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Did HHS Act Illegally in Transitional Reinsurance Program?

Both the Government Accountability Office and the Congressional Research Service found that HHS may not have had authority in certain aspects of the transitional reinsurance program.

By Vera Gruessner

At the end of September, the Government Accountability Office (GAO) announced in a briefing that the Department of Health & Human Services (HHS) does not have the authority to transfer funds from the collections within the transitional reinsurance program in the federal Treasury and rather put in deposits to the Treasury if the amounts collected in reinsurance fees reach the levels marked in section 1341.

Affordable Care Act

Essentially, this means that HHS did not have the right to divert a significant number of funds from the United States Treasury to payers who were selling health plans on the Affordable Care Act exchanges. According to the Centers for Medicare & Medicaid Services (CMS), section 1341 of the Affordable Care Act created the transitional reinsurance program, which was meant to keep premiums stable within both the ACA exchanges and the health insurance market at large.

The transitional reinsurance program takes contributing funds from entities to cover the reinsurance payments of payers that offer “non-grandfathered reinsurance-eligible individual market plans.” Additionally, the transitional reinsurance program has taken  funds from the US Treasury during the 2014, 2015, and 2016 benefit years.

GAO found that HHS does not have the authority to prioritize payments to issuers (or health insurers) over the payments set aside for the Treasury. The federal agency did not deposit the necessary amounts to the Treasury when amounts fell short as specified for reinsurance contributions, GAO stated in their analysis.

The results show that, during the 2014 benefit year, HHS did not transfer any funds to the Treasury when total collections of $9.7 billion were less than the target amount promised for reinsurance payments.

READ MORE: Rising Specialty Drug Prices Plague CMS, Medicare Beneficiaries

“Because the agency collected less than the $10 billion target for reinsurance payments, it allocated all of its collections for those payments,” GAO states in its briefing. “The agency received $7.9 billion in reinsurance claims and paid these in full, leaving approximately $1.7 billion in collections, which it carried over for reinsurance payments in subsequent benefit years. As a result, HHS did not deposit any amounts collected from issuers into the Treasury. For benefit year 2015, the agency expects to collect a total of $6.5 billion by the end of calendar year 2016, less than its projected collection of $8.025 billion.”

The Congressional Research Service has also voiced its concerns in a memorandum released in February 2016. The statement finds that there may be misconceptions regarding when it is appropriate for the transitional reinsurance program to allocate funds to the US Treasury.

This past April, CMS Acting Administrator Andrew Slavitt released a statement to the US House Energy and Commerce Committee, Subcommittee on Oversight and Investigations. In the statement, Slavitt explains the making of the transitional reinsurance program and the rulemaking CMS followed.

The Affordable Care Act called for the transitional reinsurance program to be established during the 2014 to 2016 years. The program is meant to reimburse payers who have more high-cost enrollees in the public marketplace, which would reduce financial risk and keep premiums from rising too quickly.

When creating the transitional reinsurance program, CMS followed standardized rulemaking procedures that included obtaining public comments on all policy proposals, Slavitt said. CMS published proposed rulemaking and a request for comment regarding the risk adjustment and reinsurance portions of the Affordable Care Act.

READ MORE: Affordable Care Act Payment Program Boosts Care, Cuts Costs

One of the latest CMS rulings regarding a reinsurance contribution rate occurred in early 2015 when the agency issued a final rule meant to improve the consumer experience on the public health insurance marketplace. The final rule - called the Notice of Benefit and Payment Parameters for 2016 - created payment factors and requirements related to the reinsurance, cost sharing reductions, risk adjustment, and risk corridor provisions of the Affordable Care Act.

“We finalize a 2016 uniform reinsurance contribution rate of $27 annually per enrollee, and the 2016 uniform reinsurance payment parameters — a $90,000 attachment point, a $250,000 reinsurance cap, and a 50 percent coinsurance rate,” CMS stated in the final ruling.

The final rule improved transparency and provided more health plan data to consumers on the exchanges, according to a CMS press release. The way this ruling improves transparency for consumers is by providing public access to data on rate increases in both small group and individual markets for qualified health plans and non-qualified health plans.

“We work every day to strengthen programs that deliver quality, affordable care to families across the country,” former CMS Administrator Marilyn Tavenner said in a public statement.  “CMS is working to improve the consumer experience and promote accountability, uniformity, and transparency in private health insurance.”

The Department of Health & Human Services may need to delve more into the legality and authority it has in transferring funds within the US Treasury and be held accountable for the actions taken.

READ MORE: Congress Votes to Nominate Tom Price as HHS Secretary


Dig Deeper:

How the Affordable Care Act Changed the Face of Health Insurance

How Payers Could Succeed in ACA Health Insurance Exchanges


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