AMA Journal of Ethics. August 2015, Volume 17, Number 8: 754-759.
The Affordable Care Act and Insurer Business Practices
The ACA’s major changes to health insurers’ practices, which include requirements for adequate and affordable health insurance coverage, have resulted in a substantial reduction in the number of uninsured people in the US.
Sandy H. Ahn, JD, LLM
Health insurer business practices are regulated at both the federal and state level. State law plays a role in regulating business practices such as the types of coverage offered and payment of claims . For example, states can mandate coverage for certain medical treatments or conditions like autism . State law also regulates how quickly insurers have to pay claims for health care services, referred to as prompt pay laws . Federal law, most notably the Affordable Care Act (ACA), has brought about market reforms to make health insurance more accessible, affordable, and adequate . While the ACA sets forth market reform requirements that apply to private health insurance, these requirements are not applicable to all types of plans. Some requirements only apply to the nongroup (i.e., individual) and small group markets, whereas others apply across the board to the nongroup, small group, and large group markets . “Group health plans” refers to employer-sponsored insurance, with the number of employees defining the type of market .
Major ACA provisions related to health insurance practices are summarized below.
Access to Health Insurance Coverage
- Health insurance plans must accept every applicant who agrees to the terms and conditions of the insurance (e.g., paying the monthly premiums); such plans are referred to as “guaranteed issue” [7, 8]. Health plans may not discriminate on the basis of pre-existing health conditions or health factors .
- Health plans cannot place annual or lifetime dollar limits on essential health benefits .
- If insurers offer coverage to dependents, then they must make that coverage available to them until they are 26 years old .
- Health plans cannot cancel coverage after an enrollee incurs medical expenses unless that enrollee has engaged in fraud or intentional misrepresentation .
Affordable Health Insurance Coverage
- Insurers must make sure that enrollees’ out-of-pocket costs do not exceed a certain amount each year. “Out-of-pocket cost” refers to expenses that enrollees must pay while they have coverage (see table 1) before the insurance plan begins paying 100 percent of costs for covered services. Once an enrollee reaches his or her maximum out-of-pocket amount (MOOP), an insurer must pay 100 percent of further costs for covered services that are provided within the network. For 2015, the maximum out-of-pocket cost is $6,600 for self-only coverage and $13,200 for family coverage; these costs increase slightly to $6,850 and $13,700 in 2016. After 2016, the individual cost-sharing limits apply to all consumers, whether they are on a self-only or family plan: if the out-of-pocket maximum for a family plan is $13,700, each covered family member’s out-of-pocket costs only have to reach $6,850 before the insurer has to pay 100 percent of further costs for covered in-network services for the individual .
Table 1. Typical out-of-pocket health care costs for insured patients in the US
|Deductible: an amount an enrollee must pay before benefits “kick in.” For example, a plan might entail that enrollees pay $1,500 out-of-pocket for health care services before it begins to cover costs. In general, consumers are billed by clinicians for deductible amounts.
|Co-pay: a fixed amount that an enrollee pays every time for a given type of covered health care service at the time of service. For example, a plan could require a $10 co-pay for each prescription and a $20 co-pay for a doctor’s visit. Health plans can also set higher co-pays for specialists.
|Co-insurance: a fixed percentage of costs an enrollee pays for covered services. For example, 20 percent co-insurance means the health plan will pay 80 percent of costs for a covered service. In general, consumers are billed for co-insurance amounts by the organization where they receive care.
- Large group health plans must be affordable, meaning that an employee’s premium contribution for self-only coverage for the lowest-cost plan offered cannot exceed 9.56 percent of his or her household income [14, 15].
Adequate Health Insurance Coverage
- Individual and small-group health plans must provide coverage for the following benefits, referred to as essential health benefits (EHB): ambulatory patient services (outpatient care); emergency services; hospitalization; maternity and newborn care; mental and behavioral health and substance use disorder services; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services including oral and vision care [16, 17]. While the ACA requires health plans in the individual and small-group markets to provide these categories of services, states have the discretion to pick a benchmark plan that sets out lists of specific services that must be included within each category .
- Large group health plans must meet or exceed the minimum value set by the federal government, currently defined as paying for at least 60 percent of medical expenses on average for a standard population [17, 18]. Federal guidance states that hospital and inpatient services must be substantially covered for the plan to count as providing this minimum value .
- Health plans cannot impose cost sharing, such as co-pays or co-insurance, for preventive services (except for plans in existence prior to March 10, 2010 that have not had substantive changes since that date, referred to as “grandfathered plans” ). Various federal entities make evidence-based recommendations about what should be in this category [21-23]. For example, federal agencies recently clarified that the anesthesia accompanying a preventive colonoscopy falls within the scope of a preventive service and must be covered without cost sharing .
- Health plans cannot prohibit enrollees from participating in federally approved clinical trials and must pay routine costs associated with a clinical trial, including drugs, procedures, and services that the health plan would normally cover .
- Health plans are prohibited from requiring referrals for obstetrical or gynecological (OB/GYN) care [26, 27].
- Health plans are prohibited from requiring prior authorization for emergency services, regardless of whether the clinician is in or out of network. Health plans must pay for out-of-network emergency services at either the in-network amount, the amount for other out-of-network services, or the amount that Medicare pays [26, 27].
- Health plans (except grandfathered plans) are required to allow enrollees to designate a primary care provider (PCP). Health plans can still designate a PCP but must allow the enrollee to change that designation. This includes allowing parents to choose in-network pediatricians for their children [26, 27].
Other Consumer Protections
The ACA establishes other consumer protections that regulate how insurers operate. For example, under the medical loss ratio (MLR) requirement, an insurer must spend a certain percentage of premium revenues on health care claims and quality improvement expenses or rebate the difference between those costs and their premium charges to enrollees. For individual and small-group plans, insurance companies must spend 80 percent of premium revenues on medical care; for large-group plans, the amount is 85 percent .
The ACA also requires all health plans to have an appeals process that allows consumers to appeal insurer decisions—for example, to deny a medical claim to pay for a service. Under the ACA, the appeals process must involve both an internal and external review (e.g., by an independent third party), and health plans must follow certain timeframes for decisions in general and in special circumstances (e.g., urgent care) . While the ACA establishes a federal minimum for appeals, states may have processes that are more protective of consumers .
Five years after the passage of the ACA, there has been a 35 percent reduction in the number of uninsured people in the US; there are approximately 16.4 million newly insured people . The ACA is making health insurance much more accessible and affordable. As implementation of the law continues, the question of whether existing coverage is adequate is likely to be raised, particularly as the newly insured begin using their coverage and insurer business practices continue to evolve. Subsequently, how well the ACA protects consumers and what gaps exist will become more evident.
- Jost TS. The regulation of private health insurance. Robert Wood Johnson Foundation. January 2009.
The_Regulation_of_Private_Health_Insurance.pdf. Accessed June 10, 2015. Note that state law only regulates health insurers that are state-licensed entities and would not regulate self-insured health plans. Self-insured plans refer to health coverage that an employer pays for directly rather than obtaining it from a state-licensed health insurer (referred to as fully insured plans).
- National Conference of State Legislatures. Mandated health insurance benefits and state laws. Updated January 2014.
mandated-health-insurance-benefits-and-state-laws.aspx. Accessed June 2015.
- Halleland KJ. Prompt-pay laws: a state-by-state analysis. J Health Law. 2004;37(2):317-333.
- Keith K, Lucia KW, Corlette S. Issue brief: implementing the Affordable Care Act: state action on early market reforms. The Commonwealth Fund. March 2012.
1586_keith_state_action_early_market_reforms_v2.pdf. Accessed June 11, 2015.
- Mach AL, Fernandez B. Private health insurance market reforms in the Affordable Care Act (ACA). Congressional Research Service. July 24, 2014.
https://www.fas.org/sgp/crs/misc/R42069.pdf. Accessed June 10, 2015.
- Patient Protection and Affordable Care Act, 42 USC sec 300gg-91 (2015). Note that some ACA requirements do not apply to self-insured group health plans. Starting on January 1, 2016, a large group is defined as having more than 100 employees and a small group as having 100 or fewer employees.
- Patient Protection and Affordable Care Act, 42 USC sec 300gg-1 (2015). The guaranteed issue requirement does not apply to self-insured group health plans.
- Patient Protection and Affordable Care Act, 42 USC sec 300gg-3-300gg-4 (2015).
- Patient Protection and Affordable Care Act, 42 USC sec 300gg-3 (2015).
- Patient Protection and Affordable Care Act, 42 USC sec 300gg-11 (2015).
- Patient Protection and Affordable Care Act, 42 USC sec 300gg-14 (2015).
- Patient Protection and Affordable Care Act, 42 USC sec 300gg-12 (2015).
- Patient Protection and Affordable Care Act; HHS notice of benefit and payment parameters for 2016; final rule. Fed Regist. 2015;80(39):10750-10877. Codified at CFR sec 144, 147, 153-156, 158.
- Internal Revenue Code, 26 USC sec 36B (2015). Large employers are subject to a penalty (“employer shared responsibility payment”) if their coverage is found to be unaffordable according to this definition.
- IRS Rev Proc 2014-37. Codified at 26 CFR sec 601.105. Note that the IRS adjusts the percentage threshold for affordable employer-sponsored coverage annually.
- Patient Protection and Affordable Care Act, 42 USC sec 18022 (2015).
- Patient Protection and Affordable Care Act; standards related to essential health benefits, actuarial value, and accreditation; final rule. Fed Regist. 2013;78(37):12834-12872. Codified at 45 CFR sec 147, 155-156.
- Minimum value of eligible employer-sponsored plans and other rules regarding the health insurance premium tax credit. Fed Regist. 2013;78(86):25909-25916. Codified at 26 CFR sec 1.36B-2. Large employers are subject to a penalty (“employer shared responsibility payment”) if their coverage is found not to meet “minimum actuarial value.”
- Internal Revenue Service. Notice 2014-69: group plans that fail to cover in-patient hospitalization services.
http://www.irs.gov/pub/irs-drop/n-14-69.pdf. Accessed June 10, 2015.
- US Centers for Medicare and Medicaid Services. Grandfathered health insurance plans.
health-care-law-protections/grandfathered-plans/. Accessed June 10, 2015.
- US Preventive Services Task Force website.
Page/BasicOneColumn/28. Accessed June 10, 2015.
- US Department of Health and Human Services Health Resources and Services Administration. Women’s preventative services guidelines.
http://www.hrsa.gov/womensguidelines/. Accessed June 10, 2015.
- US Department of Health and Human Services. Preventative services covered under the Affordable Care Act. Updated September 27, 2012.
factsheets/2010/07/preventive-services-list.html. Accessed June 10, 2015.
- Centers for Medicare and Medicaid Services. FAQs about Affordable Care Act implementation (part XXVI). May 11, 2015.
Fact-Sheets-and-FAQs/Downloads/aca_implementation_faqs26.pdf. Accessed June 10, 2015.
- Patient Protection and Affordable Care Act, 42 USC section 300gg-8 (2015).
- Patient Protection and Affordable Care Act; requirements for group health plans and health insurance issuers under the Patient Protection and Affordable Care Act relating to preexisting condition exclusions, lifetime and annual limits, rescissions, and patient protections; final rule and proposed rule. Fed Regist. 2010;75(123):37187-37241. Codified at 29 CFR sec 2590.715-2719A.
- Patient Protection and Affordable Care Act; requirements for group health plans. Codified at 45 CFR sec 147.138.
- Medical loss ratio requirements under the Patient Protection and Affordable Care Act. Fed Regist. 2012;77(95):28790-28797. Codified at 45 CFR sec 158.210.
- Employee Retirement Income Security Act of 1974; rules and regulations for administration and enforcement; claims procedure. Fed Regist. 2000;65(225):70246-70271. Codified at 29 CFR sec 2560.503-1.
- Interim final rules for group health plans and health insurance issuers relating to internal claims and appeals and external review processes under the Patient Protection and Affordable Care Act. Fed Regist. 2010;75(141):43330-43364. Codified at 26 CFR sec 54.9815-2719T, 29 CFR sec 2590.715-2719, 45 CFR sec 147.136.
- US Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation. Health insurance coverage and the Affordable Care Act. May 5, 2015.
uninsured_change/ib_uninsured_change.pdf. Accessed June 23, 2015.
Sandy H. Ahn, JD, LLM, is a research fellow in the Center on Health Insurance Reforms within the Health Policy Institute at Georgetown University in Washington, DC. Ms. Ahn’s research areas include implementation of the market reform provisions of the Affordable Care Act, with a focus on industry practices and health insurance regulation at both the state and federal level.
The viewpoints expressed in this article are those of the author(s) and do not necessarily reflect the views and policies of the AMA.
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