By Lara Cartwright-Smith

Background

On March 21, 2012, the Centers for Medicare and Medicaid Services (CMS), part of the Department of Health and Human Services (HHS), published a final rule ^[1]setting forth requirements for student health insurance coverage. The rule codifies the proposed rule that CMS issued in February 2011.^[2] An estimated 1.1-1.5 million students are covered by student health insurance provided by educational institutions.^[3] The final rule establishes how the insurance market reforms contained in the Affordable Care Act (ACA), such as coverage requirements, will be applied to student health insurance plans.

Changes Made by the Health Reform Law (Pub. L. 111-148, Pub. L. 111-152)^[4]

As we have discussed in earlier briefs,^[5] the ACA makes a number of changes to the health insurance market, including rules regarding medical loss ratios (MLR)^[6], annual limits, and coverage of preventive services^[7] that apply to health insurance issuers in the individual and group markets. Under the Public Health Service (PHS) Act, student health insurance coverage is considered individual market coverage because it is not provided as part of an employer-based group health plan.^[8] However, the ACA states that nothing in Title I of the Act should be construed to prohibit an institution of higher education from offering a “student health insurance plan to the extent that such requirement is otherwise permitted under applicable Federal, State, or local law.”^[9] HHS interpreted this limiting clause to require exceptions to some insurance requirements for student health insurance, to avoid having the effect of prohibiting student insurance coverage, while allowing the ACA’s insurance requirements generally to apply to student health insurance as a type of individual health insurance coverage. (The ACA’s requirements do not apply to self-funded student health plans, which cover approximately 200,000 students, because those plans are not considered insurance or employee benefit plans, so they are outside the regulatory authority of HHS.^[10])

Overview of Final Rule

Definition of Student Health Insurance Coverage

HHS defines student health insurance coverage as a type of individual health insurance coverage provided pursuant to a written agreement between an institute of higher education and a health insurance issuer for enrolled students and their dependents that 1) does not make coverage available other than in connection with enrollment as a student in the institution, 2) does not condition eligibility on health status, and 3) meets any other requirement under state law.^[11] Thus, all ACA requirements that apply to individual health insurance coverage will apply to student health insurance coverage, with limited exceptions.

Exemptions from the PHS Act

Guaranteed availability and guaranteed renewability. Because eligibility for student health insurance depends on enrollment in a qualified educational institution, Section 2741(a) (guaranteed availability) and Section 2742 (guaranteed renewability) of the PHS Act do not apply to student health insurance coverage.^[12]

Annual limits. Section 2711 of the PHS Act prohibits insurers from placing lifetime limits on the value of benefits, prohibits annual limits after 2014, and restricts annual limits prior to 2014.^[13] Under the ACA, insurance plans can place annual limits no lower than $750,000 for plan years beginning before 9/23/11, $1.5 million for plan years beginning between 9/24/11 and 9/23/12, and $2 million for plan years beginning 9/24/12 through 12/31/13. Under the final rule, student health insurance issuers will be permitted to have lower annual dollar limits during the phase-in period prior to 1/1/14, at which point annual limits will be prohibited for student health insurance along with other individual insurance plans.^[14] For student plans, annual limits may be no lower than $100,000 for plan years beginning before 9/23/12 and no lower than $500,000 for plan years beginning 9/24/12 through 12/31/13. The insurer must give the student notice that the plan does not meet the annual dollar limits required of other plans under Section 2711 and inform the student that he or she may be eligible under a parent’s coverage if under the age of 26.^[15]

Preventive Services

Insurance plans must provide specified preventive services without cost-sharing under Section 2713 of the PHS Act. The final rule allows institutions of higher education to charge administrative fees without violating the ban on cost-sharing for specified preventive services.^[16]

The list of preventive services which must be covered without cost-sharing includes contraceptive services. This has proven controversial as it applies to religiously-affiliated institutes of higher learning that do not meet the exemption for religious organizations (such as churches). HHS has adopted a special rule allowing a one-year grace period for certain non-exempt religiously-affiliated organizations to comply with the rule as it pertains to contraception.^[17] The same rule will be applied to student health insurance provided by religiously-affiliated educational institutions, and HHS plans to develop an option for insurers to offer contraceptive coverage directly to students without charging the institution for such coverage.^[18]

Medical Loss Ratio

Section 2718 of the PHS Act requires insurers to ensure that at least 80% (in small group and individual markets) or 85% (in the large group market) of premiums be spent on clinical services and quality improvement activities. Some insurers have objected that the unique and customized structure of student insurance plans make compliance with the 80% medical loss ratio (MLR) unfeasible.^[19] In the final rule, HHS affirmed that the MLR requirements apply to issuers of student plans, but for purposes of determining MLR rebates, issuers will report the experience of student health insurance coverage separately from other insurance coverage and student coverage will be aggregated nationally. Student health plans also have a one-year transition period with only a 70% MLR requirement for coverage beginning 1/1/13.^[20]

Conclusion

The most significant implication of the final rule is that, with limited exceptions, HHS will treat student health insurance the same as individual market health insurance, applying the same rules regarding essential health benefits,^[21] cost-sharing, benefit limits, etc. These additional protections will be significant for students, who have sometimes been offered plans with such limited benefits, low annual limits, and exclusions that they are on the hook for “catastrophic” medical costs if a major injury or disease strikes.^[22] Students will also have more options for health insurance as a result of the ACA’s requirement that insurers allow young adults to stay on parents’ insurance up to the age of 26 (effective now)^[23] and the option for people up to age 30 (or to those who are exempt from the individual mandate because no affordable coverage is available) to purchase a catastrophic plan through the American Health Benefit Exchanges (starting in 2014)^[24]. A catastrophic plan will cover essential health benefits but may have higher deductibles for care (resulting in lower premiums). Thus, in addition to enjoying better insurance coverage through the student plan offered by their institution, students will have more choices for affordable insurance through family coverage or the individual insurance market.