Final ACA Rule Increases the Need for Insurer Adaptability

This is the second article in a two-part series laying out the implications of the Notice of Benefit and Payment Parameters final rule for 2024.

As we noted in the first article in this series, insurers operating on Affordable Care Act Exchanges need to act quickly to ensure they comply and are ready to compete when the 2024 open enrollment period begins in just six months. We continue our analysis of the massive 577-page rule here, focusing on five more key areas for Exchange carriers as they prepare their Qualified Health Plan submissions.

1. Consumer confusion around generic and branded drug tiering in standardized plans will continue

Despite comments from Exchange carriers that it is more common for them to use five or six tiers of prescription drug coverage in the commercial market, the Centers for Medicare and Medicaid Services will keep the limit on standard ACA plans to four tiers in 2024 — generic, preferred brand, non-preferred brand, and specialty. CMS argued that four tiers are more “predictable and understandable” for enrollees and will help reduce unexpected cost-sharing liabilities for enrollees.

CMS has received numerous complaints that Exchange issuers create confusion and frustration for enrollees by not including certain drugs at appropriate cost-sharing tiers, such as placing generic drugs in the preferred or non-preferred brand drug tiers. CMS did not bring this issue into compliance as it could inhibit competition among manufacturers for favorable placement on plan formularies. The agency further justified its position by stating that allowing these category discrepancies to continue will increase medication adherence and reduce consumer costs.

Our Take: CMS is sending mixed signals and may be causing unintended consequences. The original intent of introducing standardized products was to simplify consumer decision-making. While limiting formularies to four tiers is also a way of simplifying choices, consumers can choose non-standard plans, contributing to even more consumer confusion. Allowing the drug category discrepancies to continue also complicates matters for compliance officers. Exchange carriers must self-audit drug-to-drug-tier mappings to avoid consumer confusion and future compliance flags. Additionally, carriers must coordinate with in-house pharmacy services teams and pharmacy benefit managers to establish robust data tracking and refresh customer service operations scripts to address consumer questions.

2. Even with ACA cap on maximum out-of-pocket limits, cost sharing is significant financial burden on consumers

The ACA requires Exchange plans to cap enrollees’ out-of-pocket spending on covered services and cannot exceed the certain amount adjusted annually by law using the Premium Adjustment Percentage Index. The caps for 2024 are about 3.8% higher than in 2023:

• $9,450 for self-only coverage, $18,900 for other coverage
• Cost-sharing reduction plans between 100-150% of the federal poverty level: $3,150 for self-only coverage, $6,300 for other coverage
• CSR plans between 150-200% of FPL: $3,150 for self-only coverage, $6,300 for other coverage
• CSR plans between 200-250% of FPL: $7,550 for self-only coverage, $15,100 for other coverage 

Our Take: As Exchange carriers work diligently to sustain their growth and margins and comply with the complex web of rules and regulations, carriers must ensure they meet members in their moment of need with an ethos of consumer empathy. Most Exchange consumers are below 300% of the FPL, which is an annual income under $44,000 for an individual. Therefore, maxing out their cost-sharing becomes a significant financial burden. Carriers that are empathy-first oriented, help customers understand their coverage, and even direct them to community resources for assistance, will be best positioned for customer retention and high satisfaction.

3. CMS has increased Exchange Blueprint Flexibility for Establishing State-based Exchanges

States considering transitioning away from the federally-run Exchange to establish their own Exchange or Exchange platform will benefit from a more generous approval process timeline.

First, a quick review of the three Exchange variants:

• Federally-facilitated Marketplace: Coverage is offered on Healthcare.gov, which is maintained by the Department of Health and Human Services. Currently, 30 states rely on this model.
• State-based Marketplace: States are responsible for maintaining their Exchanges. Consumers apply and enroll through websites run by the state. Currently, 17 states and the District of Columbia follow this approach
• State-based Marketplace Federal Platform: Although these are state-run marketplaces, consumers apply for and enroll for plans on Healthcare.gov. Currently, three states follow this approach.

States aiming to run their marketplace, or rely on the federal platform, must submit an Exchange Blueprint to HHS. Under the current timeline, a state transitioning from the FFM or SBM-FP to an SBE must have that blueprint approved, or conditionally approved, 14 months before open enrollment. Converting from the FFM to an SBM-FP requires blueprint approval two months before open enrollment. The final rule for 2024 loosens the timeline, allowing approval to be received before the start of open enrollment. States would continue to go through the same iterative and intensive process of working with HHS to ensure a seamless transition, but would not have to obtain approval more than a year in advance.

Our Take: With the maturity of the individual marketplace, several states are considering establishing their marketplaces since 2020, and we expect this trend to continue.

Examples:

• Georgia – Gov. Brain Kemp enacted a law paving the way for an SBM
• Michigan - HB 6112 was proposed in 2022 but did not advance
• Oregon - discussions within the states Health Marketplace Advisory Committee
• Wisconsin - proposed within the Governors 2023-2025 budget process
• Virginia - State Corporation Commission awards contract to GetInsured
• Texas - HB 2554 authorizes an assessment of creating the Texas Health Insurance Exchange
• Illinois - HB 1229 authorizes the state to operate the Illinois Health Benefits Exchange

Teams responsible for the individual Exchange business should stay close to their compliance, health policy, and legislative affairs partners. Insurers must be flexible as more states consider and transition to a State-based Marketplace. States may have different user fees, extended enrollment periods beyond January 15, allow additional benefits to be included within the essential health benefit requirements, and even move to a basic health plan option. For national players, multi-state players, and those considering expansion into new states, QHP filings, broker and customer service training and scripting, and financial performance management takes on potentially significant added complexity in an already complex market.

4. Risk adjustment continues to be critical: absolute value of transfers WAS 12% of premiums in 2021

The risk adjustment program undergoes several revisions in 2024, which are summarized in the PY2024 CMS Fact Sheet.

Our Take: The absolute value of risk adjustment state transfers in the individual non-catastrophic risk pool represented about 12% of premiums in 2021, according to the most current data available from CMS. Given the significance of the revenue maximization opportunity for Exchange carriers, a focused effort on risk adjustment should be a strategic imperative.

Risk adjustment has an actuarial component to ensure accuracy and an operational excellence component around identifying and coding the conditions that drive transfer payments. Successful Exchange carriers need positive relationships and alignment with provider office staff to advance and incent the coding and accuracy efforts for data submission. Exchange teams may also be able to partner with advanced analytic and actuarial expertise to model specific product portfolio offerings that will attract a risk mix that fits the desired capital plan targets for the exchange segment’s capital plan. In most health insurers, the Exchange market may represent a small percentage of the membership, but with keen planning and revenue maximization from components such as risk adjustment, it may contribute outsized margins.

5. Network standardization continues, but THE pace of regulation is limited by the challenges in compliance, measurement, and enforcement

Network Considerations in Crosswalking: For 2024, when an enrollee’s plan is being discontinued, CMS will require insurers to auto-renew those members in a plan product of similar product and metal level and with the most comparable network. Network composition comparisons will be based on the plan’s network ID

Provider Network Appointment Wait Time Standards – Delayed Again: The 2024 final rule pushes the need for Insurers to meet adequacy requirements for appointment wait time standards to plan for the year 2025. The delay is likely due to the need for more clarity and specificity around how HHS would assess wait times and enforce compliance.

Essential Community Provider Considerations: CMS established two additional major ECP categories to the existing six — mental health facilities and substance use disorder treatment centers. The final rule also added rural emergency hospitals as a provider type in the “Other ECP” category.

Our Take: CMS continues to show an interest in evolving its perspective on network standards and regulations. This generates a bigger set of provider network issues to which Exchange carriers should give immediate consideration with agile scenario planning efforts:

• Exchange carriers are offering narrower networks to compete on price while, at the same time, the Exchanges have millions more enrollees than a few years ago.
• Consumers rely on carriers’ online provider directories to select plans and networks. Consumer, broker, and provider abrasion is on the rise in many areas, as these directories are often out of date or inaccurate causing a host of issues for consumers, brokers, and providers. 

Successful Exchange carriers should consider proactive efforts to address network management challenges and provider directory inaccuracies or transparency issues. Internal alignment across all involved business units is critical to implement solutions.

Governmental and regulatory actions continue in attempts to address provider directory issues. The No Surprises Act, now over a year old, requires insurers to update provider directories every 90 days. Protecting impacted members who would only be charged in-network rates. As well, in October 2022, CMS published an official query resulting in hundreds of responses, as to whether the federal government should create a national database of in-network medical providers.

The Four Corners of Exchange Market Sustainability

Insurers have little time to bake the new rules into their QHP product and pricing submissions. In some states, the QHP submission begins in mid-May.

The individual Exchange market has become a staple for millions of people who aren’t eligible for employer-sponsored coverage and don’t qualify for Medicaid or Medicare. Success and sustainability will depend on faster speed to market with required changes, better quality, and accuracy of fundamental components such as provider directories, leaner operations through innovation, and deeper empathy for the markets and customers served.

For more information about OW's Exchange platform, contact Travis Kistler, Partner, Health and Life Sciences, and Shyam Vichare, Partner, Health and Life Sciences.