Empowering States to Regulate Their Insurance Markets

Health Highlights

On April 9, 2018, the Centers for Medicare & Medicaid Services (CMS) issued a Health & Human Services (HHS) Notice of Benefit and Payment Parameters for 2019 (final rule). The final rule is the first time the Trump administration issued standards for insurers participating in Affordable Care Act (ACA) marketplaces. The final rule generally gives states more authority to determine the scope of services an insurer must provide.

CMS stated that the final rule was intended to “mitigate the harmful impacts of Obamacare and empower states to regulate their insurance market.”1 The final rule is also intended to “increase state flexibility, improve affordability, strengthen program integrity, empower consumers, promote stability, and reduce unnecessary regulatory burden.”2

This article highlights changes in three areas: (1) essential health benefits, (2) the medical loss ratio and (3) the hardship exemption policy.

Essential Health Benefits

Essential health benefits are the ten broad categories of benefits that an insurance plan must cover.3 Rather than establish a uniform national benefits package, CMS determined that the scope and quantity of services offered under each category can vary, and the specifics are determined from state to state.

States must select a “benchmark plan” from ten existing plans in the state to serve as a reference point for the specific services offered in each essential health benefit category.4 For example, California’s 2017 benchmark plan was the Kaiser Foundation Health Plan, Inc.’s Small Group HMO 30.5

The final rule permits states to change their essential health benefit benchmark plan by (1) selecting a benchmark plan that another state used in the 2017 plan year, (2) replacing a category of benefits used in the 2017 benchmark plan with another state’s benchmark plan or (3) selecting a set of benefits that would become the state’s new benchmark plan (as long as the new benchmark plan does not “exceed the generosity of the most generous among a set of comparison plans”).6

This gives states substantial latitude in picking their benchmark plans. Under the final rule, a state such as Ohio could adopt California’s benchmark plan in its entirety or choose piecemeal among multiple states, such as the maternity care standards from New York and the mental health services standards from Illinois. Further, Ohio could create a custom set of benefits that does not correspond to any existing plan offered in the state. The final rule is intended to give states more flexibility to reduce premiums.

Medical Loss Ratio

The final rule also allows states to request changes to the maximum individual market medical loss ratio (MLR) if the state can demonstrate that a lower MLR would stabilize the market.

The MLR provision of the ACA requires health insurers that cover individuals and small businesses to spend at least 80% of their premium income (premiums collected from policyholders) on healthcare claims and quality improvement. The remaining 20% may be spent on administration, marketing and profit.7

States now have flexibility to request a lower MLR. The final rule is intended to “provide[] States with an additional tool to help stabilize, innovate and provide relief in their individual markets. Additionally, we make other changes to the MLR program to reduce the burden on issuers.”

Hardship Exemption Policy

CMS also expanded the hardship exemption policy for 2018, which exempts certain individuals from the individual mandate’s penalty for failure to purchase health insurance.8 It is unclear how meaningful this reform will be, since starting January 1, 2019, the individual mandate’s penalty will be reduced to $0, under the tax reform legislation enacted on December 22, 2017.9

The hardship exemption from the individual mandate now includes individuals who live in a county with no insurer, or individuals who live in a county with only one insurer. The final rule states that the purpose of expanding the hardship exemption is because “market instability has resulted in limited offerings of plans on the Exchanges in many regions, and there may be individuals who live in a county without a bronze plan.” An exemption from the individual mandate can also be obtained if all affordable plans available on the individual health exchange provide coverage of abortion (regardless of the number of participating insurers) and the coverage of abortion is contrary to one’s beliefs.10

This exemption will apply broadly as one in four Americans live in a county with only one or no insurers.11


The final rule provides states with more latitude to determine whether insurance plans comply with ACA standards. Some states will move to allow insurers to spend less on overhead and ideally offer less expensive plans, benefitting the marketplace. Further, more individuals will be able to obtain exemptions from the individual mandate prior to 2019. The final rule also attempts to address individual markets with a lack of choice between plan insurers. CMS hopes that these new regulations will ease premium increases.

1CMS issued the final rule to increase access to affordable health plans for Americans suffering from high Obamacare premiums (April 4, 2018). https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2018-Press-releases-items/2018-04-09.html.
3The categories are (1) ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance use disorder services including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and rehabilitative services and devices; (8) laboratory services; (9) preventive and wellness services and chronic disease management; and (10) pediatric services, including oral and vision care. 42 U.S.C. § 18022 (b)(1)(A)-(J).
4These ten existing plans, by enrollment, are the three largest small-group plans, the three largest state employee health plans, the three largest federal employee health plans and the state’s largest commercial HMO plan.
5California EHB Benchmark Plan, https://www.cms.gov/CCIIO/Resources/Data-Resources/Downloads/Updated-California-Benchmark-Summary.pdf.
6Information on Essential Health Benefits (EHB) Benchmark Plans, https://www.cms.gov/cciio/resources/data-resources/ehb.html.
7The MLR for large group plans is 85% of premium dollars.
8The current hardship exemption provides an exemption from the individual mandate.
9CMS states that hardship exemption is still pertinent after 2019 if an individual seeks catastrophic coverage (which is a high deductible plan only available to people who qualify for a hardship exemption and are under the age of 30).
10Guidance on Hardship Exemptions from the Individual Shared Responsibility Provision for Persons Experiencing Limited Issuer Options or Other Circumstances (April 9, 2018), https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2018-Hardship-Exemption-Guidance.pdf.
11Insurer Participation on ACA Marketplaces, 2014-2018, CMS (Nov. 10, 2017), https://www.kff.org/health-reform/issue-brief/insurer-participation-on-aca-marketplaces/.



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