On February 29, 2016, CMS issued the final annual Notice of Benefit and Payment Parameters for the 2017 coverage year (“Final Notice”), along with related guidance documents.  The Final Notice sets standards for issuers and Health Insurance Marketplaces for plan years beginning on or after January 1, 2017.  It includes payment parameters that will apply to the 2017 benefit year, establishes new standards to improve consumers’ Marketplace experience, promotes continuity and stability in the Marketplaces, and facilitates affordable and accessible coverage.

The Final Notice also includes provisions to (1) help consumers with surprise out-of-network costs at in-network facilities, (2) provide consumers with notifications when a provider network changes, (3) give insurance companies the option to offer plans with standardized cost-sharing structures, (4) provide a rating on HealthCare.gov for each Qualified Health Plan’s (QHP’s) relative network breadth (for example, “basic,” “standard,” and “broad”) to support more informed consumer decision-making, and (5) improve the risk adjustment formula.  

The following is an overview of specific provisions in the Final Notice:

Payment Parameters

• Risk Adjustment Model Recalibration:  CMS updated the benefit year 2017 risk adjustment factors to reflect multiple years of claims data (2012, 2013 and 2014).  Specialty and traditional drug expenditures will trend at separate growth rates from medical expenditures to better address the data lag and more accurately account for conditions with high-cost treatments. 

• Small Issuer Rule for Default Risk Adjustment Charge: For small issuers, CMS finalized a separate, lower default risk adjustment charge beginning for the 2016 benefit year.
• Default Risk Adjustment Charge: CMS raised the default risk adjustment charge from the 75th to the 90th percentile of absolute transfers nationwide as a percent of State average premium beginning in the 2015 benefit year.
• FFM User Fee for 2017:  A Federally-facilitated Marketplaces (“FFM”) user fee was imposed at 3.5 percent of premium for 2017 to cover user fee-eligible costs.  This user fee rate is the same as the rate for each year from 2014 through 2016.  Issuers operating in a State-based Marketplace on the Federal platform (“SBM-FP”) will be charged a reduced user fee rate of 1.5 percent of premium for the 2017 benefit year.
• Premium Adjustment Percentage: For 2017, the premium adjustment percentage is approximately 13.3 percent, covering increases over the three-year period from 2014 to 2017 (an average annual rate of 4.3 percent).
• Annual Limitation on Cost Sharing:  The 2017 maximum annual limitation on cost sharing is $7,150 for individual coverage and $14,300 for family coverage.

Market Rules

• Student Health Insurance Plans:  Issuers of student health insurance plans may establish one or more separate risk pools for each college or university, but the risk pools must be based on a bona fide school-related classification and not on health status. The premium rates for each risk pool must reflect the claims experience of individuals who comprise the risk pool, and any adjustments to rates within a risk pool must be actuarially justified. CMS eliminated the requirement for the plans to offer coverage within specific metal levels and, instead, requires student health insurance plans to offer an actuarial value of at least 60 percent.
• Rate Review: All issuers must submit the unified rate review template for all single risk pool products in the individual and small group markets (excluding student health plans) regardless of whether they propose rate increases, rate decreases or no change in rates for these products.

Eligibility, Enrollment, and Benefits

• Annual Open Enrollment Period:  CMS finalized the open enrollment period for future years.  For coverage in 2017 and 2018, open enrollment will begin on November 1 of the previous year and run through January 31 of the coverage year.  For coverage in 2019 and beyond, open enrollment will begin on November 1 and end on December 15 of the preceding year (for example, November 1, 2018, through December 15, 2018, for 2019 coverage).
• State-based Marketplaces Using the Federal Platform: CMS codified a Marketplace model for States that want to use the Federal information technology platform for eligibility and enrollment functions for their individual and/or SHOP Marketplaces.
• Standardized Options: To simplify the shopping experience for consumers on the individual market Federally-facilitated Marketplaces, CMS finalized the proposal to designate plans with certain standardized cost-sharing structures as “standardized options.”  CMS developed six specific recommended designs (one silver, which would be coupled with three silver cost-sharing reduction variations, one bronze, and one gold).  Issuers may offer standardized options, but they are not required to do so.
• Network Adequacy (Continuity of Care):  The Final Notice includes two provisions regarding continuity of care applicable to QHPs on FFMs.  The first requires the issuer to provide written notice to all enrollees who are patients seen on a regular basis by the provider or receive primary care from the provider of discontinuation 30 days prior to the effective date of the change or otherwise as soon as practicable.  The second provision requires the issuer, in cases where a provider is terminated without cause, to allow enrollees in active treatment to continue treatment until completion or for 90 days (whichever is shorter) at in-network cost-sharing rates.  The provision is limited to specific cases where the enrollee is in active treatment.
• Network Adequacy (Cost Sharing):  Beginning in 2018, issuers generally must count the cost sharing charged to the enrollee for certain out-of-network services provided at an in-network facility by an ancillary provider toward the enrollee’s annual limitation on cost sharing.  The exception to this requirement is if the issuer provides a written notice to the enrollee within a specified time period.
• Network Adequacy (Transparency):  HealthCare.gov plans to include a rating of each QHP’s relative network coverage. This rating will be made available to a consumer when making a plan selection and is intended to help an enrollee select the plan that best meets his or her needs.
• Third-party Payments:  CMS updated provisions from the previous Interim Final Rule regarding third party payments (“IFR”) to clarify that “State and Federal Government programs” include programs of the political subdivisions of the State, namely counties and municipalities, or local government programs. Downstream entities, such as PBMs, are required under the Final Rule to accept third party cost-sharing payments on behalf of enrollees from certain entities identified in the IFR in circumstances where the issuer’s downstream entity accepts cost-sharing payments from plan enrollees.
• QHP Patient Safety Requirements:  A QHP issuer offering coverage through the Marketplaces may only contract with a hospital with more than 50 beds if the hospital: (a) participates with a Patient Safety Organization or (b) meets a reasonable exception standard.
• SHOP:  A third-party employee choice option is being added so employers will have the option of offering all plans across all actuarial value levels from one issuer.
• Post-enrollment Assistance and Other Requirements for Assisters:  CMS expanded the required duties of FFM Navigators to include specific post-enrollment and other assistance activities.
• Direct Enrollment Enhancements and Agent and Broker FFM Enforcement:  CMS established a framework to support the use of an expanded direct enrollment pathway option for web-brokers and QHP issuers in 2018 and future coverage years under which an applicant may remain on the web broker’s or issuer’s non-FFM website to complete the Marketplace application and enroll in coverage.  Future rulemakings will supplement the framework with more specific guidance and requirements.

The full text of the Final Notice is available here and will be published in the Federal Register on March 8, 2016 and available here.

In addition to the Final Notice, CMS also released the following:

• Its final Annual Letter to Issuers.
  • This Annual Letter provides issuers interested in offering coverage in States with a Federally-facilitated Marketplace  information on key dates for the QHP certification process; standards that will be used to evaluate QHPs for certification; and oversight procedures, consumer support policies and programs. The Annual Letter is available here.
  • A bulletin on the Rate Filing Justifications for the 2016 Filing Year for Single Risk Pool Compliant Coverage. 
  • This bulletin provides guidance on the timing for State Departments of Insurance and health insurance insurers to submit Rate Filing Justifications for proposed rate increases in the individual and small group markets. The guidance, which offers States greater flexibility than the proposed bulletin, is available here.
• A set of Frequently Asked Questions (“FAQs”) related to the Moratorium on the Health Insurance Provider Fee (enacted in the Consolidated Appropriations Act of 2016, P.L. 114-113), which suspends collection of this fee for the 2017 plan year.
  • This guidance urges issuers to lower their administrative costs and premiums appropriately to account for the moratorium.  The FAQs are available here.
• Guidance addressing the transitional policy for plans that have been continuously renewed since 2014.
  • To allow for a smooth wind-down of transition relief, States and issuers will have the option to renew non-grandfathered individual and small group health policies, but these policies must end no later than December 31, 2017.  This approach is intended to offer flexibility to States and issuers to align the end of these policies with open enrollment and the start of the calendar year, facilitating smooth transitions to Affordable Care Act-compliant policies.  The guidance is available here.

Reporter, Kristin Roshelli, Houston, +1 713 751 3263, kroshelli@kslaw.com.