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Patient Protection and Affordable Care Act; Exchange Functions in the Individual Market: Eligibility Determinations; Exchange Standards for Employers

Proposed Rule

Score: 25 / 60

RULE SUMMARY

This proposed rule would implement certain functions of the new Affordable Insurance Exchanges (‘‘Exchanges’’), consistent with title I of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, referred to collectively as the Affordable Care Act. The Exchanges will provide competitive marketplaces for individuals and small employers to directly compare available private health insurance options on the basis of price, quality, and other factors. The Exchanges, which will become operational by January 1, 2014, will help enhance competition in the health insurance market, improve choice of affordable health insurance, and give small businesses the same purchasing clout as large businesses. The specific Exchange functions proposed in this rule include: eligibility determinations for Exchange participation and insurance affordability programs and standards for employer participation in SHOP.

MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)

Dollar Year
2011
 
Time Horizon (Years)
5
 
Discount Rates
3%
7%
Expected Costs (Annualized)
$410 million
$424 million
Expected Benefits (Annualized)  
Expected Costs (Total)  
Expected Benefits (Total)  
Net Benefits (Annualized)  
Net Benefits (Total)  

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

CriterionScore

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
Google on RIN brings up immediate links via openregs.com, OMB RegInfo.gov and other sites, but the RIA not found on regulations.gov. NOPR is found on regulations.gov though readers are then directed to the HHS website and then must navigate by themselves to the NOPR since the link provided does not provide direct access.
2/5
2. How verifiable are the data used in the analysis?
The RIA contains very little data within the report since it relies heavily on CBO analyses. HHS refers readers to its analyses and provides very little for readers within the RIA.
3/5
3. How verifiable are the models and assumptions used in the analysis?
HHS often relies on assumptions of CBO and JCT analysis and, while it does briefly describe various assumptions and models, it rarely addresses the underlying logic or their empirical nature. Twenty-four studies and reports are listed as references and is a very small number to justify an economically significant regulation.
3/5
4. Was the analysis comprehensible to an informed layperson?
Analysis was fairly simple for an informed layperson with few abbreviations and little detail provided. RIA was a bit puzzling with little apparent flow to its organization.
4/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
3/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Terms are broad. Proposed regulation is intended to (1) improve the public health of citizens by expanding insurance coverage; (2) improve the financial security of citizens by providing a safety net against the potentially high cost of medical care; (3) decrease the uncompensated care costs of medical providers; and (4) decrease health insurance premiums.
4/5
Does the analysis identify how these outcomes are to be measured?
The RIA provides estimates of the number of people enrolled in Exchanges. There is no attempt to quantify the ultimate outcomes specified above apparently because the RIA implicitly assumes outcomes are highly correlated with expanded insurance coverage.
3/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
HHS argues the number of uninsured is rising due to lack of affordable insurance, barriers to insurance for people with preexisting conditions, and high prices due to limited competition and market failures. Millions without health insurance use health care services for which they do not pay, shifting uncompensated costs to health care providers who pass costs to insurance companies resulting in higher premiums that result in fewer people able to afford insurance. Proposed regulation creates affordable insurance "exchanges" to provide "competition, choice, and clout" for individuals and small businesses on par with big businesses. The proposed rule addresses standards for individual eligibility for participation in exchanges, advance payments of premium tax credit, cost-sharing reductions, and related health programs and appeals of eligibility determinations; standards with respect to ongoing Federal oversight of exchanges and actions necessary to ensure their financial integrity; and standards for exchanges and QHP issuers related to quality.
3/5
Does the analysis present credible empirical support for the theory?
HHS states the best evidence comes from the expansion of Oregon’s Medicaid program in 2008 when it conducted a lottery to expanded access to uninsured adults with incomes below 100 percent of Federal Poverty Level. Approximately 10,000 low-income adults were newly enrolled in Medicaid as a result. Comparing outcomes for those who won the lottery with those who did not win yields estimate of benefits of coverage. Despite claims that the Oregon experience provides solid evidence of quantifiable health and financial benefits associated with coverage expansions for a population of nonelderly adults, it is unclear where evidence exists in the RIA. Nor is evidence provided in case of uninsured adults with incomes above Federal Poverty Level. The only other evidence presented is a 2002 Institute of Medicine report that found insurance coverage improves health outcomes of insured.
2/5
Does the analysis adequately assess uncertainty about the outcomes?
HHS admits uncertainty in estimating impacts due to the unpredictable behavior of economic actors and because many variables contributing to decisions are not measurable including future income, changes in health risk and cultural norms. Regulation attempts to protect issuers, particularly QHP issuers, from the negative effects of adverse selection and to protect consumers from increases in premiums due to uncertainty for issuers. The RIA does not go into detail on how these issues might affect outcomes estimated in the RIA.
3/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
3/5
Does the analysis identify a market failure or other systemic problem?
The RIA states the number of uninsured Americans is rising due to unaffordable insurance, barriers to people with preexisting conditions, and high prices due to limited competition and market failures. The RIA does not explicitly discuss what these market failures are.
3/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
The RIA does not spell out what "market failures" exist, but indirectly suggests that uninsured individuals exert costs on others in the form of uncompensated health costs but curiously the RIA does not frame this problem as a negative externality and thus perhaps is not considering it a market failure. Its argument appears to focus on the fact that millions of people without health insurance use health care services for which they do not pay, shifting uncompensated cost of their care to health care providers. Providers pass much of this cost to insurance companies, resulting in higher premiums that make insurance unaffordable to even more people.
3/5
Does the analysis present credible empirical support for the theory?
Empirical support appears to be that there are "too many" uninsured citizens, but the RIA does not clearly present empirical support based on any theory or even discuss what an efficient level of insured citizens might be. There is no discussion of how many uninsured citizens choose to not purchase insurance even when they have financial means to do so.
2/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
The RIA does not present ranges on estimated numbers of uninsured citizens that apparently are uninsured due to "market failures" or other problems.
2/5
7. How well does the analysis assess the effectiveness of alternative approaches?
2/5
Does the analysis enumerate other alternatives to address the problem?
Alternative ways to operate Exchanges briefly discussed. Analysis vaguely discusses state flexibility for operation of Exchanges. States also have flexibility in determining how many Exchanges will cover a State’s service area. The State can join with other States to form a regional Exchange or operate a number of smaller, geographically distinct subsidiary Exchanges. Two alternatives are given fuller, though still scant, discussion: (1) uniform standard for operations of exchanges and (2) uniform standard for certifying insurance covered. Following a brief concluding summary, HHS states: "Given the advantages a State flexibility approach provides, we selected it over Alternatives #1 and #2."
4/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
Very narrow since they are all rely on implementation of the Affordable Care Act. Other ways of providing health care to citizens (e.g., single payer) are not discussed nor is there any discussion of attempting to deal with uninsured citizens who have means to purchase insurance but choose not to.
2/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
No quantitative assessment. There is a very short paragraph discussing effects of state flexibility on the federal budget, but this does not go into specific details.
2/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
No. The RIA mentions the future state of health care and its costs are uncertain, but does not integrate these issues into its discussion. Presumably, CBO uses a baseline in their estimates used within the RIA, but this is not clearly discussed in the RIA.
1/5
8. How well does the analysis assess costs and benefits?
2/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
Some costs of alternatives "identified," but not quantified. The RIA identifies administrative cost differences at p24.
2/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Outlays estimated over FY 2012 - FY2016 are divided into costs of requirements on Exchanges and on issuers of QHPs, costs for the reinsurance, risk adjustment and risk corridors programs. Not fully comprehensive analysis.
3/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
Estimates of cost reductions, but not comprehensive and ignoring possible price increases.
3/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
The RIA assumes proposed regulation will produce a slight decrease in employer-sponsored insurance, but HHS admits other analyses suggest increases.
2/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Two discount rates used, but no range of estimates attempting to deal with any other uncertainty.
2/5
Does the analysis identify the alternative that maximizes net benefits?
A simple Accounting Statement that is not even discussed concludes the RIA. Benefits are not estimated but are simply described. The Exchange will also serve as a distribution channel for insurance, reducing administrative costs and providing comparable information on health plans. Costs are estimated over 2012-2016.
2/5
Does the analysis identify the cost-effectiveness of each alternative considered?
Focuses on costs of alternative enrollment mechanisms.
1/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
Costs estimated without effort to determine who ultimately bears burdens (taxpayers, consumers or producers). Implicit assumption appears to be all citizens gain (lower insurance premiums, better public health), but not directly stated. Costs estimated for states expected to build new or modify existing information technology systems; administrative costs to support streamlined and coordinated eligibility and enrollment process. HHS believes overall administrative costs may increase in the short term as States build information technology systems; however, in the long-term, States will see savings through the use of more efficient systems.
3/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
While benefits are described (1) improve public health of citizens by expanding insurance coverage; (2) improve financial security of citizens by providing a safety net against the potentially high cost of medical care; (3) decrease uncompensated care costs of medical providers; and (4) decrease health insurance premiums), the assumption appears to be that previously uninsured citizens gain as well as all citizens. Differential assessment of benefits is not directly explored other than possible differences between small and large businesses.
3/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
No evidence the RIA influenced proposed rule. The RIA appears mandatory and was not intended to help design proposed rule.
1/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
HHS does not quantify benefits for proposed regulation (or any alternative) so it can't maximize net benefits. Costs are estimated but not for alternatives. The agency simply provided an "accounting statement" at the end of the RIA in which there is no discussion.
1/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
The RIA estimates there will be nearly 22 million people enrolled in Exchanges by 2016, and there will be 32 million fewer uninsured due to the combined impact of all the provisions of the Affordable Care Act. It is unclear exactly what such predictions might actually mean for public health or whether more insured citizens are entirely the result of the proposed rule. Insurance price changes could also be assessed, but again it is problematic to interpret how such changes correspond to the regulation given other possible factors that might affect future prices.
1/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
No discussion.
0/5
 
Total25 / 60

Additional details

Agency
Department of Health and Human Services
Regulatory Identification Number
0938–AR25
Agency Name
Department of Health and Human Services
Rule Publication Date
08/17/2011
Dollar Year
2011
Time Horizon (Years)
5