NBPP 2023 Part 6: PAPI, MLR, Proration & EDEs

The Affordable Care Act includes a long list of codified instructions about what's required under the law. However, like any major piece of legislation, many of the specific details are left up to the agency responsible for implementing the law.

While the PPACA is itself a lengthy document, it would have to be several times longer yet in order to cover every conceivable detail involved in operating the ACA exchanges, Medicaid expansion and so forth. The major provisions of the ACA fall under the Department of Health & Human Services (HHS), and within that, the Centers for Medicare & Medicaid (CMS)

Every year, CMS issues a long, wonky document called the Notice of Benefit & Payment Parameters (NBPP) for the Affordable Care Act. This is basically a list of tweaks to some of the specifics of how the ACA is actually implemented.

This morning, CMS issued the final NBPP for the upcoming 2023 Open Enrollment Period. Since there's so many provisions included, this year I've decided to break it into multiple posts which only focus on one or a few of them at a time:

(Note: QHP = Qualified Health Plan...basically, an ACA-compliant major medical policy available on an ACA exchange.)

Premium Adjustment Percentage and Payment Parameters

CMS issued the 2023 benefit year premium adjustment percentage, the maximum annual limitation on cost-sharing, the reduced maximum annual limitation on cost-sharing, and the required contribution percentage (payment parameters) in guidance on December 28, 2021[1], consistent with policy finalized in the 2022 Payment Notice (86 FR 24140).

I wrote an explainer about the Premium Adjustment Percentage Index (PAPI) last year. Basically, this is a complex formula which modifies how generous ACA exchange premium subsidies are, and which also impacts the maximum out-of-pocket expense ceiling for ACA enrollees each year. The PAPI increases or decreases slightly every year.

Prohibit Inclusion of Indirect Quality Improvement Activity (QIA) Expenses in Medical Loss Ratio (MLR)

CMS finalizes changes to specify that QIA expenses that may be included for MLR reporting and rebate calculation purposes are only those expenses that are directly related to activities that improve health care quality. Some issuers appropriately include only direct QIA expenses, such as salaries of the staff actually performing QIA functions, while others additionally allocate indirect expenses, such as a portion of overhead (including holding group overhead), marketing, office space, IT infrastructure (such as IT mainframes, which are primarily used to process claims), and vendor profits that have no traceable or quantifiable connection to QIA.

I've written several explainers about the ACA's Medical Loss Ratio (MLR) rule. In short, under the ACA, at least 80% of individual market premiums paid are legally required to go towards actual medical claims, leaving only up to a 20% gross margin for the insurance carriers. If a carrier falls below the 80% threshold (on a 3-year rotating basis), the difference has to be refunded to the policyholder in the form of a rebate. Over the years, billions of dollars in excess premiums have been rebated to millions of ACA enrollees.

This rule was included to help prevent price gouging. The idea is supposed to be that your premium dollars aren't being spent on junkets to Tahiti, marble stairways at the corporate headquarters and so forth. However, the rules for what types of expenses are allowed to be categorized as "healthcare services" are sometimes a bit fuzzy, so of course the insurance carriers do everything they can to lump as many expenses as possible into that field. The NBPP 2023 change cracks down on that sort of practice.

Advanced Payments of the Premium Tax Credit (APTC) Proration

CMS finalizes the proposed APTC proration methodology for Marketplaces using the federal platform, but does not finalize the requirement for State-based Marketplaces to prorate premium or APTC amounts using the methodology described in the proposed rule. Rather, beginning in the 2023 plan year, State-based Marketplaces will prospectively report to HHS their methodology for preventing payments of excess APTC when an enrollee is enrolled in a particular policy for less than the full coverage month. This reporting requirement will provide implementation flexibility to State-based Marketplaces while helping to prevent APTC overpayment that exceeds an enrollee’s premium tax credit, and thus will protect the enrollee from potentially incurring additional income tax liability.

This one actually surprises me a bit--I was always under the impression that even if you terminate your policy coverage part way through the month, you were still effectuated until the last day of that month. Apparently not, however. So, let's say you have a $1,000/month policy and you're receiving $600/month in APTC subsidies, but you terminate your policy halfway through the month. Since that $600 is credited at the beginning of the month, it sounds like right now, you might be on the hook to pay back half of it ($300) when you file your taxes the following spring. Apparently this provision is to help prevent that sort of thing from happening.

Finally, the last two items relate to 3rd-party ACA web brokers, otherwise known as Direct Enrollment or Enhanced Direct Enrollment (EDE) entities. EDEs are basically authorized private, 3rd-party versions of ACA exchange sites which have their back ends integrated directly into the federal ACA exchange. I actually have two EDEs as advertisers on this website (Health Sherpa and W3LL). There's nothing wrong with them...as long as they play by the rules; and CMS is strengthening some of those rules in good ways:

Require the Display of Explanations for QHP Recommendations on Web-Broker Websites

CMS finalizes changes to require web-broker websites to display a prominent and clear explanation of the rationale for explicit QHP recommendations and the methodology for default display of QHPs on their websites (for example, alphabetically based on a plan name, from lowest to highest premium, etc.) to ensure consumers are better able to make informed decisions and shop for and select QHPs that best fit their needs.

Prohibit QHP Advertising on Web-Broker Websites

CMS finalizes changes that will prohibit QHP advertising, or otherwise providing favored or “preferred placement,” in the display of QHPs, on web-broker websites based on compensation an agent, broker, or web-broker receives from QHP issuers.