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Comment: Several commenters stated that fixed indemnity insurers should be permitted to sell policies to certain categories of individuals other than those who have minimum essential coverage, such as healthy and young or middle aged individuals with moderate income who cannot afford high-deductible coverage under the Affordable Care Act, but can afford a limited indemnity plan, those who qualify for a hardship exemption from the individual shared responsibility payment, and those who feel they cannot afford the price of minimum essential coverage offered to their dependents through an employer’s health plan. These commenters asserted that eliminating a valid and possibly affordable option to provide these individuals with a source of assistance during a medical emergency is of concern. Several commenters believe the requirement to have minimum essential coverage will cause negative consequences for individuals living in States where the Medicaid expansion was not adopted, and who earn too much money to qualify for Medicaid but not enough to qualify for exchange subsidies, and to undocumented residents who are neither eligible for subsidies nor eligible to access the exchanges to acquire minimum essential coverage. Finally, one commenter observed that, according to the code at 26 U.S.C. 5000(A)(f)(4), residents of U.S.
Response: While we do not agree that fixed indemnity insurers should be permitted to sell policies to every category of individuals who do not have minimum essential coverage, we accept the commenter’s suggestion that those who are treated as having minimum essential coverage due to their status as residents of U.S. territories should be able to purchase fixed indemnity insurance without actually having minimum essential coverage. We believe it is consistent with the nature of Code section 5000A(f)(4)(B), to treat such individuals similarly to individuals who actually have minimum essential coverage, for purposes of whether a fixed indemnity insurer may sell them a policy without losing excepted benefits status. Therefore, we have incorporated this provision into this final rule. We believe that expanding this principle any further to other populations would erode the objective of attempting to ensure that as many individuals as possible enroll in minimum essential coverage. We also note that individuals who have hardship exemptions to the shared responsibility payment are permitted under Federal law to purchase a catastrophic plan, which typically provides economical health insurance benefits.
Comment: Several commenters stated that as an alternative to the proposed requirement that fixed indemnity coverage be sold only to individuals who have minimum essential coverage in order for the fixed indemnity coverage to be an excepted benefit, fixed indemnity insurance should be considered excepted benefits if offered, marketed, and sold as supplemental insurance.
Response: We do not believe that merely offering, marketing, and selling fixed indemnity policies as supplemental benefits, will effectively address the confusion about these policies that many consumers have, or will effectively contribute to the Affordable Care Act’s goal of maximizing the number of individuals who have comprehensive, major medical
Comment: One commenter was concerned that “transitional policies,” that is, policies that do not conform with certain Affordable Care Act requirements first applicable in 2014, but continue to be renewed for policy years ending on or before October 1, 2016 as a result of CMS’ March 5, 2014 bulletin on Extension of Transitional Policy through October 1, 2016, might not constitute minimum essential coverage.
Response: Such transitional policies are small employer or individual market policies that constitute minimum essential coverage.
Comment: We sought comment on whether to add a requirement that a fixed indemnity policy must be issued by a different issuer than minimum essential coverage, in order for the fixed indemnity insurance to be an excepted benefit. Several commenters supported adding such a requirement, stating that doing so would be an appropriate interpretation of the requirement that fixed indemnity insurance be independent. Other commenters did not agree that this requirement be added. One such commenter did not believe that the problem of an issuer of major medical coverage carving out benefits for the purpose of selling an enrollee a fixed indemnity plan, exists in the commenter’s local area, while others stated that, under the Affordable Care Act requirements, issuers offering major medical coverage in the individual and small group markets must include essential health benefits in their major medical coverage.
Response: We agree with the commenters that such a requirement might harm consumers by limiting their choice of fixed indemnity issuers. Thus, we are not including such a requirement in this final rule. However, we remind commenters that section 2791(c)(3) of the Public Health Service Act, which prohibits fixed indemnity polices from coordinating with other coverage,
Comment: One commenter did not object to the proposed provisions taking effect for policy years beginning on or after January 1, 2015. Several commenters stated that the proposed provisions should apply to coverage issued on or after July 1, 2015, rather than coverage issued on or after January 1, 2015. One commenter stated that the provisions should apply to policies issued after December 31, 2015. One commenter noted that a January 1, 2015 date is unrealistic in light of the time needed for filing new products and applications, as well as the workload on State Insurance Departments in the coming months as they review filings and rates for insurance products to be sold in 2015.
Response: In order to provide sufficient time for such insurers to prepare to meet the new minimum essential coverage and notice requirements, these two new requirements will apply to policies first issued on or after January 1, 2015. The notice requirement will also apply to existing policies starting with policy years beginning on or after January 1, 2015. Prior to that date, upon the final rule taking effect, the other criteria in section 148.220 will replace the existing regulatory criteria (as interpreted in our January 24, 2013 FAQ) for fixed indemnity insurance to be an excepted benefit.
Summary of Regulatory Changes We are finalizing the provisions proposed in §148.220 of the proposed rule with the following modifications. In the introductory text, we clarify that the requirements of parts 146 and 147 do not apply to “any individual coverage” (as opposed to individual health insurance coverage) that meet the relevant requirements of that section, consistent with statutory language.
In paragraph (b)(4)(i), we indicate that the fixed indemnity benefits must be provided only to individuals who attest, in their application, that they have other health coverage that is minimum
status as a bona fide resident of any possession of the United States pursuant to Code section 5000A(f)(4)(B). In paragraph (b)(4)(iii), we clarify that the fixed indemnity benefit must be paid in a fixed dollar amount per period of hospitalization or illness “and/or” per service. In §148.220(b)(4)(iv), we clarify that the notice to fixed indemnity policyholders must be displayed in the application. In new paragraph (b)(4)(v), we state that the requirement of paragraph (b)(4) (iv) applies to all hospital or other fixed indemnity insurance policy years beginning on or after January 1, 2015 and the requirement of paragraph (b)(4)(i) applies to hospital or other fixed indemnity insurance policies issued on or after January 1, 2015, and to hospital or other fixed indemnity policies issued before that date, upon their first renewal occurring on or after October 1, 2016.
E. Part 153—Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment under the Affordable Care Act As noted in the proposed rule, both the reinsurance and risk adjustment programs are subject to the fiscal year 2015 sequestration. The risk adjustment and reinsurance programs will be sequestered at a rate of 7.3 percent in fiscal year 2015. The Federal government’s 2015 fiscal year begins on October 1, 2014. HHS, in coordination with the OMB, has determined that, pursuant to section 256(k)(6) of the Balanced Budget and Emergency Deficit Control Act of 1985 as amended, and the underlying authority for these programs, funds that are sequestered in fiscal year 2015 from the reinsurance and risk adjustment programs will become available for payment to issuers in fiscal year 2016 without further Congressional action. Should Congress fail to enact deficit reduction that replaces the Joint Committee reductions, these programs would be sequestered in future fiscal years, and any sequestered funding would become available in the
Comment: Several commenters asked that HHS clarify the details regarding the payment of sequestered funds, particularly for risk adjustment. One commenter suggested that reinsurance payments that might have otherwise been sequestered be made by prioritizing collections for reinsurance payments over collections for the U.S. Treasury. One commenter noted that a short delay in risk adjustment and reinsurance payments would not pose major problems for issuers.
Response: As we stated in the proposed rule, we aim to make payments of sequestered fiscal year 2015 funds for the reinsurance and risk adjustment programs as soon as practicable in fiscal year 2016, which begins on October 1, 2015. We note that we cannot sequester amounts from reinsurance collections for the U.S. Treasury because the U.S. Treasury collections are not budgetary resources. Therefore, they are not subject to sequestration and do not affect HHS’s required reductions under the sequestration law. We will provide further clarification regarding how the amount of sequestered funds will be calculated and paid in future guidance.
1. Provisions and Parameters for the Permanent Risk Adjustment Program We have received input from commenters suggesting that the coefficients in our risk adjustment models may not fully capture the relative actuarial risk of certain hierarchical condition categories (HCCs), in part because those conditions may be subject to changing therapies and higher trends in medical inflation. Although some inaccuracy in our coefficients is inevitable due to lags in the data, we believe that we will be able to mitigate this problem if we recalculate, on an annual basis, the weights assigned to the various HCCs and demographic factors in our risk adjustment models using the most recent data available, even in the years where we do not fully recalibrate the models. We intend to propose such a reweighting in the
updated coefficients apply also for the 2015 benefit year. These adjusted models would be subject to public notice and comment.
2. Provisions and Parameters for the Transitional Reinsurance Program The Affordable Care Act directs that a transitional reinsurance program be established in each State to help stabilize premiums for coverage in the individual market from 2014 through
2016. In the 2014 Payment Notice and the 2015 Payment Notice, we expanded on the standards set forth in subparts C and E of the Premium Stabilization Rule, and established the reinsurance payment parameters and uniform reinsurance contribution rate for the 2014 and 2015 benefit years. In this final rule, we finalize our allocation proposal, with one modification, so that, in the event of a shortfall in our collections, reinsurance contributions will first be allocated to the reinsurance payment pool, and second to administrative expenses and the U.S. Treasury.
In the 2014 Payment Notice and the 2015 Payment Notice, we provided that, if total contributions collected for 2014 and 2015 exceed $12.02 billion and $8.025 billion, respectively, we would allocate $2 billion to the U.S. Treasury, $20.3 or $25.4 million, as applicable, to administrative expenses, and all remaining contributions for reinsurance payments, thus prioritizing excess contributions towards reinsurance payments. Due to the uncertainty in our estimates of reinsurance contributions to be collected, and to help assure that the reinsurance payment pool is sufficient to provide the premium stabilization benefits intended by the statute, we proposed to adopt a similar prioritization in the event that reinsurance collections fall short of our estimates. Specifically, we proposed that, if collections fall short of our estimates for a particular benefit year, we would allocate contributions that are collected first to the reinsurance
administrative expenses are met. Once those targets are met, the remaining contributions collected for that benefit year would be allocated toward the U.S. Treasury.
We sought comment on this proposal, including our legal authority to implement a prioritization of reinsurance contributions to reinsurance payments over payments to the U.S.