States have limited role in regulating MA organizations

March 1, 2005

LAST FALL, THE CENTERS for Medicare and Medicaid Services (CMS) and the National Association of Insurance Commissioners (NAIC), published a memorandum providing guidance to state regulators regarding the licensure and regulation of Medicare Advantage (MA) organizations.

LAST FALL, THE CENTERS for Medicare and Medicaid Services (CMS) and the National Association of Insurance Commissioners (NAIC), published a memorandum providing guidance to state regulators regarding the licensure and regulation of Medicare Advantage (MA) organizations. While designed to assist states in determining their appropriate regulatory role, the guidelines were also intended to facilitate further dialogue regarding the responsibilities of the states and CMS in the regulation of MA organizations.

Generally, the states are charged with licensing and regulating MA organizations as risk-bearing entities, and CMS is responsible for determining compliance with MA standards. The states' roles with respect to federally waived provider-sponsored organizations are even further reduced, yet are still significant.

LIMITED STATE RESPONSIBILITY Federal regulations require that each MA organization have two types of state authority:

Beyond the basic licensure requirements, CMS, in conjunction with the NAIC, has determined that the following state standards are specifically preempted: (1) direct access to provider requirements; (2) benefit mandates; (3) appeals and grievances with respect to coverage determination; and (4) "any-willing-provider" laws and requirements for including specific types of providers. CMS and the NAIC further determined that the following state standards and procedures are preempted only when they conflict with specific federal requirements: (1) market conduct examinations; (2) prompt payment standards; (3) enforcement actions; (4) unfair claim settlement standards; (5) investigation of consumer complaints; (6) advertising and marketing materials; (7) utilization review programs and standards; (8) quality assurance standards, including among others, the adequacy of provider networks and credentialing procedures; (9) agent licensing and compensation limitations; (10) standards for provider contracts; and (11) minimum loss ratio requirements. If the state standards do not conflict with the federal requirements, then the MA organization must comply with both.

Subsequent to the issuance of the memorandum, many states have had significant discussions with CMS regarding licensure requirements for HMOs seeking to be MA organizations. For example, in Texas, if a company is pursuing an HMO license and only desires to engage in MA business, then the application requirements are significantly reduced. Regulators in Texas have indicated that whole sections of the application may be omitted, including: (1) the evidence of coverage and other product information, (2) forms of provider contracts, (3) the description of quality assurance programs, and (4) provider network configuration information. The spirit of cooperation shown by CMS, the NAIC, and the applicable state regulators evidences an improved regulatory system-compared with what existed for the Medicare risk and Medicare+Choice programs. The coordination of these efforts should help streamline the licensing efforts of MA organizations.

Barry Senterfitt is a partner in the insurance industry practice of Akin Gump Strauss Hauer & Feld LLP, and is located in the firm’s Austin, Texas, office.

This column is written for informational purposes only and should not be construed as legal advice.