Breaking Down the NAIC’s Comments

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The National Association of Insurance Commissioners (NAIC)—a standard-setting and regulatory support organization governed by state insurance regulators—recently submitted comments on proposed rules defining some of the Affordable Care Act’s (ACA) most significant protections. In doing so, the NAIC added its voice to the chorus of stakeholders who have weighed in on critical issues regarding the 2014 market reforms, essential health benefits, and multi-state plans, among others.

Indeed, state regulators and NAIC staff were very busy before the holidays and submitted four comment letters that addressed 1) the 2014 market reforms; 2) essential health benefits; 3) multi-state plans; and 4) a proposed rate review template. (For more information about the NAIC and their work on these issues, check out their website on health reform.) In addition to specific comments, the NAIC raised some universal concerns that include:

  • the continued need for state flexibility in implementing the ACA’s requirements;
  • the potential for “rate shock” for consumers in the individual market when the ACA’s most significant reforms go into effect in 2014; and
  • the administrative burden placed on issuers as a result of new reporting requirements.

The comments also included specific concerns. Here are some of issues they raised:

  • 2014 market reforms.The NAIC commented on the rating reforms and guaranteed issue requirements as well as high risk pools, bona fide associations, and rate review, among other topics.
    • Rating reforms. The NAIC recommended that HHS provide states with additional flexibility in defining geographic rating areas by, for example, allowing more than seven rating areas. (Under the proposed rule, states are limited to seven rating areas and can choose to establish 1) a single rating area for the state, 2) rating areas based on counties or zip codes, or 3) rating areas based on metropolitan statistical areas. States also have the option of proposing other geographic divisions or more than seven rating areas, subject to approval by HHS.) The NAIC also recommended that states be allowed to “phase in” the ACA’s age rating requirements over a three-year period and that states have flexibility in transitioning to the ACA’s family rating methodology. Finally, the NAIC would like each state to be allowed to define the categories of “family members” for rating purposes and noted that some states supported aligning family rates with the ACA’s extension of dependent coverage up to age 26.
    • Guaranteed issue requirements. In response to HHS’ request for comments about minimizing adverse selection while preserving consumer protections, the NAIC recommended that states be given flexibility to adopt measures such as waiting periods and late enrollment penalties and that states be allowed to choose whether open enrollment periods in the individual market occur on a calendar year basis. For states that adopt a calendar year approach, the NAIC would like states to be allowed to require a rating adjustment for policies issued or renewed in 2013 that would be in effect for less than a full year.
  • Essential health benefits.The NAIC raised the need for additional clarification from federal regulators and addressed issues related to habilitative services, actuarial value, and payments for state-required benefits, among others.
    • Need for clarification. The NAIC raised the need for clarification in 1) defining and enforcing the ACA’s prohibition against discriminatory benefit design; 2) codifying that states can prohibit or limit benefit substitution; 3) making a distinction between benign and invidious discrimination; and 4) noting that states can address the differential treatment of pediatric dental benefits inside and outside of the exchange. While some of these proposals are technical changes, others—such as how to define discriminatory benefit design and the coverage of pediatric dental benefits—could significantly affect consumers and issuers regarding the benefits and services that must be made available under the ACA.
    • Habilitative services. While HHS’ proposed rule broadened state flexibility in defining “habilitative services,” the NAIC noted that most states would not have time to take advantage of this authority before the comment deadline of December 26, 2012. Thus, the comments recommend that states be given additional time to inform HHS of their decision. The NAIC also objected to the suggestion in the proposed rule that issuers be allowed to convert dollar limits to visit limits for habilitative services because “issuers do not have the authority under state law to do this; the state must decide who may convert the dollar limits.”
    • Actuarial value. The NAIC raised concerns about de minimis variation in actuarial value levels and suggested that this requirement would limit consumer options. To address this, the NAIC recommended state flexibility for cost-sharing options outside the exchange and inside state-based exchanges. The comments also noted that the actuarial value calculator does not account for family cost-sharing, which the NAIC recommended incorporating.
    • Payments for state-required benefits. The NAIC recommended that states be able to choose whether payments for state mandates are based on a statewide average cost or each issuer’s actual cost. In the event that HHS opts to use a national standard, the NAIC supported payments based on the average benefit cost for the relevant geographic area. According to the comments, this standard “more appropriately aligns incentives and is more administratively simple” for states.
  • Multi-state plans. The NAIC reiterated its support for ensuring a level playing field between multi-state plan (MSP) issuers and non-MSP issuers and identified seven areas where it supported the requirements outlined in the proposed rule. These areas include, for example, the requirements that MSPs and MSP issuers must comply with state rate review processes and medical loss ratio requirements, as well as participate in state reinsurance and risk adjustment programs. However, the NAIC went on to identify 10 areas of continued concern, including essential health benefits, appeals, and the proposed process for dispute resolution, among others.
    • Essential health benefits. Citing concerns about the risk of adverse selection, the NAIC objected to the proposed approach of allowing MSP issuers to use the state’s benchmark package or one of three federal benchmark packages. The comments also noted that variation between MSPs and non- MSPs could complicate plan comparisons on the exchanges. And, because states can prohibit or limit substitution of benefits, the NAIC recommended that MSP issuers also be subject to these state requirements.
    • Appeals. Under the proposed rule, MSP issuers would be subject to the Office of Personnel Management’s (OPM) external review process. Because these issuers will also be subject to state external review requirements, the NAIC stressed that MSP issuers should be subject to external review under state law if the state has an effective external review process. The OPM’s external review process should only apply if a state's process has not been deemed effective by federal regulators.
    • Dispute resolution. The NAIC raised concerns that the proposed rule “provides too much discretion for OPM to exempt MSP issuers from important state law requirements that will apply to their competitors, creating an unlevel playing field.” In particular, the NAIC recommended changes to the list of factors that OPM must consider in reviewing state requirements and noted that “the sole factor that should be taken into consideration should be whether the state requirement falls under a listed category. If it does, the state requirement must apply.”
  • Rate review template. The NAIC stressed the importance of finalizing the template as soon as possible so that states can begin preparing for open enrollment in October 2013 and raised concerns about administrative burdens and costs associated with these requirements. Noting that the rate review template will not meet the needs of all states, the NAIC recommended that HHS develop different data templates (or different sections of the same template). This would include one template to collect data needed for non-rate review purposes and separate templates (or sections) for rate review and rate review grant reporting. HHS could then allow states with effective rate review programs to choose between the federal or state rate review templates; if a state opts not to use the federal rate review template, the comments suggested that issuers not be required to complete it. The NAIC also provided technical comments regarding plan level adjustments to the index rate, instructions for issuers, and collection of risk adjustment and reinsurance data.

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The opinions expressed here are solely those of the individual blog post authors and do not represent the views of Georgetown University, the Center on Health Insurance Reforms, any organization that the author is affiliated with, or the opinions of any other author who publishes on this blog.