implement an exchange either on its own or through a partnership, the federal government will operate a federally facilitated exchange.

States must declare to HHS their intent to operate their own exchange and submit a blueprint for its operation by December 14, 2012 (HHS extended the original November 16, 2012, deadline). States that wish to implement state partnership exchanges have until February 15, 2013 to declare their intentions and indicate for which aspects they will seek federal assistance. CMS issued a final rule in March 2012 establishing the basic structure and responsibilities of state exchanges, enrollment processes and exchange standards for employers. HHS also released additional Exchange guidance including the final Blueprint for Approval of Affordable State-Based and State Partnership exchanges, a set of accompanying Frequently Asked Questions on the Blueprint for Exchanges, and guidance on federally facilitated Exchanges. As of November 16, 2012, 17 states and D.C. had expressed their intent to establish a state-based Exchange.

QHPs are certified by state Exchanges (or by federally facilitated exchanges operating in states). In addition, the ACA authorized the development of multi-state plans in order to promote competition in all markets, including states with small populations and health insurance markets with only small numbers of operating plans.

Recent Developments: The Office of Personnel Management issued a proposed rule on the establishment of multi-state health plans. CMS issued a proposed rule providing “further detail and parameters” in a number of areas including user fees for a Federally-facilitated Exchange and a Federally-facilitated Small Business Health Option Program (SHOP).

Key Implementing Agencies: HHS/Center for Consumer Information and Oversight (CCIIO).

5. Reinsurance and Risk Adjustment

The issue: The ACA prohibits insurers from denying coverage for pre-existing conditions (guaranteed issue) and charging higher premiums for sicker enrollees. In order to assure stability in the health insurance market in response to these new requirements, the ACA creates a risk adjustment program designed to limit insurers’ risk exposure. A federal risk adjustment formula will be developed, but states will have the flexibility to establish their own risk adjustment models, subject to HHS approval. Additionally, assuming that a number of newly insured individuals will have built-up health care demands when they gain access to individual coverage in 2014, the ACA also establishes a temporary reinsurance program in the individual market to offset some of these new costs. The program will be funded by contributions from all health plans and will be made available to insurers selling QHPs in the individual market during the initial enrollment period. A final rule implementing reinsurance and risk adjustment was issued in March 2012.

Recent Developments: CMS issued a proposed rule providing further “details and parameters” related to the risk adjustment, reinsurance and risk corridors programs, as well as a number of other issues. The proposed rule “fills in the framework” on risk adjustment by establishing parameters for states operating risk adjustment programs, outlines the risk adjustment methodology, including risk adjustment model, payments and charges methodology, and the data collection approach, as well as an “outline” of the data validation process. In the area of reinsurance, the proposed rule addresses exclusions of certain types of health coverage from reinsurance contributions, a national per capita contribution rate to be paid by health insurance issuers and self-insured health groups (and methodology), eligibility for reinsurance payments, and other provisions. Finally, CMS proposes permitting a QHP to include profits and taxes within its risk corridors calculations.

Key Implementing Agency: HHS/CMS/CCIIO.

6. Premium Subsidies and Cost-sharing Assistance

The Issue: The ACA subsidizes the purchase of qualified health plans offered through health insurance exchanges for citizens with incomes between 100 and 400 percent of poverty who are not eligible for Medicaid, and for legal residents with incomes below 400 percent of poverty. These advance premium tax credits (APTC) and cost sharing reductions (CSR) are available to individuals without access to employer-sponsored coverage, and to those whose employer plan does meet certain minimum federal standards. Although final rules were issued in May of 2012, further guidance is expected to address how exchanges will interface with the government for data exchange in determining eligibility. Guidance could potentially address the issue of how to calculate premium affordability.

Recent Developments: CMS issued a proposed rule establishing standards for advanced payments of premium tax credit and cost-sharing reductions, implementing Sections 1402 and 1412 of the ACA. Specifically, the agency proposed standards governing the reduction of premiums by the amount of any advance payments of the premium tax credit and the allocation of premiums to essential health benefits.

What’s Expected: It is likely that the Department of Treasury will issue guidance as to how a state-based or state partnership exchange will have access to federal income data to make determinations.

Implementing Federal Agency: CMS/Treasury.

7. Medicaid Expansion

The Issue: The ACA required states to provide Medicaid coverage for individuals with incomes below 133 percent of the federal poverty level, and providing 100 percent federal matching funds, phased down to 90 percent by 2020. After CMS issued final regulations, the Supreme Court, in NFIB v. Sebelius, held that the Secretary of HHS could not enforce the requirement by withholding all federal Medicaid funds, but did not strike down the expansion itself, essentially permitting states to expand coverage if they so choose. Agency officials have indicated that states may opt-in or out-of the expansion at any time. One question that remains is whether the agency would in revised regulations permit states to expand coverage to less than 133 percent of poverty and still receive the enhanced federal matching funds.

What’s Expected: Revised eligibility policies that address the degree of flexibility the HHS Secretary will permit in the wake of NFIB v. Sebelius.

Implementing Federal Agency: HHS/CMS.

8. Medicaid Eligibility and Enrollment Simplification

The Issue: The ACA included provisions designed to simplify Medicaid eligibility and enrollment. The law requires states to use new uniform eligibility standards or modified adjusted gross income (MAGI) that will be used to calculate eligibility for non-elderly, non-disabled, low-income individuals. These standards are the same standards used to calculate eligibility for advance premium tax credits and cost-sharing reductions available through the Exchange. Under the ACA, states must use a single streamlined application available and permit individuals to apply online, in person or by mail. The Secretary of HHS is required to develop a model for state use, but the Secretary may also approve alternatives developed by the state.

What’s Expected: Agency guidance in the form of a proposed regulation or other guidance detailing both the process and providing a model application.

Implementing Federal Agency: HHS/CMS.

9. Medicaid Payment of Disproportionate Share Hospitals

The Issue: The ACA greatly reduces the amount of Medicaid Disproportionate Share Hospital (DSH) funds paid to hospitals that treat low-income patients, beginning January 1, 2014, the same year as the Medicaid coverage expansion takes effect. This statutory reduction assumed nearly-universal state expansion of Medicaid coverage to individuals making 133% of federal poverty level (FPL) because of the significant financial incentives made available to states by the ACA to expand. DSH payment reductions are set to take effect in 2014, and the HHS Secretary is required to develop a new DSH allocation formula that rewards hospitals that treat the largest shares of low-income patients.

What’s Expected: Additional Medicaid rulemaking and guidance directly addressing how reduced DSH funds will be allocated and whether the allocation process will consider the status of state implementation of Medicaid expansions.

Key Implementing Agency: HHS/CMS.

10. Federal Financial Assistance to State Medicaid Programs

The Issue: Federal funding is provided to state Medicaid programs in accordance with a federal formula. The ACA establishes special enhanced contribution rates for coverage of newly eligible beneficiaries beginning with calendar quarters after on January 1, 2014. Under the ACA, states that expand coverage to newly eligible persons will receive 100 percent federal matching assistance for newly eligible individuals through 2016, phased down to 90 percent by 2020. States that already had increased Medicaid eligibility prior to passage of the ACA will receive their existing state match rates, but those rates will be phased up to 90 percent by 2020.

What’s Expected: Notice of enhanced federal matching assistance percentage (FMAP) for “newly eligible” Medicaid beneficiaries. As mentioned under the discussion relating to Medicaid eligibility, it is unclear whether CMS will provide 100 percent federal matching funds for states that choose to expand coverage to a level of less than 133 percent of poverty.

Implementing Federal Agency: HHS/CMS.

11. Basic Health Program

The Issue: The ACA included language permitting a state option to provide coverage to individuals with incomes from 133-200 percent of poverty under a Basic Health Program (BHP), in lieu of coverage through an Exchange, beginning in 2014. States that elect the BHP are required to offer at least “essential health benefit” level coverage and would be entitled to receive 95 percent of the value of the premium tax credits and cost sharing assistance payments that would otherwise be available to these individuals through the state’s exchange. A number of states have begun to consider the BHP option because of its potential to reduce “churning” of low-income persons across the Medicaid/Exchange markets and lower out-of-pocket cost-sharing exposure. On the other hand, others have noted that the use of a BHP could potentially increase premiums in state Exchanges because a BHP would reduce the strength and size of the Exchange risk pool, since so many low-income persons are young and in good health.

What’s Expected: A proposed rule and guidance on the Basic Health Program, including federal administration requirements, federal funding availability, and requirements regarding Medicaid/Exchange interactions.

Implementing Federal Agencies: HHS/CMS and Treasury.

12. Medicare Payment Reform

The Issue: The ACA took significant steps to transform the Medicare program to a value-based purchasing program of high quality health care services. Many of the pre-ACA provider quality measurement and reporting programs for hospitals, physicians, and nursing homes were expanded and similar programs were authorized for additional providers including long-term care hospitals and hospice providers. In addition, the ACA moves beyond “reporting” programs and authorizes CMS to directly link payment rates to the actual quality of care delivered for a broader range of providers, not just the reporting of quality measures. Specifically, the ACA requires the implementation of Medicare value-based purchasing programs for acute care hospitals and physicians (through a payment modifier) and the development of plans to implement value-based purchasing programs for skilled nursing facilities, home health agencies, and ambulatory surgical centers. As authorized by the ACA, CMS is also implementing a variety of new reimbursement programs that are designed to incentivize higher quality care through greater care coordination at lower cost (e.g., hospital penalties for excessive readmissions, bundled payments that hold providers jointly accountable for patient care, accountable care organizations, and medical homes). Similar programs are being developed and implemented in the Medicaid program as well in collaboration with state Medicaid agencies (e.g., health homes).

What’s Expected: CMS will continue to implement payment reforms specified by a range of ACA provisions, and the Innovation Center, established by the ACA, will continue to test payment models. These further policy implementation steps are expected to take place via regulations, policy guidance, and grant and funding opportunities.

Implementing Federal Agency: HHS/CMS.

13. Health Care Quality Improvement and Health Information

The Issue: Many of the ACA’s reforms focus on improving the quality of care. Reforms such as the National Quality Strategy and the Patient Centered Outcomes Research Institute (PCORI) are designed to improve quality and develop the evidence base for effective treatments and informed decisions. Other reforms, such as Accountable Care Organizations (ACOs) and Patient-Centered Medical Homes, focus on creating payment models and delivery systems that will reward value (measured by improved processes or outcomes), rather than simply the amount of care provided. The ACA payment reforms are designed to revise insurance payments to reward quality and high performance.

The success of these efforts in great part rests on the meaningful use of health information technology (HIT), including electronic health records (EHRs). Their use was first established by the HITECH Act (established as part of the American Reinvestment and Recovery Act (ARRA)), which aims to incentivize adoption and meaningful use through a series of incentives in the Medicare and Medicaid programs.

What’s Expected: HHS is expected to release “Stage 2” Meaningful Use standards to further expand HITECH reporting and use requirements. At the same time, proposed QHP reporting standards for plans offered through state Exchanges will carry these reporting requirements into the private insurance market. The CMS Innovation Center is expected to continue to develop and test new payment and delivery system models, as well as expanding existing programs for ACOs. PCORI is expected to announce new funding opportunities for comparative effectiveness research. Medicare and Medicaid will continue to apply payment policies that reward quality improvement.

Implementing Federal Agencies: HHS/CMS; HHS/Office of the National Coordinator (ONC) and PCORI.

14. Health Center Expansion

Overview: The ACA established the Community Health Center Fund, whose purpose is to significantly expand the number and location of community health centers in advance of the implementation of health reform, so that as millions of individuals gain access to affordable insurance coverage, they will be able to make effective use of their coverage through access to high quality primary health care. Beginning in FY 2011 HHS began to invest in new health center sites and locations, although Congress subsequently reduced the availability of Fund resources by $1.2 billion through FY 2012. Expansion awards to date have helped raise the number of health center patients served by nearly 2 million children and adults, with additional investments set to take place over the FY 2013-2015 time period.

What’s Expected: Additional awards from the Trust Fund to launch new health centers and to allow existing health centers expand their service sites, staffing, services, and operational capacity. Total spending on new investments over this time period is projected at $3.7 billion.

Implementing Federal Agency: HHS/Health Resources and Services Administration (HRSA).

15. Community Benefit Responsibilities of Nonprofit Hospitals

The Issue: Since 1969 nonprofit hospitals have been required to furnish “community benefits” as a condition of federal tax-exempt status. The Affordable Care Act strengthens the community benefit obligation by: (1) requiring hospitals to engage in community health needs assessments (CHNAs) in order to bring greater transparency to how they invest in community health and health care; (2) adopt fairer and more transparent financial assistance policies; (3) eliminate unreasonable billing and collection practices; and (4) comply with EMTALA. Guidelines issued in 2011 provide preliminary guidance on the CHNA process. Proposed regulations issued in 2012 describe hospital obligations in connection with financial assistance and billing and collection practices.

What’s expected: Final rules covering permissible billing and collection practices and outlining required financial assistance policies; a rule covering hospitals’ CHNA practices; and oversight and enforcement of the CHNA process, which began in 2012.

Implementing Agency: Treasury/IRS.

16. Public Health Trust Fund

Overview: The ACA establishes a Public Health Trust Fund whose purpose is to make major investments in services, programs, and activities that improve the public’s health. To date, more than 70 Community Transformation Grants have been awarded to enable communities to engage in health improvement activities, and investments have been made in access to clinical preventive services and the training of primary health care professionals.

What’s Expected: Continuing investments in community health transformation activities, and improved access to clinical preventive services to further the National Prevention Plan established under the Act and released in 2011.

Implementing Agencies: HHS/Centers for Disease Control and Prevention (CDC) and Office of the Surgeon General.