Questions and Answers Related to the Health Insurance Market Reforms
Maintenance of Alternative Mechanisms
Q1: Given the guaranteed availability requirement in 2014, what does this mean for states with alternative mechanisms?
In general, most state high risk pool coverage is not provided through insurance and is not group health plan coverage. Such state high risk pool coverage is not subject to title XXVII of the PHS Act. However, some states, as their state alternative mechanism, require issuers (or certain issuers of last resort) to guarantee the availability of a product or specific benefit design. If the state alternative mechanism is individual market insurance coverage, it is subject to title XXVII of the PHS Act, to the extent that it is not grandfathered.
In 2014, individuals enrolled in state high risk pools will have the same rights as others to guaranteed availability of any individual market products offered inside and outside of the Health Insurance Marketplace or Exchange, and states may not prevent individuals from moving to other products or to an Exchange in a state. Note that state high risk pools may continue past 2014.
PHS Act section 2702, which requires guaranteed availability of all products in the individual and small group markets, has rendered section 2741 moot with regard to non-grandfathered plans. Accordingly, beginning in 2014, states will no longer be required to maintain their alternative mechanisms for the purpose of guaranteeing coverage to HIPAA eligible individuals. CMS also will no longer be reviewing the state alternative mechanism for compliance with PHS Act section 2741.
States will have the discretion to determine how long beyond January 2014 their state alternative mechanisms can continue to exist or, if it was a “federal fallback” state that did not have an alternative mechanism, whether health insurance issuers in the individual market must continue to offer certain products to HIPAA eligible individuals.
Geographic Rating Areas
Q2: Will small group market rating be based on employee or employer address? Will this approach apply only to plans offered through the FF-SHOP, or will it also apply to the small group market outside the Exchanges?
We intend to propose in future rulemaking that the geographic rating factor and premiums will be based on the employer’s primary business location. This would apply both inside and outside of the SHOP. In the context of the FF-SHOP, we intend to propose that an employer generally may have only one SHOP account per state. This limitation would not apply to multi-state employers, however, which will still be able to establish either one SHOP account for all employees (primary business location will be used for rating purposes) or establish multiple SHOP accounts (primary business location in each state will be used for rating purposes).
Q3: What rating areas should be used for individual market plans if family members live in multiple locations
CMS believes that the location of the primary subscriber should be the rating area used for rating individual market plans, if purchased in the same state, regardless of the location of other individuals covered by the plan.
Q4: How many rating factors can an issuer have in a geographic rating area?
An issuer can have one geographic rating factor per approved geographic rating area per single risk pool in a state.
Q5: Can issuers vary their geographic rating factors within a rating area by product to reflect differences in network efficiency?
No. To preserve the integrity of the single risk pool requirement, rating areas must apply uniformly within each market and may not vary by product in that market.
Q6: We understand that some issuers need clarification on the rule prohibiting issuers from varying geographic area rating factors by product within a geographic rating area, and made plans to do so based on network cost differences. Would CMS consider a transitional period during which issuers that vary geographic rating factors on a plan-by-plan basis based on network cost differences would not be found to be out of compliance by CMS, until they make this conforming change?
CMS understands that plans have operated in good faith with respect to these rules prior to the release of the clarifying FAQs (/cciio/resources/factsheets/qa_himr). Based on the timing of the release of these clarifying FAQs, CMS acknowledges that the rule could have been clearer with respect to varying geographic rating factors by product within a geographic rating area and understands that issuers may not have sufficient time to adjust their plans as would be necessary to comply with this specific requirement before the deadline for submission of applications to the Federally Facilitated Marketplaces for certification of QHPs.
Accordingly, for the 2014 plan or policy year only, issuers with plans subject to the rating rules imposed under the Affordable Care Act will not be found to have violated the Market Rule limitation on geographic rating if they implement geographic rating factors that vary by plan, provided that any variation in geographic rating factor by plan is based only on actuarially justified network cost differences for each geographic rating area. Consistent with the Market Rule final rule and the FAQ, no other variation in geographic rating factor by plan will be permitted.
Based on this guidance, all issuers submitting plans to the Federally Facilitated Marketplaces for certification as QHPs will have the opportunity to make adjustments to their plans, as applicable. For those issuers that already have submitted plans to the Federally Facilitated Marketplaces or that will not have time before the deadline for submission to make such adjustments, CMS will provide an opportunity to make such adjustments during the period established for revising plans to correct any identified deficiencies.
Definition of Association Coverage
Q7: Can states define coverage sold to individuals and small groups through an association as large group coverage and hence avoid subjecting such coverage to the single risk pool and other requirements of the individual and small group market?
No. For purposes of Title XXVII of the PHS Act, including the market reforms, any state law that defines coverage sold to individuals and small groups through an association as large group coverage would be preempted by federal law. As stated in previous guidance, the test for determining whether association coverage is individual or group market coverage for purposes of Title XXVII of the PHS Act is the same test that applied to health insurance offered directly to individuals or employers. Coverage that is provided to associations but is not related to employment is not considered group coverage under 45 CFR part 144 through 148. The coverage is considered coverage in the individual market, regardless of whether it is considered group coverage under state law. If the health insurance coverage is offered in connection with an association group health plan as defined at section 2791 of the PHS Act, it is considered group health insurance coverage. To the extent an association has any covered members that are small employers, the issuer is subject to the requirements that apply to small group coverage with respect to any small employer in the association. If the coverage is issued through an association, but not in connection with a group health plan, the coverage is considered individual health insurance coverage.
In a “mixed” association where different members have coverage that is subject to the individual market, small group market, and/or large group market rules under the PHS Act, as determined by each member’s circumstances, each association member must receive coverage that complies with the requirements arising out of its status as an individual, small employer, or large employer. For example, it is not permissible under the PHS Act for mixed association coverage to comply only with the large group market rules, even with respect to its individual and small employer members.
Premium Adjustment When Coverage Becomes Secondary to Medicare
Q8: Can an issuer adjust premiums to an individual or small group product when it becomes secondary to Medicare?
No. In order to assure consumers have a consistent rate throughout the year, the rules provide that once an individual or employer enrolls in a plan at a set premium rate, the issuer generally may not change that rate during the plan or policy year, and must wait to do so until the plan or policy is renewed. Moreover, premiums may only be set based on index rates and adjustments set forth in PHS Act section 2701 and 45 CFR 156.80, which do not include any adjustment to account for an enrollee’s additional coverage. The issuer may, however, as consistent with current market practice, offer to replace the individual or small group product with a Medicare supplemental / Medigap plan that has a lower premium, which would be an excepted benefit and, therefore, not subject to the requirements of title XXVII of the PHS Act, provided that it is clear that such offer may be effected only at the option of the enrollee (such that it does not amount to a non-renewal or discontinuance of coverage under the guaranteed renewability requirements) and otherwise complies with applicable federal and state laws and regulations, including the Medicare supplemental health insurance policies requirements set forth in section 1882 of the Social Security Act
 45 CFR 144.102(c); “Application of Group and Individual Market Requirements Under Title XXVII of the Public Health Service (PHS) Act When Insurance Coverage is Sold To, or Through, Associations,” CMS Insurance Standards Bulletin Transmittal No. 02-02 (Aug. 2002), available at: /Regulations-and-Guidance/Health-Insurance-Reform/HealthInsReformforConsume/downloads/HIPAA-02-02.pdf.
 45 CFR 144.102(c); “Application of Group and Individual Market Requirements Under Title XXVII of the Public Health Service (PHS) Act When Insurance Coverage is Sold To, or Through, Associations,” CMS Insurance Standards Bulletin Transmittal No. 02-02 (Aug. 2002), available at: /Regulations-and-Guidance/Health-Insurance-Reform/HealthInsReformforConsume/downloads/HIPAA-02-02.pdf. Whether a group health plan exists, and whether it exists at the association level, or as is far more common, at the individual employer level, is under the jurisdiction of the U.S. Department of Labor’s Employee Benefits Security Administration.
 “Application of Individual and Group Market Requirements under Title XXVII of the Public Health Service Act when Insurance Coverage Is Sold to, or through, Associations,” CMS Insurance Standards Bulletin Series – INFORMATION (Sept. 2011), available at: http://cms.gov/cciio/resources/files/association_coverage_9_1_2011.pdf