Washington State has regulated association health plans as large group plans for nearly 15 years. Washington State carved out a unique position in the health insurance market for trade associations back in 1995. An example of this carve-out originating when the state’s 1993 health care reform act was dismantled provides:

Employers purchasing health plans provided through associations or through member-governed groups formed specifically for the purpose of purchasing health care are not small employers and the plans are not subject to [rules governing small group insurance rates].

That means large group rate filings, large group plan design, and treatment of association member employers as “beneficiaries” entitled to equal treatment by the association plan. It also means that methods for pricing, management, and reporting of plan benefits follow large group patterns.

After adoption of the federal reforms, the Insurance Commissioner requested guidance from HHS on the regulatory status of association health plans under the new federal reform. Similar regulatory issues related to associations arose with passage of the earlier federal HIPAA standards governing small group plans. This time, HHS could not decide what to do and Washington State has maintained the regulatory status quo in regulating association plans as “large group” plans.

Last week, HHS issued final rules for the oversight of health plan rates. The new rules require states to review individual and small group rates filed or effective after September 1, 2011 (the proposed rules called for an earlier July 1st effective date which Washington State adopted enacted in conforming legislation). The new rules do not apply to grandfathered health plans.

Apart from the new rate increase summary that carriers must prepare for consumer disclosure, the HHS rules do appreciably affect Washington insurance rate regulation; since, Washington has long regulated individual and small group rates. Indeed, the very purpose of the 1995 exception for association health plans was to avoid application of state small group rate standards for these plans. The big news is that HHS has finally decided to address the status of plans issued by associations.

In its final rule, HHS noted the large number of comments relating to the regulatory treatment of association health plan rates. Rather than wade in and simply define association plans as “individual” or “small groups”, HHS has requested comments by July 18, 2011 regarding the definitions of “individual market” and “small group market” in relation to coverage obtained through associations.

We generally deferred in the proposed rule to the State definitions of individual and small group markets. In response to the proposed rule, we received comments indicating that, in some States, association coverage is considered to be large group coverage, resulting in individual and small group coverage sold through associations not being subject to the rate review process. We considered amending the definitions of individual market and small group market for the final rule in order to include all individual and small group coverage in the rate review process. However, since including all individual and small group coverage sold through associations in the rate review process could have a large impact on the markets in some States, we are incorporating the proposed definitions of individual market and small   group market into the final rule and solicit additional comments on this issue, with the possibility of amending the final rule after receiving comments in order to include coverage sold through associations in the rate review process. [Fed. Reg. Vol. 76, No. 99, page 29984]

Below are the questions for which HHS is seeking information:

1. Do States currently review rate increases for association and out-of-State trust coverage sold to individuals and small groups, regardless of whether the policies are sitused in or outside of their States?

2. How many such rate filings do States receive for association and out-of-State trust coverage?

3. How prevalent are association and out-of-State trust coverage arrangements? What percentage of individual market and small group market business is sold through associations and out-of-State trusts?

4. In which States is association and out-of-State trust coverage commonly purchased by individuals and small groups? Where are out-of-State trusts typically sitused?

5. Why do some individuals and small employers purchase coverage through associations and out-of-State trusts rather than the traditional markets? Are there particular groups of individuals or types of small employers that typically purchase coverage through associations and out-of-State trusts? What organizations (other than issuers) typically sponsor, endorse, or market association and out-of-State trust arrangements?

6. How do rate increases for association and out-of-State trust coverage sold to individuals   and small groups compare to rate increases in the traditional market? What explains the differences (if any) between rate increases for association and out-of- State trust coverage and traditional market coverage?

Although HHS is seeking public comment, they have indicated a predisposition to including association health plans in the rule and overriding state treatment of associations as large group:

Given the comments received and our policy goals with regard to rate review, we are inclined to amend the definitions of individual market and small group market in § 154.102 to include coverage sold to individuals and small groups through associations in all cases… If we were to amend the definitions of ‘‘individual market’’ and ‘‘small group market’’ in § 154.102 to include individual coverage and small employer coverage sold   through associations in the rate review process, the amendment will only be applied prospectively. [Page 29965-66]

I would naturally expect that the HHS response to the public comments on whether to regulate association health plan rates as individual or small group will set the direction for all other association plan regulations. Comments may be sent as follows and must be received by 5 p.m. EST on July 18, 2011:

You may submit comments in one of four ways (please choose only one of the ways listed):

  1. Electronically. You may submit electronic comments on this regulation to:  http://www.regulations.gov. Follow the instructions under the ‘‘More Search Options’’ tab.
  2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services,Department of Health and Human Services,Attention:CMS–9999–FC, P.O. Box 8010,Baltimore, MD 21244–8010.
  3. By express or overnight mail. You may send written comments to the following address only:Centers for Medicare & Medicaid Services,Department of Health and Human Services,Attention: CMS–9999–FC, Mail Stop C4–26–05, 7500 Security Boulevard,Baltimore, MD 21244–1850.
  4. By hand or courier (see the instructions in the final rule) [page 29964].
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