The Centers for Medicare and Medicaid Services has floated proposed regulations that would affect drug benefits for group plans and association plans and attempt to reduce drug expenses for health plan enrollees and drug plans.
While the rules seem to be focused on individual plans sold on government-run exchanges, three of the changes would also affect small and mid-sized group plans.
Mid-year formulary changes
Under current regulations, health insurers are barred from making changes to their drug formularies mid-year. They can only introduce changes upon renewal.
The CMS says it wants to boost incentives for drug plans to use generic drugs, so it is proposing a new rule that would allow insurers to:
- Add a generic drug that becomes available mid-year.
- Remove the equivalent brand-name drug from the formulary, or
- Remove the equivalent brand-name drug to a different tier in the formulary.
Under the rules, insurers would have to notify their affected enrollees at least 60 days before the change would take effect. They must also offer a process for an enrollee to appeal the decision.
This rule would affect insurers in the individual, small group, and large group markets.
Excluding certain brand-name drugs
Under existing regulations, all prescription medications covered under an insurance contract are considered an essential health benefit, including the requirements that aim to ensure that the drug coverage is comprehensive. Under the Affordable Care Act, health plans are required to cover 10 essential benefits, and that includes the medications that are required to treat them.
The CMS wants to change this by letting insurers exclude a brand-name pharmaceutical from “essential health benefits”, or EHBs, if there is a generic equivalent that is available and medically suitable.
As with the current rule, the proposal would only apply to plans in the individual and small group markets. That’s because large group and self-insured plans are not required to cover all 10 categories of EHBs.
The proposal would also permit insurers to count only the cost of the generic equivalent (and not the cost of the brand-name drug) toward the enrollee’s out-of-pocket limit. Also, insurers would be permitted to apply an annual and/or lifetime dollar maximum to the brand-name drug, since the prohibition against annual and lifetime dollar limits only applies to EHBs.
Currently, some insurers will count manufacturer coupons for brand-name drugs in addition to what the enrollee pays in calculating their out-of-pocket outlays for deductible purposes. They may do so depending on laws in the various states in which they operate.
For example, take the scenario of a drug that costs $600, and the manufacturer provides a $400 coupon that can be used to reduce the cost of the drug and the enrollee pays $200 out of pocket. Currently, insurers will count the full $600 towards the deductible and out-of-pocket maximum.
The CMS’s proposed rule would allow insurers to only include the actual out-of-pocket expense for the enrollee when calculating how much of an out-of-pocket maximum has been satisfied.
What comes next
The comment period for the proposed regulations ended on Feb. 19, 2019, and the final rules could be out before summer. We will keep you posted once the new regulations are out.
A federal judge has rejected the Trump administration’s rules for association plans, saying they are an attempt to allow employers to skirt their obligations under the Affordable Care Act. The rules that the Department of Labor finalized last year allow employers to band together as “associations” for no other purpose than to purchase health insurance for their employees. And under those rules, the plans do not have to comply with many of the ACA’s provisions, including providing plans that are “affordable” and offer a set of minimum essential benefits.
Judge John Bates of the U.S. District Court for the District of Columbia wrote in his decision that the DOL’s final rule goes beyond the department’s authority under the Employee Retirement Income Security Act (ERISA) of 1974. The judge particularly homed in on the fact that the associations would become the de facto employer for members to allow them to band together for the sole purpose of having access to lower rates.
To date, about 30 association plans have been formed around the country in response to the regulations, which took effect last year. The association plans are reportedly not up and running, but have been gearing up to start Jan. 1, 2020. Under the rule, employers in the same industry can form a plan across state lines, as can any businesses in a specific geographic area. Sole proprietors can also join, along with small businesses, and obtain coverage for themselves and their families.
By banding together to form a pool with more than 100 workers, the employers would be considered a “large” employer under the ACA. While employee health plans for companies with fewer than 100 workers must abide by all of the ACA’s provisions, including covering 10 essential benefits, large plans do not have the same constraints.
This means that sole proprietors who may be purchasing their health plans on a state exchange would suddenly have the purchasing power of a large employer in the health insurance market.
The judge homed in on the part of the regulation that adopted a new definition of “employer” under ERISA, for purposes of determining when employers can join together to form an association health plan that is treated as a group health plan under that law. The new definition of employer includes sole proprietors with no employees.The judge did not issue a stay on the start of these plans, but the ruling could create difficulties for those that have already been formed and are ready to launch in 2020.
The Trump administration is likely to appeal the ruling, but the judge has made it difficult since he struck down the linchpin of the regulation, which had changed the definition of what constitutes an employer and employee (“the association has become the employer and sole proprietors the association’s employees for the purpose of purchasing coverage at large group rates.“)
Existing association plans
Interestingly, the fears that many observers had expressed about association health plans have not come to bear. Many had predicted that these plans would be stripped-down health plans devoid of many of the protections offered by the ACA, particularly being able to keep your children on your plan until they are 26 as well as coverage of 10 essential benefits.
A report by the trade publication Modern Healthcare found that association plans it had analyzed actually had not pared back benefits to enrollees. The analysis found that the plans it examined covered all of the 10 essential benefits as required by the ACA, and also at comparable costs, premiums, deductibles, and out-of-pocket requirements.
While the plans that have already been set up are slated to start on Jan. 1, 2020, for now, it’s likely they will continue planning for a 2020 start, but whether they actually get off the ground will depend on the courts going forward.
For the time being, employers that are interested in joining an association health plan may want to take a pause and consider other options if the appeals process drags on.