Brave New World

By Arthur D. Postal

March 31, 2012 at 08:00 PM

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Health insurance agents are intensely examining the rules issued to implement the new health insurance law in order to exploit the opportunities for involvement in the brave new world the law creates.

The new "let's get down to work" attitude is gradually replacing the gloom-and-doom demeanor adopted by health insurance agents as to the future of their industry in the wake of enactment of the health insurance reform law in 2010.

Nothing exhibits this new attitude better than the reaction to the final and interim final rules published by the Obama administration March 12 designed to implement the health exchange system, which goes into effect in January 2014.

In its opening pages, the final rule explicitly states that, "health insurance issuers and agents and brokers are likely to play a significant role in the Exchange."

The rules allow agents and brokers to enroll qualified individuals in exchange plans through private agent/broker websites, as long as the websites meet certain criteria.

Under the final rule, states will also be allowed to:

• allow agents and brokers to assist qualified employers and employees (as well as individuals) in enrolling in exchange plans (known as "qualified health plans ("QHPs"), and in submitting applications for premium tax credits and cost-sharing subsidies to help individuals pay for their insurance

• allow agents and brokers to participate in the "Navigator" program that is specifically designed to educate the public about exchanges and assist with enrollment

• display information about agents and brokers on the websites that exchanges will be required to set up to serve as an access portal for the public

The final rule also allows agents and brokers to participate in exchange boards and directs exchanges to consult regularly and on an ongoing basis with agents and brokers, among other stakeholders.

Lawyers who perused the rule but who declined to be quoted by name noted that another topic of interest to agents, brokers, and employers is the effect that the exchange framework might have on adverse selection in employer-based plans.

One law firm which declined to be identified by name said that in response to comments received on this issue, HHS opted to extend the initial open enrollment period from Oct. 1, 2013 to March 31, 2014 (extended from February 28, 2014 in the Proposed Rule) for the individual and Small Business Health Options Program (SHOP) markets.

The final rule maintained a 53-day annual open enrollment period for individuals, but provides that the SHOP program must permit a qualified employer to purchase coverage for its small group at any point during the year.

The final rule also contains special enrollment periods for "life changes" akin to the special enrollment standards used in the employer-based plan context.

One legal analysis said that the final rule fails to address some major disputed provisions in PPACA. For instance, the final rule does not address essential health benefits, details regarding a federal exchange to be operated in states that opt not to run their own exchanges, or regulations for state-HHS partnership exchanges.

The Industry Approves

Joel Wood, senior vice president, government affairs, for the Council of Insurance Agents and Brokers, said that the CIAB was grateful that the regulations respect the role that brokers can plan in the development of exchanges.

In fact, he said, "the regulations were probably as positive as we could have imagined on that front."

That said, Wood added that there is nothing to compel the states to engage broker services. "We will have to be extremely vigilant as we enter into a critical stage of development as states race to have their exchanges certified by next year," he said.

At the same time, Wood said that the Council's substantive concerns about employee migration to exchanges have not changed.

"We believe the subsidy structure is unsustainable and threatens the employer-provided group health insurance marketplace," he said. "That's an underlying and deeply held political philosophy, not at all a reflection on the serious efforts made by Department of Health and Human Services' officials to execute the best rules governing exchanges."

Robert Miller, president of the National Association of Insurance and Financial Advisors, added that NAIFA was encouraged by the recognition for the role of the agent and broker.

He believed that the interim final rule which permits agents, brokers and private companies to sell coverage on the exchange to individuals and employers should be finalized. He added that state flexibility may result in more market-driven exchanges.

"NAIFA will continue to work with HHS to ensure maximum state flexibility is retained, and with the states to ensure all consumers have access to knowledgeable licensed professionals," Miller added.

Among other positives, Miller said that NAIFA is pleased that its recommendations to HHS—to ensure that consumers continue to have access to the professional services of licensed and trained agents and brokers—were incorporated into the regulations.

Miller said that NAIFA will continue to work with HHS to ensure that the interim final regulations, when finalized, allow a state to permit agents and brokers to assist qualified individuals in applying for exchange-based premium subsidies and cost-sharing reductions, "and will urge HHS to include a meaningful role for agents in federal and 'partnership' exchanges"

"Similarly," Mr. Miller added, "NAIFA will work with the states to help them create health insurance exchanges that incorporate a meaningful role for the agent."

Jessica Waltman, senior vice president of government affairs for the National Association of Health Underwriters, said that the group was pleased that agents and brokers are permitted to enroll independent of the Navigator program.

She said that NAHU always interpreted the Patient Protection and Affordable Care Act always interpreted PPACA as mandating that, but this clarifies it.

She cautioned that what remains open, however, is whether agents and brokers will be allowed to determine consumer eligibility for tax credits or cost-savings, or whether the exchanges will be the sole determinant of eligibility.

But, another legal analysis explicitly states that the final rule does not allow agents or brokers to determine eligibility for premium tax credits or subsidies, but agents and brokers may assist with the application process.

Waltman noted that the rules involving agent participation are interim final ones, with a 45-day comment period.

She said NAHU will concentrate in its comment letter on ensuring that this provision is proposed. "A priority will be ensuring that agents and brokers will be able to determine eligibility for cost-savings or subsidies," she said.

Charles Symington, senior vice president of government affairs for the Independent Insurance Agents and Brokers of America, added that the IIABA was encouraged by the administration's recognition of the important role agents and brokers play in the health care marketplace, and that the regulations give states at least the option of allowing consumers access to trained, professional, and accountable health insurance advisors.

"The irony is that meanwhile, consumer access is being severely restricted to these advisors by the administration's Medical Loss Ratio regulations," Symington said.

At the same time, he said the IIABA does have a number of initial concerns and questions regarding the handling of the Navigator programs in the exchanges.

"We will be seeking clarity on these issues in the near future," he said.

With Great Power Comes Great Flexibility

According to Beth Mantz-Steindecker John J. Leppard and Ira S. Loss of Washington Analysis, the rules provide great flexibility to the states to carve out a key role for agents and brokers.

Washington Analysis is a Washington think tank that provides research and analysis to buy-side securities analysts and brokers, i.e., those who serve the institutional market.

They said that the provisions related to the private market were stipulated on an interim final basis, meaning that the federal Department of Health and Human Services will review public comments and then determine whether to finalize them, alter them, or remove them.

"Given HHS statements concerning the ability of these entities to drive interest in an exchange, we doubt they are removed," the analysts said.

However, they added it is unlikely that private companies will be permitted to assess consumer eligibility for premium subsidies, cost-sharing arrangements, or other affordability programs.

"Compensation mechanisms for these entities will be determined by the state," the analysts said.

The analysts also said that with Republicans currently in control of the majority of state governments, and with most Democratically-controlled states placing an emphasis on initial insurer participation rather than restrictive control, "we think that this rule sets the framework for more market-driven exchanges than some have feared."

They cautioned that the regulation merely provides a regulatory floor, and that states are free to enact conditions of participation above and beyond those outlined by HHS.

"This could include limitations on the number of insurers permitted to offer plans via the exchange or even an active exchange model whereby exchanges "negotiate" premiums," the analysts said. "Still, the emphasis at this point remains on participation," Mantz-Steindecker, Leppard and Loss said.

Other sources said the functions that will be the responsibility of the states include certifying qualified health plans; operating a website for comparing plans; running a toll-free hotline for consumer support; providing grants to "navigators" to assist consumers; determining eligibility of consumers; and helping consumers enroll.

Other sources noted that certain elements will disappoint insurers and consumers. "Insurers, wanted less discretion for states," said PoliticoPro. "They wanted HHS to prevent exchanges from imposing requirements on plans in the exchanges beyond what is included in the health care reform law."

Another concern cited by PoliticoPro was that consumers wanted fewer insurers on the exchange board. "But under the new rules, up to half of a board can represent insurers," Politico Pro said.

However, the final rule, which goes into effect in mid-May, mandates that representatives of insurance issuers, agents, brokers, or others licensed to sell insurance may not constitute the majority of an exchange board.

Furthermore, at least one voting member of the board must be a designated consumer advocate.

The analysts said that states will be given broad discretion in devising methods to ensure that their exchange is financially able to perform all of its required functions.

"This will likely include some manner of user fees or assessments on participating issuers," the analysts said.

"While HHS encourages states to study the impact of various funding arrangements on risk selection, insurer participation, and provider contracting, the ultimate determination will be left up to the state," the analysts said.

"Any assessment collected by the exchange would be reflected in plan premiums and thus subject to rate review," they said.

The regulation finalizes the original start date of October 1, 2013 for the initial open enrollment.

But the Washington Analysis analysts said that HHS extended the effective close date to March 31, 2014 in what they see as a a positive development for insurers.

At the same time, exchanges must be either approved or conditionally approved by January 1, 2013, they said.

In keeping with the proposed rule, states able to demonstrate that their exchange is likely to be operationally viable by the initial open enrollment period will be eligible for conditional approval prior to January 1, 2013, the analysts said.

States failing to do so by that point will see HHS establish an exchange for them, the analysts said.

In recognition of this short timeframe, HHS has not pursued calls for public comment periods for state exchange applications, or so-called "exchange blueprints."

States seeking to establish an exchange after this time must have an approved or conditionally approved exchange in place at least 12 months prior to the first effective date of coverage, or January 1 of the prior year.

One legal analysis said that a "notable change" from the proposed rules permits agents and brokers to enroll qualified individuals in QHPs through private agent/broker websites.

If a website of an agent or broker is used to complete the QHP selection, the website must meet certain minimum requirements.

The private website must: meet all disclosure standards and QHP display requirements regarding standardized comparison information and accessibility (e.g., plain language and accessible, timely disclosures), provide consumers the ability to view all QHPs offered through the exchange; not provide financial incentives, such as rebates or giveaways; and display all QHP data provided by the exchange, these lawyers say.

The private website must also maintain audit trails and records in an electronic format for a minimum of 10 years; and provide consumers with the ability to withdraw from the process and use the exchange website instead at any time.

These lawyers note that all agents and brokers enrolling qualified individuals in QHPs or assisting individuals applying for advance payments of the premium tax credit and cost-sharing reductions must enter into and abide by an agreement with the exchange.

At a minimum, the lawyers say, the agreement must require agents and brokers to register with the exchange in advance of enrolling any individuals in QHPs; receive training regarding the range of QHP options and insurance affordability programs; and comply with the Exchange's privacy and security standards.

Agents and brokers enrolling or assisting individuals through the exchange must comply with all state laws related to agents and brokers, including laws related to confidentiality and conflicts of interest, these lawyers said.

Regarding the much-maligned Navigator program, a separate and distinct mechanism for providing education and assistance concerning the Exchanges, the final rule specifies that states may select licensed agents and brokers to serve as Navigators, one legal analysis says.

The exchanges are required to establish standards designed to prevent, minimize and mitigate any conflicts of interest that may exist for Navigators.

This analysis said that, according to the Final Rule, an agent or broker that participates as a Navigator would be precluded from accepting commissions or other payments from an insurer for enrolling companies or employees in exchange plans (although this prohibition does not extend to compensation received for activities associated with plans outside the exchange).

According to this analysis, Navigators will presumably be compensated through exchange grants but the final rule does not offer relevant specifics as to how the grant programs will operate or what the payments will be.

Therefore, this analysis cautions, "it is still an open question whether it would make sense, as an economic proposition, for agents and brokers to become Navigators."

This analysis said the provisions in the final rule "solidify the concept that a state can involve agents and brokers in the Exchange framework if a state so chooses," and any further decisions or requirements for agent/broker participation in the exchanges will be made at the state level.

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