December 28, 2015

This Annual Letter Is Not Like the Others: CMS to Break With the Past in 2017

In late 2015, the Centers for Medicare and Medicaid Services (CMS) released two documents that together establish new directions for the Health Insurance Exchanges in 2017: the draft annual letter to issuers and the draft Notice of Benefit of Payment Parameters (NBPP) regulation. While the NBPP establishes policy for all exchanges, the Annual Letter lays out the priorities of the federal exchanges, which are operated by CMS in two-thirds of states. It sets requirements for the health insurers that offer qualified health plans (QHPs) in the federally run exchanges.

While parts of the Annual Letter reiterate the NBPP, CMS uses the Annual Letter to flesh out broadly written sections of the NBPP. For example, in the NBPP, CMS suggests that it might assign ratings to QHP provider networks, but the agency offers a detailed plan for doing so in the Annual Letter. Specifically, the agency will focus on a few physician types and hospitals and then count the percentage of participating providers in each county. QHPs networks will be measured against the county mean and unusually broad or narrow networks will be labeled for consumers selecting a plan on healthcare.gov next fall.

The Annual Letter also details a new approach for considering rate increases when certifying 2017 QHPs. CMS will now review all rate increases above 10 percent, irrespective of state approval. This second review is a substantial change to CMS' previous "rate outlier" approach, by which CMS generally deferred to states with regard to unusual rate changes in the federal exchange states.

The 85-page Annual Letter also offers new guidance regarding standardized plans, out-of-network cost sharing, assessing and raising QHP quality, third-party payment of premiums, discriminatory benefit, drug formularies, services to non-English speakers, compliance, and many other program areas. There are also first-time chapters on agent-broker oversight and healthcare.gov's new decision support tools (a physician finder, a drug finder and an out-of-pocket cost calculator).

The Annual Letter arrives as health insurers are developing plans for 2017. In a break with precedent established by previous Annual Letters, the 2017 letter casts CMS as a more assertive exchange administrator, less willing to defer to market forces and state regulators. This move might draw criticism from both insurers and states given current insurer losses, continued funding uncertainties, and the polarized politics of the ACA. Yet, even with the moves made in this Annual Letter, CMS remains less prescriptive than the two largest state-run exchanges (i.e., California, New York) in key areas such as standardizing plan designs and capping consumer costs.

Comments on the draft Annual Letter are due on January 18.

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