John Conniff – Insurance Reform 2.0

Health Insurance Reform – Washington State

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Doctors may finally escape the FTC Red Flag Rules

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UPDATE: The House passed S. 3987 sending it to the President who is expected to sign the legislation before the Red Flag Regulations were to go into effect thus, exempting small businesses as explained below.

Want proof that persistence pays off? Want validation of government overreaching? Want confirmation that the system may work but not before a lot of time and money? Want to understand why some folks never bother to follow the rules? Look no further than the long and tortuous history of the Federal Trade Commission (FTC) Red Flag rules.

President Bush signed the Fair and Accurate Credit Transaction (FACT) Act in 2003. Among the many provisions was a requirement that the federal bank regulatory agencies and the FTC adopt regulations designed to prevent identity theft. Three years later, the agencies finally  issued proposed regulations. A year later in 2007, the agency actually adopted regulations.

The new regulations took effect in January 2008 but enforcement was delayed until November of 2008 to give affected parties time to comply. Lawyers began pointing out to their clients that a broad range of small businesses including potentially lawyers themselves met the regulatory definition of “creditor.” All hell broke loose.

The FTC had described the broad reach of the rule:

“Under the Rule, the definition of “creditor” is broad, and includes businesses or organizations that regularly provide goods or services first and allow customers to pay later. Examples of groups that may fall within this definition are utilities, health care providers, lawyers, accountants, and other professionals, and telecommunications companies.” Red Flag FAQ

Many different groups pointed out that the last thing businesses or health care professionals needed was yet another “HIPAA” style regulatory regime layered on top of the standards already in place to protect privacy. Others argued that the cost of compliance and the cost of failing to comply would force many small businesses to reconsider any credit or delayed bill payment for customers. Feeling the heat, the FTC postponed enforcement of the rules until May of 2009.

As different groups learned about the Red Flag rules, the political environment got even hotter. FTC suggested that Congress made a mistake in writing the statute too broadly and FTC postponed the rules again until August of 2009 so Congress could fix the mistake. But, we know how efficient Congress can be. Nothing happened. So the FTC postponed the rules again until November 2009.

Fed up, the American Bar Association filed a lawsuit in August 2009 to prevent application of the rules to lawyers. Two months later, the lawyers won and a federal court agreed that the FTC had gone too far. Given the ongoing failure of Congress to fix the problem, lawsuits became the accepted method of prevention with lawsuits by accountants and then doctors. Of course, the legal process is not much faster and the ABA decision was just argued in federal appellate court a few weeks ago.

In October of 2009, the FTC postponed the Red Flag rule enforcement until the following June 2010 noting a request by Congress to give Congress time to act. Of course, nothing happened and Congress asked the FTC to delay enforcement again and the FTC obliged setting a December 31, 2010 deadline.

After seven years, Congress may actually adopt the amendments that limit the reach of the Red Flag rules. On December 1st, S. 3987 was sent from the Senate to the House amending the Fair Credit Reporting Act to limit the application of the Red Flag rules. Senators Thune and Dodd described in a colloquy that the legislation:

“The legislation also makes clear that lawyers, doctors, dentists, orthodontists, pharmacists, veterinarians, accountants, nurse practitioners, social workers, other types of health care providers and other service providers will no longer be classified as “creditors” for the purposes of the Red Flags Rule just because they do not receive payment in full from their clients at the time they provide their services, when they don’t offer or maintain accounts that pose a reasonably foreseeable risk of identity theft.”

Now here we are weeks before the expiration of the latest delay in enforcement of the Red Flag Rules hoping that by 2011 and after eight years, lawyers and doctors will have finally convinced federal regulators and Congress that new privacy rules should not be added on top of old privacy rules.

Did I mention that the legislation hasn’t cleared the House yet? Did I mention they’re anxious to go home for the holidays or that House Republicans are busy measuring new drapes?


Ten years is not a long time…Reform revisited

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I came across this video the other day and besides noting how much better I looked ten years ago, I was surprised at how much government tends to repeat insurance reform mistakes. The video is a taped interview with the now defunct Seattle Post Intelligencer newspaper editorial board. The video could have been recorded yesterday and I would be saying the same thing. Watch and judge for yourself.

Health Care Reform in Washington – 2000 (8mb file download)


More Grandfathers – Old Plans with New Insurers

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In a positive change that will add some confusion where confusion is king, federal agencies (HHS, DOL, and IRS) today announced a change to “grandfathering” rules for group health plans under health care reform.

Long rumored, the amendment to the interim final regulations governing “grandfathered” health plans permits a group to change insurers but keep grandfathered coverage so long as the change from one insurance company to another does not violate the other grandfathering rules such as limits on cost sharing increases. While this is good news, figuring out the impact is a little harder and the change is too late for some employers.

The agencies decided that the amendment was necessary for four reasons. First, the regulations discriminate against fully insured plans because self-insured plans may change administrators without a risk to grandfathered status. Yes, this is discriminatory in name but plan regulations routinely differentiate between fully funded and self-funded plans and for some fairly substantial reasons, e.g. the plan can literally remain the same despite changes in administration while changing insurers almost always result in some level of benefit change.

Second, an insurer can decide not to issue the grandfathered coverage anymore forcing the employer out of grandfathered coverage. Of course, this happened routinely across the nation in the past several months as insurers decided not to be bothered administering two tracks of coverage – fully reformed and grandfathered. Ironically, these businesses are still stuck as they can’t go back because the amendment is prospective only.

Third, the agencies were concerned that issuance of a new policy for technical reasons by the insurer would be prevented by the grandfather regulations. This is an interesting observation by the agencies responsible for the interim final rules. In other words, even if coverage remained the same with the same insurer but with a different policy number or different content style, the grandfather status of the group was in question. The fact that this observation counts as a reason to amend the regulations suggests the fundamental problem with the whole topic. Grandfathered status has become a complex analysis much like the availability of a tax deduction with accelerated depreciation.

Fourth, the existing rules give insurers too much power over business purchasers of health coverage. Allowing the insurer to force the group into accepting price increases or losing grandfathered coverage thwarts price competition. This is the strongest reason to permit groups to switch carriers and still maintain the same coverage; however, the employer must still convince the new insurer to issue similar coverage and insurers will have to figure out how to accommodate this type of product competition. While group coverage follows basic trends in benefit design and delivery (PPO/HMO and high deductible/low deductible), there remain significant differences among the various plan options available in the market with often simple differences creating substantial benefit differences such as in the definition of key terms.

Again, these differences underscore the difficulty for producers and employers attempting plan changes without jeopardizing grandfather status. Frankly, health care reform would have been far easier if the regulations waited until 2014 or the regulations applied across the board without differentiation. For example, reform might have applied the changes to lifetime and annual limits but delayed new benefit mandates.

The amendment to the grandfathered plan regulations do not apply to plans whose effective date for coverage fell between March 23rd and November 15th.

 “…if a group health plan (including a group health plan that was self-insured on March 23, 2010) or its sponsor enters into a new policy, certificate, or contract of insurance after March 23, 2010 that is effective before [INSERT DATE OF FILING FOR PUBLIC INSPECTION], then the plan ceases to be a grandfathered health plan.”

 ”Therefore, for example, if a plan enters into an agreement with an issuer on September 28, 2010 for a new policy to be effective on January 1, 2011, then January 1, 2011 is the date the new policy is effective and, therefore, the relevant date for purposes of determining the application of the amendment to the interim final regulations. If, however, the plan entered into an agreement with an issuer on July 1, 2010 for a new policy to be effective on September 1, 2010, then the amendment would not apply and the plan would cease to be a grandfathered health plan.”

But, since there is a “safe harbor” for changes made before June 14, then the amendment does not apply to plans with effective dates between June 14 and November 15 –  [e.g. §2590.715-1251 (g)(vi)(C)(2)(ii) (yes, that is a citation to a single regulatory clause)]. So, if a train traveling from Philadelphia at 90 mph passes a train coming from Detroit at 80 mph, what will we be having for dinner? Explain and diagram your answer.

Therefore, employers who have been told by their insurer that the insurer will no longer offer “grandfathered” coverage can look for new coverage with another insurer substantially similar to existing coverage and continue their grandfathered status. But, employers who have already fallen into that hole because the coverage was already renewed with an effective date prior to November get to stay in the hole. The agency amendments help those who have already secured and continue to maintain grandfathered coverage. For those groups on the margin, get a better calculator – you will need it.

The agencies have asked for comments on this new amendment to the interim final rules governing grandfathered coverage. I have a feeling that those comments will be arriving with the new Congress.


The Arc of Reform – the Two Washingtons

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Today’s elections will determine the future of federal health care reform. No matter what the actual outcome in terms of numbers of seats changing party or initiatives adopted, voters will communicate at least the discomfort with and uncertainty about reforms. Whether the reforms withstand the election depends upon how well the reforms are re-calibrated to reflect the realities of insurance markets. In my view, the greatest weakness of these reforms was that too many were asked to do too much too soon.

When I began this blog shortly after Congress adopted a comprehensive health care reform measure, I noted that Washington State had attempted similar reforms in the early 1990s and faced a political backlash resulting in a political change of control and a gradual dismantling of these reforms. But even with repeal of most of the reforms, Washington State remains one of the most “reformed” health insurance markets in the United States. Republicans retained many of the “patient protections” and market access reforms favored by the public.

When Washington D.C. got around to its reform in March, many of the “patient protections” and “market reforms” mirrored those already existing in Washington the state. The federal reforms require changes in Washington State markets that in many instances make no significant improvement such as those governing independent review of health plan claim denials. Few issues reflect the impact of preemptive and premature federal reform than the ping pong game being played over Washington’s association health plans.

Recall that Washington’s Insurance Commissioner has regulated association health plans as large group plans for nearly 15 years. 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 in March, the Commissioner advised that state rules governing association plans would continue. The Commissioner crafted a response to federal reform that followed a logical progression and implementation appropriate to the state’s historic regulation of association plans. A few weeks ago, employees of HHS informed the Commissioner that his approach was not permitted under the federal reforms and that each association was not a large group but rather a collection of small group plans each separately regulated.

However much sense this analysis makes in academic terms, the real affect was immediate. Small employers were told that their “grandfathered” coverage was no longer “grandfathered”; associations were advised to develop two sets of plans (reformed and grandfathered); insurers were told to expect reporting requirements that fractured the current large group reporting of association data into a mélange of large and small group and individual plans; and loss ratio requirements would be imposed based upon association member size. Naturally, all hell broke loose.

Being elected, the Washington Commissioner was not willing to simply accept the advice and soldier on without sharing the political burden. He sent a letter requesting that HHS “own” the advice and the HHS interpretation of federal reform of association health. How do you think HHS responded before a major election? Crickets.

Even worse, HHS called and advised the Commissioner that they needed more time to think things over. The Commissioner was left dangling in the wind. At a scheduled meeting to discuss association health plan regulatory transition, the Commissioner’s office advised association plans to go about their business as though the earlier announcements had not occurred.

Whether or not you have a “dog in this hunt”, the past month’s regulatory whiplash is symptomatic of federal reform so far. You cannot ask for the creation of new agencies with new tasks due nearly as soon as the people are hired and expect an entire industry to integrate systemic changes in months in a system that operates on an annual basis. You cannot expect state regulatory agencies to set aside their daily duties while they shotgun new rules into a market already in turmoil with unemployment, recession, and ever increasing health care costs.

The strangest fact about today – Election Day – is that I am more comfortable predicting votes and election outcomes than I am of providing reliable legal advice to clients about the future of health plan regulation. Nothing breeds fear and opposition more than uncertainty. Washington State took less time to undo health care reform than was taken crafting reform; the other Washington appears to be headed down the same path for the same reasons.