Objective 6 - Regulation and Taxation

Question 1

The “triple aim” (three goals) of health policy

Answer 1

1. Better care for individuals - Institute of Medicine lists 6 characteristics of quality health care: safe, effective, patient-centered, timely, efficient, equitable
2. Better health for populations - public health initiatives to address upstream causes of poor health (list)
3. Lower per-capita costs

Question 2

Causes of poor health and public initiatives to address them

Answer 2

1. Environmental factors contributing to poor population health:
   a) Unsanitized water
   b) Pollution (air, water)
   c) Violence (domestic, street)
   d) Unhealthy living environment
   e) Food-borne illnesses
   f) Lack of access to fresh, healthy foods
2. Community disease prevention - initiatives include childhood immunization requirements, free flu shots and preventive screenings
3. Lifestyle (obesity epidemic) - initiatives include healthy school lunch programs, safe pedestrian walkways, taxes on unhealthy foods
4. Smoking and substance abuse - anti-smoking laws have been effective
5. Socioeconomic factors - income related to poor health. Social programs like Medicaid try to address.
6. Wellness and disease management solutions - include programs around disease prevention, smoking, diet, fitness, weight loss

Question 3

PPACA individual and group market reforms

Answer 3

1. Individual mandate (list)
2. Employer mandate - beginning in 2014, employers with 50+ full-time employees must offer coverage or pay a fee = $2,000 * (full-time employees - 30), adjusted based on number of employees who receive premium tax credit
3. Essential benefit package - must be offered by all qualified health benefit plans by 2014. Will provide comprehensive set of services, cover preventive without cost sharing, cover at least 60% of AV of covered benefits, limit annual cost sharing to current law HSA limits
4. MLR - starting in 2011, plans must provide rebates to consumers if MLR is below 85% for LG (101 or more Ees) or 80% for SG and Ind
5. Benefit and coverage requirements (list)
6. Rating requirements (list)
7. Benefit tiers - new plans must be platinum (90%), gold (80%), silver (70%) or bronze (60%). May offer catastrophic plan to enrollees under 30, those exempt from individual mandate
8. Grandfathering of existing plans - plans in existence on March 23, 2010 are exempt from many PPACA requirements. But most benefit and coverage requirements still apply.

Question 4

PPACA benefit and coverage requirements effective in 2010

Answer 4

1. All individual and group plans must cover dependent children up to age 26
2. Rescissions of insurance coverage are prohibited except for fraud
3. Pre-existing condition exclusions for children are prohibited
4. No individual or group plans may impose lifetime limits. Plans may impose annual limits only for non-essential health benefits (was graded in thru 2014)
5. Services rated A or B by USPSTF must be covered at 100%

Question 5

PPACA rating requirements effective in 2014

Answer 5

1. Individual and small group plans must be offered on guaranteed issue and renewal basis
2. Plans may not impose pre-existing condition exclusions
3. Rating variation allowed only based on:
   a) Age (limited to 3:1 ratio highest:lowest)
   b) Geographic rating area
   c) Tobacco use (limited to 1.5:1 ratio)
   d) Family composition
4. Waiting periods for coverage must not exceed 90 days

Question 6

Provisions of PPACA health insurance exchanges

Answer 6

1. Each state will have American Health Benefit Exchange for individuals and Small Business Health Options Program (SHOP) for businesses with up to 100 Ees
2. Plans in exchanges must cover essential health benefits, have OOP limit at or below HSA limit, and fall into on metal tier
3. Risk pooling - insurers must pool all individual market plans (other than GF) into a single risk pool. Similarly, must pool all SG plans.
4. Participating insurers must meet many qualification requirements such as networks, marketing, reporting, consumer assistance
5. Exchanges may also offer Consumer Operated and Oriented Plans (CO-OPs), which are nonprofit, member-run health insurance companies

Question 7

Other PPACA provisions

Answer 7

Not covered by other lists

1. Premium credits and cost sharing subsidies for those with low incomes (effective 2014)
   a) Premium credits for qualified individuals with incomes 133-400% of FPL for covg purchased through exchange
   b) Cost sharing subsidies for those enrolled at silver level in exchange with incomes 100-400% of FPL
2. Small business tax credits
3. Medicare provisions
   a) MA plans can receive bonuses or re-allocations of rebates based on quality. Beginning 2014, subject to MLR requirements
   b) Medicare Part D - beneficiary coins in gap will be phased down from 100% to 25% by 2020. RDS payments lose tax exempt status starting 2013
4. Revenue provisions
   a) New health insurer tax will collect $8 billion in 2014, grading up to $14.3 billion in 2018, indexed thereafter
   b) Excise tax for high-cost health plans beginning 2018
   c) Limitations to tax-favored allowances for FSAs and HSAs
   d) New taxes on certain medical devices
5. Medicaid expanded to all non-Medicare elig. inds with incomes up to 133% of FPL. Due to Supreme Court ruling, fed govt cannot withhold original Medicaid funding from states who do not expand

Question 8

Potential problems in an unregulated insurance market

Answer 8

1. A dishonest company could gain competitive edge via:
   a) Misleading marketing materials
   b) Unfair price (only appears to be good value)
   c) Inadequate reserves
2. Customers do not have time or expertise to determine which firms are dishonest
3. Companies could become insolvent with no warning, leaving policyholders without coverage

Question 9

Goals of insurance regulation

Answer 9

1. Eliminate policies not providing benefits expected
2. Prevent insolvency
3. Eliminate policies that provide poor value
4. Solve minor consumer problems
5. Maintain fair competition
6. Raise tax money
7. Promote social goals

Question 10

The steps of regulation

Answer 10

1. Licensing - firm agrees to be regulated. Agents may be required to get a license
2. Information gathering - purpose is to monitor financial soundness, confirm compliance, provide consumer information, design new regulatory requirements
3. Prior approval of policy language, premium rates, reinsurance arrangements, dividends, mergers, investments
4. Enforcement - includes penalties such as fines, legal action and/or license removal
5. Receivership - may initially track financial condition, or may take over insolvent company

Question 11

Actions commonly taken by state regulators to help prevent insolvency

Answer 11

1. Capital requirements (such as RBC) - protect against adverse deviations in experience
2. Guaranty funds - all companies assessed to create fund to protect insureds of insolvent companies
3. Reserve requirements - for claim reserves and liabilities, contract reserves, provider liabilities, and premium deficiency reserves

Question 12

Types of consumer protection regulation in the US

Answer 12

1. Disclosure - must disclose to potential customer the key features of insurance policy. May include shopper’s guide, outline of coverage, summary of benefits, or illustration
2. Reasonableness - includes mandated benefits, prohibited exclusions. Premiums must be reasonable in relation to benefits (MLR)
3. Fairness - includes prohibitions on discrimination even though data may support it (i.e., unisex rates)

Question 13

Responsibilities of the insurance commissioner

Answer 13

1. Oversee operation of insurance department
2. Interpret insurance laws
3. Make regulations implementing insurance laws
4. License insurance companies, agents, brokers, consultants
5. Conduct examinations of licensed insurers, assess penalties for violations of laws
6. Review form and rate filings - some states require that commissioner approve forms and rates prior to use
7. Regulate advertising - to protect consumers from unfair, inaccurate, deceptive, and misleading advertisements
8. Regulate business practices - such as underwriting and claims practices
9. Enforce prompt pay laws
10. Regulate insurer solvency - most important duty of the commissioner

Question 14

Reasons for an insurance commissioner to assume an insurer’s assets

Answer 14

1. Non-cooperation with examiners
2. Refusing to remove questionable officers
3. Charter violations
4. State law violations
5. Endangered capital or surplus
6. Technical insolvency

Question 15

Standard group contract provisions required by most state insurance laws

Answer 15

1. Grace period - 31-day grace period for payment of premium
2. Incontestability - validity of policy cannot be contested after the policy has been in force for 2 years
3. Application and statements - application has to be made part of policy, and statements made by insured are considered representations (not warranties)
4. Evidence of insurability - policy must state when evidence of insurability is required
5. Misstatement of age provision - policy must state how premiums or benefits will be adjusted due to misstatement of age
6. Certificates - insurer must issue certificates to policyholder for delivery to each insured
7. Benefits and eligibility - policy must state the benefits and to whom they are payable, and include specific terms of eligibility for coverage

Question 16

Additional contract provisions for group health plans

Answer 16

In addition to standard group provisions (separate list)

1. Preexisting conditions - provision describes exclusions or limitations applying to preexisting conditions
2. Notice of proof of claims - establishes time limit for notifying insurer of loss
3. Legal actions - provision specifies a time period in which legal action may not be brought on a claim (e.g., during claim’s first 60 days)

Question 17

Additional contract provisions for group life plans

Answer 17

1. Must be a provision identifying the designated beneficiary
2. Conversion rights - provision allows policy to be converted to individual policy in certain situations
3. Death during the conversion period - if person dies within conversion period, amount available to be converted will be paid as a claim
4. Disability continuance - active employees that become totally disabled can continue coverage for up to 6 months by paying the premium

Question 18

Provider protections related to preferred provider arrangements

Answer 18

1. Any-willing-provider laws - require insurers to accept any provider that meets insurer’s terms for participation
2. Limitations on benefit differentials between preferred and non-preferred providers - to limit how much extra coinsurance member must pay for non-preferred provider
3. Coverage of non-preferred providers (req in some states) - effectively precludes exclusive provider arrangements
4. Requirements that allied medical practitioners (chiropractors, dentists, and optometrists) be included in PPOs - these reqs are not common

Question 19

Consumer protections related to preferred provider arrangements

Answer 19

1. Insurers must assure reasonable access to covered services and an adequate number of providers
2. Some states have tried to regulate quality assurance (measuring quality is difficult)
3. Requirements that patients receiving emergency care will have costs reimbursed as though treated by a preferred provider

Question 20

Requirements for an HMO to obtain a certificate of authority

Answer 20

1. A description of the HMO’s organization, governance, and management
2. Contracts with providers - including copies of contracts between providers, TPAs, and other third-party vendors
3. Coverage agreements - including copies of individual and group contracts and evidence of coverage forms
4. Financial information - including financial statements and a financial feasibility plan
5. Provider information - including a description of the geographic service area and a list of all providers
6. Grievance procedure - a description of the HMO’s procedure for handling grievances
7. Quality assurance program - details of the program for credentialing providers, evaluating care, initiating correction, and reevaluating deficiencies
8. Insolvency protection measures - must satisfy minimum net worth requirements, and a deposit of cash or securities is usually required

Question 21

Advantages of federal qualification for HMOs

Answer 21

1. The equal contribution requirement - employers that offer a federally-qualified HMO cannot financially discriminate against a person enrolling in that HMO
2. The HMO is allowed to contract as a Medicare or Medicaid carrier
3. The federal HMO act preempts all state laws that would prevent the HMO from acting in accordance with the federal HMO act
4. Federally-qualified HMOs may be automatically deemed to comply with ERISA’s claim appeal requirements

Question 22

Disadvantage of federal qualification for HMOs

Answer 22

1. The HMO must establish a separate line of business for any non-qualified HMO business
2. Minimum coverage requirements of federally-qualified HMOs
3. Restrictions on the use of anything more than “nominal” copayments
4. Federal restrictions on rating may be more restrictive than state requirements

Question 23

HIPAA reforms related to portability and availability

Answer 23

1. Pre-existing condition exclusions - may not be imposed except in certain situations
2. Health status underwriting - eligibility cannot be based on health, and evidence of insurability cannot be required
3. Health status rating - higher premiums cannot be charged on the basis of health status
4. Special enrollment periods - to permit eligible individuals who lost other coverage to enroll
5. Multi-employer health plans may not deny a participating employer continued coverage except for nonpayment of contributions, fraud, or noncompliance with plan provisions
6. Guaranteed issue - small group carriers must accept all small employer groups and all eligible individuals within those groups
7. With certain limited exceptions, insurers must renew or continue inforce coverage for all groups

Question 24

Administrative functions that health benefit exchanges must provide

Answer 24

1. Certifying and assigning quality ratings to plans
2. Presenting benefits information in a standardized format
3. Providing consumers with eligibility determinations
4. Providing certifications for people who are exempt from the individual mandate
5. Ensuring that all participating health plans satisfy the exchange’s requirements

Question 25

Key decisions states must make related to health benefit exchanges

Answer 25

1. Should the state establish an exchange? If state does not, federal government will set one up for it
2. Governance structures - the exchange could be established within an existing state agency, independently, or through a quasi-government entity
3. Influencing the level of participation - i.e., by making the HBE attractive and available to more customers
4. Should carriers be required to participate in the HBE?
5. Should the state merge the individual and SG rating pools?
6. Should groups with 51-100 employees be allowed to join the exchange in 2014?
7. Controlling antiselection - e.g., by implementing a risk adjustment system
8. Standardized benefit packages - should the state require specific benefit packages at each plan level?
9. Intra-state exchanges - should regional exchanges be set up?
10. Should a basic health plan (BHP) be established (outside the exchange)? BHPs are for residents under 200% of FPL who are not eligible for Medicaid and lack affordable access to comprehensive employer coverage
11. How should the state control which carriers participate in the exchange? (list)
12. What value-added services should the exchange provide? Could enhance the required online comparison tool
13. How will the exchange fund administration costs? Premium taxes, carrier assessments, provider assessments?

Question 26

Approaches for the state to control which carriers participate in the exchange

Answer 26

1. Open market - all plans that meet minimum PPACA requirements
2. Setting additional standards for qualified plans
3. Selective contracting agent - selecting plans based on comparative value
4. Active purchaser - negotiating premiums with insurers

Question 27

Major federal laws governing group health plans

Answer 27

1. ERISA - applies to benefit plans sponsored by private-sector employers. Includes provisions related to reporting and disclosure, fiduciary standards, civil enforcement and preemption, and claim procedures
2. COBRA - provides enrollees of an employer-sponsored group health plan the opportunity to keep that coverage for a period of time after employment ends, or after certain other qualifying events
3. HIPAA - limits the ability of group health plans to impose pre-existing condition exclusions and prevents plans from basing eligibility or premiums on:
   a) Health status
   b) Medical condition
   c) Claims experience
   d) Receipt of health care
   e) Medical history
   f) Genetic information
   g) Evidence of insurability
   h) Disability
4. PPACA - amended HIPAA rules to prohibit pre-existing condition exclusions. Requires large employers to provide adequate and affordable coverage or pay a financial penalty

Question 28

Taxation of major group insurance benefits

Answer 28

1. Health (medical, dental, vision, Rx)
   a) Employer receives a current tax deduction for its expenses (From GHC-801-13: for post-retirement plans, this deduction is only allowed if certain pre-funding rules are followed)
   b) The benefit value for the employee and dependents is free from income and employment taxes (includes employer’s contribution to provide coverage and the insurance proceeds)
   c) No limits on the amount of tax-favored benefits
2. Group term life insurance
   a) Employer receives a current tax deduction for its expenses
   b) The benefit value for the employee (but not dependents) is free from income and employment taxes
   c) Tax-free coverage is limited to a $50,000 death benefit
3. Disability insurance
   a) Employer’s expenses are deductible as they are paid
   b) If the value of the coverage is taxed, the proceeds paid to disabled individuals are not taxable
   c) But if the value of the coverage is not taxed, then the proceeds are taxable
4. LTC insurance - proceeds under a qualified plan are deemed to be health insurance and receive the same tax-favored treatment

Question 29

Types of coverage and nondiscrimination tests for cafeteria plans

Answer 29

1. Eligibility test - designed to measure whether the plan discriminates in favor of highly-compensated individuals. Includes length-of service test and facts and circumstances description
   a) Highly-compensated individuals are officers, 5% owners, highly-compensated employees, and spouses and dependents of these individuals
2. Contributions and benefits test - involves mathematical testing as well as general nondiscrimination with respect to benefits
3. Key employee concentration test - nontaxable benefits provided to key employees cannot exceed 25% of aggregate benefits provided to all employees
   a) Key employees are officers with annual pay more than $160,000, 5% owners, and 1% owners with annual pay of more than $150,000

Question 30

Cafeteria plan benefits - qualified benefits

Answer 30

Can be offered on a pre-tax basis

1. Premium for accident and health coverage
2. Premium for long-term disability
3. Group term life coverage up to $50,000
4. Coverage under qualified group legal plan
5. Post-retirement life insurance (only for employees of educational organizations)
6. 401(k) elective deferrals
7. Medical care reimbursement (such as from an HSA or FSA)
8. Dependent care assistance benefits
9. Employer-provided adoption assistance

Question 31

Cafeteria plan benefits - permissible but taxable benefits

Answer 31

1. Group term life coverage over $50,000
2. Elective paid vacation days
3. Cash

Question 32

Cafeteria plan benefits - impermissible benefits

Answer 32

1. Deferred compensation
2. Cash value life insurance
3. Dependent life insurance
4. Educational assistance benefits
5. Meals and lodging for the employer’s benefit
6. Reimbursement for cosmetic surgery
7. Retirement health benefits paid for working employees
8. Overnight camp

Question 33

Advantages and disadvantages of pre-tax qualified benefits

Answer 33

Advantages
1. Benefits are not taxable
2. Benefits are a substitute for taxable wages
Disadvantages
1. Funds for medical care reimbursements cannot be carried over from one plan year to the next
2. Plan must comply with many qualification rules
3. Elections must be made before the plan year begins (with some exceptions, such as family status changes)
4. Plan may not discriminate in favor of highly compensated individuals

Question 34

Special state funds to solve health insurance problems

Answer 34

1. Solvency funds - solvent companies are assessed for losses arising from insurer insolvencies
2. High-risk pools - cover individuals who have difficulty qualifying for underwritten coverage. Pools charge premiums, but they are inadequate, so carriers are assessed for the shortfall
3. Small group pools - many states require insurers to offer 2 plans (basic and standard) on a guaranteed basis to individuals who were rejected for other coverage

Question 35

Terminology used in health reform

Answer 35

1. Actuarial value - refers to average share of medical spending paid for by the plan (rather than insureds)
2. Actuarially equivalent - plans with same AV are referred to as actuarially equivalent
3. Comparative effectiveness research - compares new treatments and technologies to those that already exist, with intent of refocusing care delivery on value of care received
4. Pay-for-performance - incentive programs that reward providers for meeting certain performance-based measures related to quality, safety, and efficiency
5. Value-based insurance design - type of plan varies cost sharing to encourage use of services with evidence of clinical benefit and discourage use of services with little/no evidence of benefit

Question 36

PPACA individual mandate tax penalties

Answer 36

All individuals (with few exceptions) must have health insurance coverage or pay a tax penalty, which is the greater of

1. Dollar amount ($95 in 2014, $325 in 2015, $695 in 2016, indexed after)
2. Percentage of taxable income (1% in 2014, 2% in 2015, 2.5% in 2016 and beyond)

Question 37

PPACA risk sharing mechanisms

Answer 37

Established to mitigate adverse selection, pricing risk resulting from guaranteed issue requirements

1. Risk adjustment - permanent program beginning 2014. Applies to all non-grandfathered ind and SG plans. Redistributes payments across health plans to account for relative risk of those who enroll.
2. Reinsurance - effective 2014 to 2016. Payments made to non-grandfathered individual market plans that cover high-risk individuals
3. Risk corridors - effective 2014 to 2016 for ind/sg plans in exchanges. Payment based on plan’s target amount (total premiums minus admin)
   a) If actual costs (net of 1 and 2) vary from target by more than 3%, government shares in gains or losses
   b) Government bears 50% of spending between 3 and 8%, and 80% of spending beyond 8% of target