Monitor main risks to prepare for regulation.
Health plans might struggle with compliance concerns under the Patient Protection and Affordable Care Act (PPACA), particularly preparing for open enrollment and implementation of new exchange products. Part of the challenge is simply keeping up with the waves of guidance as they’re issued. Most have tight implementation time frames.
Industry experts have identified five areas of concern.
1. MULTIPLE, NEW REGULATORS
Whether states have decided to create their own exchanges, partner with the federal government on an exchange, or allow the federal government to operate the exchange for them, insurers will have multiple regulators to deal with, which could cause some conflicting directives.
“With expansive federal regulation of health insurance, there will be at least a behind-the-scenes role potentially for the Department of Health and Human Services (HHS) in regulating insurers individually as well,” says Barbara Morales Burke, vice president of health policy and chief compliance officer at Blue Cross Blue Shield of North Carolina (BCBSNC). “HHS has stated very clearly that they will defer to state insurance regulators as much as possible, and with respect to enforcing Affordable Care Act requirements that are not specific to the exchange, they’ll enforce it only when the state cannot and will not enforce the law.”
HHS has also created CCIIO (The Center for Consumer Information & Insurance Oversight), says Christopher Condeluci, attorney at Venable LLP and former tax counsel to the Senate Finance Committee, who helped draft the healthcare law.
“Its name has the word ‘oversight,’” he says. “It will therefore play a significant role with regard to implementing or ensuring that states as well as carriers implement the new requirements.”
In a partnership exchange, the state operates certain functions related to plan management, consumer assistance and outreach, or both. For states operating a partnership exchange, the roles of the state and the federal government could vary across the country in regulatory oversight of the marketplace.
The state could choose which plans qualify for participation, for example, but the federal government would run the portal that gets consumers enrolled in them.
“It’s going to be interesting to see how the regulators, processes and systems mesh together,” Burke says.
For example, because North Carolina opted for a federal exchange, BCBSNC had to file paperwork using the federal Health Insurance Oversight System (HIOS) during the Qualified Health Plan (QHP) application process. However, the state’s department of insurance wanted most of the QHP applications filed with them as well.
“We had to file it through the SERFF (System for Electronic Rate and Form Filing) system, which is a different system that most state insurance departments use. So even those technical-systems issues will take some getting used to,” she says.
With all of the new interactions and oversights comes a multitude of questions. For example, Burke asks, how will regulators share information and reach an agreement when views vary on whether something complies with the law?
“That’s new for us, and certainly presents some challenges just getting acclimated to that new kind of regime,” she says.
2. REGULATIONS NOT KNOWN OR FINALIZED
At this point in time, most of the federal rulemaking for 2014 has been carried out. However, some details are left outstanding, resulting in a lack of information about, for example, technical specifications needed for interaction with the exchange.
“Implementation and mandate teams are figuring out what compliance means, but it’s very hard to know, because it’s all being built real-time,” says Angela Hoon, principal, leader, KPMG, mid-Atlantic enterprise risk management services.
For example, the mandate concerning contraceptive coverage for religiously affiliated employer organizations will create a number of workarounds for insurers to follow. It is still unknown how successful insurers will be in situations where they must offer the contraceptive coverage for the religiously affiliated employers’ workers separately. (Editor's note: The Obama administration released the final rule implementing the requirement that plans cover contraception with no cost-sharing on June, 28th, after going to press. The rule adopts a simplified version of an approach proposed in February requiring most employers to provide free insurance coverage of contreceptives for women. An exemption is included for churches, however, many religiously-affiliated hospitals, schools and universities will have to take steps to ensure coverage is available to employees and their depedents by 2014.)
Additionally, more uncertainty is related to ongoing lawsuits filed by employers who believe the law violates their religious freedom.
Without receiving final or full information regarding certain reforms, plans have had no choice but to move forward with building models, infrastructures and processes. However, making assumptions prior to aspects of the law being finalized can result in rework later down the road.
Plans should have contingency strategies prepared.
“You really have to make good, safe assumptions based on the best information you have and your best judgment on what will be required,” Burke says. “But when you find out that maybe your assumption wasn’t exactly the final answer, that ultimately has an impact on the time you’re able to fully implement, or at least make changes, so what you have implemented is fully in compliance.”
Although some rulings took place rather recently, many substantial regulations have been finalized so plans should be basically ready to move forward, says Condeluci.
“The submission deadline for plans selling through the exchanges has come and gone, and a significant amount of insurers have submitted applications in accordance to those new requirements,” he says. “Those health plans figured out how to comply, so I don’t think it’s as significant of an issue right now. People are figuring out how to comply.”
Hoon says everything will start coming together in October once the industry moves forward with exchange implementation. Some market adjustments should be expected as regulations make real-world impact.
“That’s when the real conflict is going to come in for the compliance officer,” she says.
At that point, she says, it will be more evident whether a plan has done enough to ensure compliance. However, industry observers believe enforcement of the many regulations could be spotty. The chief whistleblowers could be consumer advocates acting as official navigators under the law’s requirements.
Condeluci submits that because the current priority is compliance, the focus may not be on penalization quite yet.
“When you have such a large comprehensive law like this, even the regulators will say that right now they’re more focused on compliance as opposed to enforcement,” he says.
3. COMPRESSED TIME FRAMES
When PPACA was signed into law in 2010, it contained an aggressive schedule and a long list of actions for the HHS secretary to complete. President Obama even admitted last month that major health reform provisions will have some hiccups as they roll out.
“When you don’t have the full time you really need for testing, that increases the chance that when you go live, there will be some problems, some areas where things are not working properly,” Burke says.
Regulations were held up for myriad reasons, which essentially truncated the timeframe for plans and states to figure out how to comply.
“That has created challenges,” Condeluci says. “It’s a pretty short timeframe to go through all the machination and bureaucracy of review and the back and forth between regulators on both the federal level as well as on the state level.”
After being reviewed, mistakes, defects and omissions must be taken care of before plan designs are given the official go-ahead. Condeluci says that September 1 is the date when this will happen for most plans, but the turnaround time is not very substantial.
“That’s the date on which everybody becomes copasetic with one another,” he says. “So plans really only have one month to get their systems up and running-not to say they’re not already doing that, because they are or they should be-but there’s still only one month between getting the green light and being basically on stage.”
There are additional ramifications that come from the compressed time frame in terms of overall organizational operations, Burke says. Although more resources and staff might be required to work on PPACA initiatives, that could mean taking away from other projects. Whether it’s borrowing resources from another implementation project or quality system, there’s always a trade off, she says.
Hiring additional staff isn’t always possible because it results in additional administrative cost burdens that some plans can’t afford.
4. SCOPE AND MAGNITUDE
The magnitude of changes required in order to comply with healthcare reform can be extreme, and it’s not always strictly about coming into compliance, either. For example, some insurers were closer to or already meeting the medical-loss-ratio (MLR) thresholds of 80% and 85% prior to implementation of PPACA, so the law had less effect on them. Some plans that had a longer way to go were granted a grace period to gradually come into compliance, but not all.
“The Affordable Care Act is really causing insurers to make changes to their benefit plans beyond what’s required in law,” Burke says. “The redesign of our product creates further impetus to streamline our operations-to make sure that we are operating as efficiently as possible-reduce administrative cost and help reduce premiums.”
For example, new premium rating rules place limits on underwriting for age and tobacco use. Most age bands already in use vary by as much as 1-to-8, while the federal government has required a ratio of 1-to-3, Condeluci says.
“That’s having a significant impact on underwriting the particular plans and developing premiums,” he says.
Congress also changed the definition of small group employer from 50 employees to 100 in adopting PPACA.
“We-because I was here and I actually worked on this provision-allowed states to elect to maintain their current definition,” Condeluci says. “Every state I know of has maintained their definition because there are so many other new requirements that they didn’t need one more thing to disrupt the market. The new insurance reforms that must be adopted could or are arguably being viewed as disrupting the set on the market within that state.”
There also could have been significant disruption had PPACA required plans nationwide to cover a federally designed package of essential health benefits, Condeluci says. Instead, HHS decided to rely on the existing marketplace within the states to provide local benchmarks.
“HHS came up with this essential health benefit benchmark plan and mitigated the issue, making it that much easier for the carriers to comply and modify their plans to meet the essential health benefit requirements,” he says.
In general, health insurance is a very complex industry with complex systems and has been highly regulated for decades. Burke says there are more changes involved than just those related to regulatory compliance.
“Every change we’re making-whether it’s something to comply with the new law or just to be competitive in the marketplace-opens the door for a possibility for a compliance problem,” she says. “You make a change in the system, and if it doesn’t work the way you think it’s going to work, it could be that glitch, that unexpected impact that translates into a compliance issue.”
Although she recognizes that federal and state regulators across the country are also under pressure, Burke urges them to work in collaboration with insurers.
“It’s important that regulators take a reasonable approach to the implementation of a company’s compliance and grant safe harbors as appropriate because there’s just massive work underway under challenging timeframes,” she says. “The complexity and scope of these changes are unprecedented for our industry.”
5. ONGOING REGULATION
Once the industry settles down a bit, there will be additional challenges. For example, to manage the ongoing relationship with the exchanges, Burke says.
“It’s not simply a matter of implementation, establishing those connections to allow enrollment and enrollment changes and billings, but there will be ongoing reporting requirements in the exchange,” she says.
Ad-hoc data requests can be expected, she says, as well as changes in expectations and requirements of carriers over time. A big hurdle will be becoming acclimated to the new, ongoing relationship as well as being certain that, as a plan, regulatory expectations and requirements can be satisfied.
Another potential problem for plans are network adequacy requirements, Condeluci says.
“A number of insurers have submitted plan designs that have a fairly narrow network, because it carries with it a lower cost,” he says. “Do those narrow networks meet the network adequacy requirements and will it be a problem for this administration?”
For example, insurers participating in the Covered California health exchange have authored a plan design that does not include the two major Los Angeles hospitals.
“Only time will tell on how it will shake out,” he says.
Another hurdle is determining where risks and compliance touch-points are and where to focus internal audits. The big trend, Hoon says, is figuring out what to monitor and how extensively to monitor in order to ensure the business is ready when regulators come around.
“Develop a way of being able to focus on more of a risk-based approach from a compliance perspective,” she says. “Try to get a little bit more of a structure around knowing where your key compliance hot spots or focus areas are. There’s so much right now, you can’t get at everything.”
A related hurdle will be getting the total organization from the front line to the C-suite to understand the compliance aspect. Previously, regulation was focused more on government businesses such as Medicare Advantage, but now regulation is more widespread than ever.
“Some of this is the culture change of the whole business, the whole organization understanding that there are compliance implications wherever you are,” Hoon says. “Again, you don’t want to go overboard. It’s about being able to provide assurance that we know where our key compliance implications are, and what the impacts are and having the leaders understand their role in making sure that they’re compliant.”