Introduction
On December 12, 2022, the U.S. Department of Health and Human Services (HHS) released the proposed 2024 Notice of Benefit and Payment Parameters (i.e., the “proposed rule”) for qualified health plans (QHPs) offered through federally-facilitated Exchanges (FFEs) and State-based Exchanges (SBEs) on the Federal platform. The proposed rule touches on a range of topics for health plans participating in these exchanges, covering updated enrollment processes, limits on plan benefit options, and requirements on plan network adequacy. In this blog, we provide an overview of key proposed provisions HHS hopes will help strengthen the ACA marketplaces, specifically those related to risk adjustment (RA). These include changes to RA model recalibration methods, new RA data collection requirements, and refinements to the RA data validation (RADV) process, among other proposed changes detailed below. With the proposed rule, HHS solicits comments on these provisions. In order to be considered by the Federal Government, comments must be submitted by January 30, 2023.
Recalibration
In general, the three most recent consecutive years of enrollee-level External Data Gathering Environment (EDGE) data—that are available at the time of the annual proposed payment rule—are utilized to recalibrate the RA model coefficients. Estimating coefficients is critical to the RA process since they determine the relative risk factors associated with each of the different health conditions (see here for more details on relative risk factors) represented by hierarchical condition categories (HCCs). For the 2023 payment year, 2017-2019 data was used for recalibrating model coefficients.
The 2024 payment year is the first year that 2020 data is available for use in the model coefficient recalibration process. However, concerns have been expressed about the 2020 data, given that the COVID-19 pandemic substantially changed the way health care was utilized, particularly early in the pandemic. In last year’s rulemaking, HHS stated it would consider if and how to incorporate 2020 data into the recalibration process.
In this proposed rule, HHS proposes to use the 2018, 2019, and 2020 enrollee-level EDGE data for 2024 payment year model recalibration, with one exception. For the adult models’ age-sex coefficients, HHS proposes to only use 2018 and 2019 EDGE data. The proposal is based upon anomalous decreases in model coefficients for older adults when using the 2020 EDGE data, especially female enrollees. HHS considered several different options for dealing with this, including only using 2018 and 2019 data for all models (and age groupings), down-weighting the 2020 data, and using the 2017-2019 data trended forward. Because the 2020 data was largely found to be comparable to 2019 data, with the exception of older adults, HHS decided to propose using the 2018-2020 data for all models except for adults. Using only 2018 and 2019 data would also avoid methodological issues related to figuring out how to reduce the weight of the 2020 data in the calibration or how to trend forward other years of data.
Risk Adjustment User Fee
An issuer of an RA-covered plan must remit a user fee to HHS equal to the product of its monthly billable member enrollment and the PMPM RA user fee specified by HHS in the annual published final rule. These costs are designed to cover development of the models and methodology, collections, payments, account management, data collection, data validation, program integrity and audit functions, operational and fraud analytics, interested parties training, operational support, and administrative and personnel costs dedicated to RA program activities.
The proposed RA user fee for 2024 is $0.21 per member per month, down slightly from the user fee of $0.22 per member per month that was finalized for the 2023 payment year. HHS estimates that it will cost about $60 million in benefit year 2024 to operate the RA program. The costs are estimated to be similar to what was estimated for the 2023 benefit year. However, enrollment in RA-covered plans is projected to increase; hence, there is a slight reduction in the per member per month fee.
Hepatitis C Pricing Adjustments
As discussed in a prior blog, generic Hepatitis C drugs did not become available on the market until 2019. Due to data lags, HHS does not believe this change in pricing for Hepatitis C drugs is adequately reflected in the data years used to recalibrate the RA models. Consequently, HHS proposes to continue applying a market pricing adjustment to plan liability associated with Hepatitis C drugs. The adjustment would help account for this data lag and more precisely reflect the average cost of Hepatitis C treatments expected in 2024, in addition to the adjustment helping to avoid potential overpayments to plans from overestimating the RA factor associated with Hepatitis C drug utilization. HHS has concerns around creating perverse incentives for plans to influence providers’ prescribing patterns if a drug claim can trigger an increase in the enrollee’s risk score, resulting in a more favorable RA transfer. HHS intends to reassess this pricing adjustment using more recent data in the future as it becomes available.
Addition of new HCC for Gender Dysphoria
HHS also requests comment on whether to add a new payment HCC for gender dysphoria to the RA models for future benefit years. This is being considered in light of recent executive orders (EOs) aimed at promoting equity and support for underserved communities (EO 13985 and EO 13988). HHS is not proposing to add the new HCC into the RA models at this time.
New Data Collection Requirements for Risk Adjustment
Beginning with the 2023 benefit year, HHS also proposes to collect and extract from plans’ EDGE servers a new data element, a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) indicator, and to extract plan ID and rating area data elements plans have submitted to their EDGE servers from certain benefit years prior to the 2021 benefit year. The QSEHRA indicator would help HHS gain a more thorough picture of the actuarial characteristics of the Health Reimbursement Arrangement (HRA) population and how or whether HRA enrollment is impacting State individual and small group (including merged) market risk pools. More specifically, the QSEHRA indicator would also allow HHS to analyze whether the risk profile of enrollees in QSEHRAs—which differ from Individual Coverage Health Reimbursement Arrangements (ICHRAs) with respect to standards related to employer eligibility, employee eligibility, restrictions on allowance amounts, and eligibility for federal subsidies (i.e., premium tax credits)—differ from enrollees in ICHRAs. Hence, this year’s provision would build on last year’s rulemaking, when HHS finalized a provision to collect an ICHRA indicator.
Requests for State-Specific Adjustments
HHS also proposes to repeal the ability of all states to request a reduction in RA state transfers, starting with the 2025 benefit year. This proposal would affect even prior participant states that had previously submitted a state flexibility request. In prior rulemaking, HHS gave states the flexibility to request a reduction to their RA transfers by up to 50 percent of the premium used in the applicable plan year. The goal of state-specific adjustments is to allow for RA transfers that more precisely account for differences in the risk in a state’s market. Currently, states must submit requests with data demonstrating that state-specific factors warrant an adjustment and that an adjustment would have a de minimis effect on premium increases (i.e., less than 1 percent). Moreover, only states that previously submitted a request and were accepted would be allowed to apply for an adjustment.
HHS is also soliciting comments on the requests submitted by Alabama to reduce RA state transfers by 50 percent in its individual (including catastrophic and non-catastrophic risk pools) and small group markets for the 2024 benefit year. Alabama has been the only state to exercise this flexibility in the past.
RADV Adjustments for Negative Error Rate Outliers
Beginning with the 2021 benefit year, HHS proposes to no longer exempt exiting health plans from adjustments to risk scores and RA transfers when they are negative error rate outliers in the applicable benefit year’s RADV results. The exemption was essentially a holdover from when HHS used a prospective approach to adjust plan risk scores and, consequently, State transfer payments based on the results of the RADV process.
Under a prospective approach, a plan’s RADV error rate for a given benefit year is applied to the following benefit year’s risk scores and transfers. Due to the budget-neutral nature of the RA program, the application of adjustments for error rate outliers, whether positive or negative, would also impact other plans in the applicable State market risk pool. Recognizing the impact on non-exiting plans, beginning with the 2018 benefit year, HHS limited RADV adjustments for exiting plans to only those associated with positive error rate outliers. This is because positive error rate outliers indicate there was an undercharge or overpayment in the initial calculation of the exiting plan’s State transfer payment (positive error rates occur when there are more HCCs submitted to EDGE by the plan than could be validated by medical record documentation submitted for review). Thus, other plans in the applicable State market risk pool may be underfunded for their relative risk (based on the exiting plan’s initial/pre-RADV risk scores). The other reason is to remove additional burden of having transfer payments (including the potential for additional charges to other plans) for a prior benefit year when a negative outlier exits the State market risk pool (a negative failure rate means there were more HCCs validated by medical records submitted for review than were submitted to EDGE).
In light of the shift to the concurrent application of RADV adjustments, beginning with the RADV of the 2020 benefit year, HHS notes that there is no longer a reason to treat exiting plans differently than non-exiting plans.
RADV Materiality Threshold
Additionally, HHS proposes to change the materiality threshold for random and targeted sampling from $15 million in total annual premiums Statewide to 30,000 total billable member months (BMM) Statewide. The materiality threshold was implemented to ease the burden of annual audit requirements for smaller health plans that do not materially impact RA transfers. The switch was largely made because estimated costs to complete RADV audits have increased. The $15 million was based on the notion that audits cost health plans $150,000 on average (an estimate just for the initial validation audits, or IVAs), so the threshold would limit the cost of the audit to 1 percent of a plan’s premium statewide. However, HHS estimates the current cost of RADV audits to health plans to be approximately $170,000 per plan. Thus, to maintain the same general framework, the threshold would have to increase to $17 million in total annual premiums statewide. HHS further estimates that 30,000 BMMs translates to approximately $17 million in total annual premiums. HHS decided to switch to BMMs because some small plans may face a disproportionally higher cost burden per member. On average, between the 2017 and 2021 benefit years, there were 197 plans with total annual premiums statewide below $15 million and 201 plans with total BMM Statewide below 30,000.
RADV Reviews of Audit Findings
HHS proposes to shorten the window for plans to confirm or dispute the findings of the second validation audit (SVA) to within 15 calendar days of the notification by HHS, beginning with the 2022 benefit year. They currently have 30 calendar days. There are a relatively small number of plans that have insufficient agreement between their IVA and SVA results, who would have less time to review the SVA findings. By reducing the timeframe for the SVA review, HHS aims to provide summaries of RADV findings to all plans in a timelier manner. This would allow health plans more time to review this information before incorporating it into their medical loss ratio reporting, which also involve time-sensitive documents.
RADV and the Lifelong Permanent Condition Lists
HHS also solicits comments on discontinuing the use of the lifelong permanent condition (LLPC) list and the use of Non-EDGE Claims in HHS-RADV. The associated diagnoses for the health conditions on the LLPC list are considered to be lifelong, permanent conditions which last for multiple years, require ongoing medical attention, and are typically unresolved once diagnosed.
The LLPC list was designed to ease the burden of medical record retrieval for lifelong conditions by simplifying and standardizing coding abstraction for auditors that may have different interpretations of standard coding guidelines. That is, conditions on the LLPC list could be abstracted by auditors and validated during RADV if present anywhere on an enrollee’s valid and authenticated medical record, even if the associated diagnosis is not present on a claim that meets EDGE server data submission requirements for the applicable benefit year. (Submission requirements include being related to medical services performed during the patient’s visit, performed by a State-licensed medical provider, associated with a paid claim submitted to the EDGE server, and associated with an active enrollment period for the applicable RA benefit year.)
HHS notes in the proposed rule that some plans have raised concerns that the LLPC list can create incentives for plans to submit EDGE supplemental diagnosis codes (see prior blog for more information on the supplemental diagnosis codes) containing LLPC diagnoses, even though those diagnoses may not have been addressed in a claim submitted to the EDGE server. While HHS has allowed the use of the LLPC list for the last several years of RADV, HHS is now soliciting comments on the discontinuance of the use of the LLPC list beginning with the RADV on the 2022 benefit year.