Pre-Existing Condition Insurance Plans: Program Features, Early Enrollment and Spending Trends, and Federal Oversight Activities
Published: 2011-07-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Individuals applying for health insurance are often denied coverage due to a pre-existing condition. The Patient Protection and Affordable Care Act appropriated $5 billion to create a temporary pool--known as the Pre- Existing Condition Insurance Plan (PCIP) program--to provide access to insurance for such individuals until new protections take effect in 2014. Twenty-seven states opted to run their own PCIPs, while 23 states and the District of Columbia opted to let the Department of Health and Human Services (HHS) run the PCIPs for their residents. Initial projections of total enrollment varied from 200,000 to 375,000, and questions have been raised about funding, implementation, and oversight of this new program. GAO examined (1) PCIP features, premiums, and criteria for demonstrating a pre-existing condition, (2) trends in PCIP enrollment and spending, including administrative costs, and (3) federal oversight activities. GAO reviewed PCIP benefits and rates; interviewed officials from selected state PCIPs, HHS, and the Office of Personnel Management (OPM), which assists HHS in administering aspects of the federally run PCIP; analyzed data provided by HHS and OPM; and examined contracts and interagency agreements. In its comments, HHS emphasized its recent efforts to increase enrollment and provided technical comments, which GAO incorporated as appropriate.
section_title: What GAO Found
paragraphs: State- and federally run PCIPs generally had similar cost sharing arrangements, although other features varied. Most states had annual deductibles falling within $1,000 to $2,999, with out-of-pocket limits at or near $5,950. Coverage limits were common but varied, both in terms of the benefits affected and the extent of the limits. Monthly premiums ranged considerably--from $240 in Utah to $1,048 in Alaska for a 50-year-old enrollee--and were generally lower in the federally run PCIP. Additionally, applicants in the federally run PCIP generally had fewer options to demonstrate a pre-existing condition--a criteria of program eligibility-- than did those in the state-run PCIPs. Enrollment and spending for state- and federally run PCIPs have been significantly lower than initial projections. As of April 30, 2011, enrollment had exceeded 21,000, ranging from 0 in one state to nearly 3,200 in another state. Factors contributing to low enrollment include the statutory requirement that enrollees be uninsured for 6 months prior to applying; premiums that may be unaffordable to many; and a lack of PCIP awareness. In response, HHS reduced premiums in the federally run PCIP states and increased its outreach efforts in 2011. Spending was also lower than projected--about 2 percent of total program funding had been spent, or about $78 million by state-run PCIPs and $26 million for the federally run PCIP. To provide for program oversight, HHS established contracts with states and the carrier selected to provide benefits for the federally run PCIP, which include numerous provisions to ensure program requirements are met. For example, the contracts require regular reporting of expense and enrollment data, and annual completion of independently audited financial reports. Also, HHS and OPM are engaged in ongoing oversight activities, such as reconciling the reported data, and HHS intends to conduct performance audits in the future.

section_title: Letter
paragraphs: Those applying for health insurance in the individual markets of most  states are often denied coverage or may be charged significantly higher  premiums if they have a pre-existing medical condition. The Patient  Protection and Affordable Care Act (PPACA), which became law in March  2010, appropriated $5 billion toward the creation of a temporary federal  high-risk pool, known as the Pre-Existing Condition Insurance Plan  (PCIP) program. The PCIP program provides access to insurance for  individuals unable to acquire affordable coverage due to a pre-existing  condition. States were given the option to run their own PCIP with  federal funding, or to allow the Department of Health and Human  Services (HHS) to administer the PCIP in their state. Twenty-seven states  elected to administer a PCIP for their residents, while 23 states and the  District of Columbia opted to allow HHS to administer their PCIPs. In  order to implement various provisions of PPACA, including the PCIP  program, HHS created the Center for Consumer Information and  Insurance Oversight (CCIIO) in April 2010. PCIP enrollment began as  early as July 2010, and all PCIPs will run until December 31, 2013, after  which, the enrollees will be able to transition to a plan under their state’s  new health insurance Exchange.
Early estimates of the number of people the PCIP program could cover  varied. Before the program was implemented, the Congressional Budget  Office estimated the program could cover an average of 200,000  individuals each year with the $5 billion appropriation. The Office of the  Actuary within the Centers for Medicare & Medicaid Services (CMS)  projected enrollment of 375,000 by the end of 2010 and that funding  would be exhausted by 2011 or 2012. Concerns were raised that the  number of individuals potentially eligible for this program may be  significantly more than its capacity to serve them. Also, given the new  and unique nature of this federal program, there was uncertainty about  whether there would be differences in the implementation or  administration of the state- and federally run PCIPs, and an interest in  ensuring appropriate oversight of the PCIPs.
Because of these questions, you asked us to examine several aspects of  the PCIP program. In this report, we describe:  1.  PCIP features, premiums, and criteria for demonstrating a pre-existing  2.  trends in enrollment and spending, including administrative costs, for  state- and federally run PCIPs; and  3.  federal oversight of the PCIP program.
To describe the PCIP benefits, cost sharing features, premiums, and  criteria for demonstrating a pre-existing condition, we obtained 2011 PCIP  benefit summaries and premium rate tables through the federal PCIP web  sites and individual state PCIP web sites. In addition, we interviewed  officials from HHS and the Office of Personnel Management (OPM),  which is assisting CCIIO in the administration of the federally run PCIP.  We also interviewed PCIP officials from eight states. We selected states  with varying levels of enrollment based on data available in November  2010. We also included states that did and did not have an existing state  high-risk pool (HRP). (See table 1.)
To describe the enrollment and spending trends among the state- and  federally run PCIPs, we obtained enrollment data as of April 2011 from  HHS’s web site, states’ unaudited monthly reports from July 2010 through  March 2011, and PCIP financial information from CCIIO. We also  obtained enrollment and financial data from OPM for the federally run  program covering the same period. To assess the reliability of the  enrollment and spending data, we discussed with agency officials the  steps taken by CCIIO and OPM to ensure data accuracy and  completeness, and conducted our own logic testing, such as verifying  internal agreement within a data source. We determined that the  enrollment and spending data were sufficiently reliable for our purposes.  We also discussed the enrollment and spending trends with officials from  HHS, OPM, and the eight selected states. Because of the unaudited  nature of the data, and because the data represent less than 1 year of a  newly established program, we do not make conclusions about long-term  program enrollment and spending trends.
To describe the federal oversight of the PCIP program, we reviewed key  documents from CCIIO, OPM, and state-run PCIPs. These documents  included state- and federally run PCIP proposals and contracts;  interagency agreement documents between HHS, OPM, and the National  Finance Center (NFC); the HHS request for proposal for selecting an  insurance carrier for the federally run PCIP; and the PCIP regulations as  promulgated by HHS. In addition, we discussed planned and actual  oversight activities with officials from HHS, OPM, and the eight selected  states. We conducted this performance audit from November 2010  through June 2011 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: PPACA required HHS to establish the PCIP program within 90 days of  enactment and set forth requirements for eligibility, coverage, and  premiums. For example, PPACA limited PCIP enrollment to those who  have a pre-existing condition and have been without creditable  coverage for at least 6 months prior to application. This requirement  effectively prevents enrollment by those who were already insured, thus  limiting the program to those who have likely been unable to access  insurance because of their pre-existing health condition. PCIP programs  may not impose waiting periods for coverage based on the enrollee’s pre- existing condition, and plan benefits must cover at least 65 percent of the  cost of coverage without exceeding a statutory out-of-pocket spending  limit, which was $5,950 for an individual in 2010 and 2011. PPACA  required PCIP premiums to be set at 100 percent of the standard rate for  a standard population in each state or market, and the premiums may  vary only on the basis of age—by no more than a 4 to 1 ratio— geography, and smoking status.
The PCIP program was generally modeled after existing HRPs, but with  some important distinctions. For example, unlike PCIPs, state HRPs do  not require that individuals be without coverage for 6 months to be  eligible. Once enrolled, however, many HRPs impose waiting periods of   6 to 12 months for coverage of the pre-existing condition, while PCIPs  have no waiting periods. Also, there is no federal limit on out-of-pocket  expenses in existing HRPs. Finally, whereas PCIP premiums are limited  to the standard rate in each state, existing HRPs typically offer premiums  ranging from 125 to 200 percent of the standard rates available in their  states.
To begin implementing the PCIP program, CCIIO determined states’  funding allocations and issued regulations. In April 2010, CCIIO  determined a state-by-state allocation of the total $5 billion PCIP  appropriation, and asked states to indicate their interest in administering  their own PCIP by April 30. The initial allocations were based on a  formula similar to that used for the Children’s Health Insurance Program  with factors that reflected each state’s population, number of uninsured  individuals under age 65, and a geographic health care cost factor.  CCIIO issued an interim final rule on July 30, 2010 to provide further  guidance on PCIP program requirements, although it allowed state-run  PCIPs some flexibility in how they operated their programs. For  example, CCIIO identified options PCIPs may allow for applicants to  demonstrate their pre-existing conditions, such as documentation of  coverage denial by another carrier, an offer of coverage with a rider  excluding a pre-existing condition, or a diagnosed medical condition or  health condition approved by the state. The rule also prescribed that  eligible individuals who submitted their complete applications before the  fifteenth day of the month must be covered on the first day of the  following month. All PCIPs were required to cover certain categories of  services, such as physician and hospital services, mental health and  substance abuse services, skilled nursing and home health care,  preventive and maternity care, and prescription drugs.
For the 27 states that chose to administer their own PCIPs, HHS directly  contracted with states or their designated nonprofit entities, and obligated  funds for calendar years 2010 and 2011. The contracts established that  HHS would reimburse states or their designated entities for claims and  administrative costs incurred in excess of the premiums they collected.  HHS also established a limit on administrative costs of no more than   10 percent of each state’s total spending over the lifetime of the program.  The contracting process for states could also involve the selection of  subcontractors to provide services, such as claims processing, pharmacy  benefits management, or disease management. Two state-run PCIPs  began coverage in July 2010, 9 states began coverage in August 2010,  12 states in September 2010, and the remaining 4 states in October  2010.
To implement the federally run PCIP for the 24 states that opted not to  administer their own PCIP, HHS coordinated with other federal agencies  and selected the Government Employees Health Association, Inc.   (GEHA) to administer the coverage benefits in these states. In 2011,  HHS offered three plans through GEHA—the Standard, Extended, and  Health Savings Account (HSA) plans. To assist with the administration  of the federally run PCIP, CCIIO established interagency agreements with  two federal agencies—OPM and NFC—that had experience  administering the Federal Employees Health Benefits Program. Under  these agreements, OPM manages the daily operations with GEHA and  NFC, and NFC performs administrative functions pertaining to eligibility  determination and premium collection. GEHA was awarded a cost-plus- award fee contract, which established that HHS would reimburse GEHA  for claims and administrative costs in addition to granting fixed and  performance-based award fees. Moreover, the agreements with OPM  and NFC established that HHS would reimburse the administrative costs  incurred by the two agencies. HHS began taking applications in July  2010, and coverage began in August 2010 in 21 states, in September  2010 in 2 states, and in October 2010 in 1 state. (See fig. 1.)
The interim final rule set forth additional requirements for both state- and  federally run PCIPs providing CCIIO the means to oversee the program  and to promote its efficient and fair operation. For example, the rule  requires PCIPs to establish procedures to identify and report instances of  fraud, waste, and abuse, as well as cases of “insurer dumping”—that is,  insurance carriers or employers discouraging high-risk individuals from  remaining enrolled in their coverage so that they may instead enroll in a  PCIP program. In addition, state-run PCIPs operating in states that had  an existing HRP were subject to a maintenance of effort provision, which  required these states to maintain funding for the existing pool. Provisions  relating to maintenance of effort and other requirements were included in  contracts signed with states and nonprofit entities administering the  PCIPs.
section_title: PCIPs Generally Had Similar Cost Sharing, but Varied in Coverage Limits, Premiums, and Criteria for Demonstrating Pre- Existing Conditions
paragraphs: Health insurance plans offered by state- and federally run PCIPs  generally had similar cost sharing features. Other PCIP features varied  across states, such as coverage limits, premiums, and the criteria for  demonstrating that an applicant had a pre-existing condition.
subsections: section_title: PCIPs Generally Had Similar Cost Sharing Features
paragraphs: Health insurance plans offered by state- and federally run PCIPs had  similar cost sharing, including annual deductibles and out-of-pocket  maximums. For example, the most popular plans available in most states  had annual deductibles ranging from $1,000 to $2,999, out-of-pocket  maximums at or near the legal maximum of $5,950, and coinsurance of  20 percent. (See table 2.) In 2011, the 27 state-run PCIPs collectively  offered 49 plans—15 out of the 27 states offered a single plan, 5 states  offered 2 plans, and 7 states offered more than 2 plans. HHS offered   3 plans in the 24 federally run PCIP states—known as the Standard,  Extended, and HSA plans. See appendix I for PCIP cost sharing  features by state.
In 2011, almost all state- and federally run PCIPs had coverage limits for  some benefits; however, the selected benefits and the extent of coverage  limits varied. (See fig. 2.) Most PCIPs imposed limits on skilled nursing,  home health, and therapy services. For example, coverage limits for  skilled nursing services in the state-run PCIPs ranged from 30 days to  180 days per year in Utah and Oklahoma, respectively. The federally run  PCIP limited skilled nursing charges to $700 per day for up to 14 days  following an acute inpatient discharge. Limits on home health services  ranged from 25 visits per year in the federally run PCIP states to 270  visits per year in Alaska’s, Arkansas’, and Illinois’ state-run PCIPs. Most  state-run PCIPs (17 out of 27) imposed coverage limits for mental health  and substance abuse services, whereas the federally run PCIP did not  have any limits for these services. For example, in California’s state-run  PCIP, adult enrollees were limited to 10 inpatient days and 15 outpatient  visits per year for mental health disorders, and up to 20 visits per year for  outpatient alcohol and drug treatment. Additionally, the federally run PCIP  and 13 state-run PCIPs did not impose any lifetime dollar limits, whereas  14 state-run PCIPs had lifetime limits ranging from $1 million to $5 million.  In addition to these common coverage limits, some state-run PCIPs also  imposed limits on professional services, durable medical equipment, and  hospital inpatient services.
Premiums among PCIPs varied by age, state, and plan type, and  premiums were on average higher among state-run PCIPs compared with  the federally run PCIP. (See fig. 3.) As of June 2011, the average monthly  premium for a 50-year-old person was $407 across all states, ranging  from $240 in Utah to $1,048 in Alaska. Monthly premiums among  state-run PCIPs were 19 percent higher, on average, than the average  premium for the same enrollee in the federally run PCIP Standard plan— $440 per month for a 50-year-old person compared to $370,  respectively. In 2010, however, average premiums among state-run  PCIPs were 5 percent lower compared to the federally run PCIP—  $431 per month versus $455.
Eleven state-run PCIPs charged higher premiums for smokers, and seven  state-run PCIPs varied premiums by geographic regions within the state.  Conversely, the federally run PCIP did not vary premiums by smoking  status or geographic regions within states. Furthermore, in developing  their standard rates, state-run PCIPs typically based their rates on a  survey of top insurance carriers in their states, whereas HHS and OPM  calculated the rates for the federally run PCIP states based on premiums  charged by existing state HRPs. See appendix II for the premium rates  for the most popular PCIPs by state.
Until July 1, 2011, applicants for the federally run PCIP generally had  fewer options available to demonstrate their eligibility based on a pre- existing condition than did those in the state-run PCIPs. In the federally  run PCIP, applicants could demonstrate the criteria by providing  documented evidence in one of two ways: (1) a denial letter indicating  refusal of coverage by an insurance carrier; or (2) an offer of insurance  with a rider that excluded coverage for a pre-existing condition.  Additionally, within the federally run PCIP, all children under age 19 had  the option to provide documented evidence of an offered plan with  premium rates at least twice that of the PCIP Standard plan premium  rates offered in their respective states. On May 31, 2011, HHS  announced in a news release that beginning July 1, 2011, applicants  could demonstrate their pre-existing condition by providing a letter from a  health care provider dated within the previous 12 months documenting a  current or past diagnosed medical condition.
In contrast, most state-run PCIPs have allowed three options to  demonstrate a pre-existing condition since their inception. Similar to the  federally run PCIP, most state-run PCIPs allowed applicants to document  their pre-existing condition by submitting a notice of denial or an offer of  coverage with a rider excluding the condition. In addition, 24 state-run  PCIPs allowed applicants to provide documentation from a health care  provider of a medical condition on the state’s pre-existing condition list.  Additionally, seven states accepted evidence of an offered health plan  with premiums higher than the PCIP premiums available to the same  applicant in those states. Considering the four options above, 20 states  accepted at least three options, including 5 states that accepted all four  options for demonstrating a pre-existing condition. (See fig. 4.) See  appendix III for the criteria allowed for demonstrating a pre-existing  condition in each state.
section_title: PCIP Enrollment and Spending Remain Significantly Lower Than Initial Projections, Though Enrollment Has Increased Steadily
paragraphs: As of April 2011, enrollment in state- and federally run PCIPs was  significantly lower than projected, though it has increased steadily. To  increase awareness of the program, HHS and states have undertaken a  variety of outreach efforts. Consistent with the low enrollment, spending  has also been lower than projected.
subsections: section_title: PCIP Enrollment Remains Lower Than Projected but Has Increased Steadily
paragraphs: Early PCIP enrollment has been significantly lower than initially projected.  By November 2010, after about 4 months of coverage, total PCIP  enrollment was about 9,000, and increased to nearly 21,500 by April  2011, ranging from 0 in Vermont to nearly 3,200 in Pennsylvania. Initial  projections of average monthly enrollment made in 2010 were about  71,500 for state-run PCIPs and about 78,000 for the federally run PCIP.  As of April 30, 2011, actual enrollment totaled about 15,800 in the state- run PCIPs and about 5,700 in the federally run PCIP. (See fig. 5.) This  represents 5.6 people per 10,000 uninsured living in the 27 state-run  PCIP states and 2.5 per 10,000 uninsured living in the 24 federally run  PCIP states. Enrollment in PCIPs was evenly split between males and  females and the majority of enrollees were age 45 or older. See  appendix IV for additional information on state-level PCIP enrollment.
We found that lower than expected enrollment may be attributed to five  factors: (1) the statutory requirement that applicants be uninsured for   6 months prior to applying, (2) affordability concerns, (3) a lack of  awareness about the program, (4) the processes used for determining  eligibility, and (5) existing state laws or state-supported health insurance  programs.  1.  Statutory requirement that applicants be uninsured for 6 months:  Officials from several state-run PCIPs told us they considered this  requirement to be a barrier to eligibility. Based on applications data  received from CCIIO, 45 percent of denials for state-run PCIPs and   69 percent of denials for the federally run PCIP were due to the  applicant having creditable health coverage within the previous   6 months. Other individuals likely did not apply because they had  creditable coverage within the prior 6 months and knew they were not  eligible.  2.  Affordability concerns: CCIIO and state PCIP officials told us they  considered the cost of premiums—which were required to be set at  100 percent of the standard market rate, and averaged $407 per  month in June 2011—to be unaffordable for many. In its May 31, 2011  news release, HHS announced it would reduce PCIP premiums in   18 states with a federally run PCIP beginning July 1, which may  improve the affordability in those states.  3.  Lack of awareness of the PCIP program: PCIP officials cited several  possible reasons for why awareness about the program has been low.  First, PCIP officials explained that the quick roll-out of the program  allowed little time to focus on marketing and outreach, and that the  agency intentionally limited initial marketing activities in an effort to  avoid enrolling more individuals than the plan could support. Further,  PCIP officials also said that, compared to other populations targeted  by federal programs (such as low-income children), the segment of  the uninsured population with pre-existing conditions has been difficult  to identify and target. Additionally, hospitals and providers are  generally less familiar with the individual insurance market and where  to refer uninsured individuals.  4.  Processes used for determining eligibility: Lower enrollment in the  federally run PCIP states may be due, in part, to the fact that  applicants only had two options to demonstrate their pre-existing  condition through June 2011, whereas most state-run PCIPs allowed  three or more options. Most notably, the federally run PCIP did not  use a pre-existing condition list, and required applicants to provide  proof of denial or an offer of coverage with an exclusionary rider from  another insurance carrier, which could have imposed additional  burden. We found that over half of new enrollees in state-run PCIPs  demonstrated their pre-existing condition by providing evidence of a  diagnosed condition on their state’s list. In its May 31, 2011 news  release, HHS announced that beginning July 1, 2011, applicants living  in the   24 states in the federally run PCIP would be able to demonstrate their  pre-existing condition by submitting a letter from a provider  documenting a current or past diagnosed medical condition.  5.  Existing state laws or state-supported health insurance programs  without pre-existing condition limitations: PCIP enrollment has likely  been affected by state health insurance laws. For example, five  states—Maine, Massachusetts, New Jersey, New York, and  Vermont—have guaranteed issue laws that prohibit health insurance  denials based on health status or medical condition, which may have  contributed to low PCIP enrollment in these states. PCIP enrollment  may also be lower in states that offer other state-funded health  insurance programs that do not impose pre-existing condition  limitations. For example, PCIP officials from Connecticut and Maine  told us that they attribute low PCIP enrollment, in part, to the  availability of alternative health insurance programs in their states that  provide lower cost coverage for individuals without imposing any  restrictions for those with pre-existing conditions. Similarly, controlling  for differences in state populations of uninsured individuals,  enrollment was lower among the states with an existing HRP  compared to the states that did not have an existing pool—3.7 per  10,000 uninsured compared to 5.5, respectively.
In efforts to improve the affordability of PCIP coverage and to increase  awareness of the program, CCIIO lowered PCIP premiums and undertook  additional marketing and outreach efforts beginning in 2011. Compared to  2010 premiums, CCIIO lowered 2011 premiums for adults in the federally  run PCIP Standard plan by about 19 percent, and intends to further lower  premiums, ranging from 2 percent to 40 percent, in 18 states beginning  July 1, 2011. HHS also added rates for children under 19 beginning in  2011, which allowed these enrollees to pay lower premiums than they  would have paid in 2010. CCIIO’s outreach efforts included educating  various referral sources about the PCIP program—that is, those who  most often interact with potential PCIP applicants, such as disease  advocacy groups, provider groups, and state officials. In addition, CCIIO  conducted several nationwide webinars, distributed posters and  brochures, and coordinated with the Social Security Administration to  contact individuals applying for disability insurance. Since integrating as  part of CMS in 2011, CCIIO and CMS have coordinated to conduct PCIP  outreach at over 100 events and conferences. In addition, HHS  announced in February 2011 that several large carriers had volunteered  to include PCIP information in all insurance denial letters, and the  agency announced in its new release on May 31, 2011 that beginning in  fall 2011, HHS will begin paying health insurance agents and brokers a  referral fee for successfully enrolling individuals in a PCIP. Further, PCIP  officials told us they were actively procuring media and grassroots  outreach contracts.
In contrast to federal outreach efforts, many state-run PCIPs undertook  multiple marketing and outreach efforts early on. Officials we interviewed  from all eight states told us they conducted outreach to referral sources,  such as advocacy and provider groups. Officials from six states told us  they leveraged free media outlets, such as news articles or local  television coverage, through the use of press announcements or media  events; five used paid radio, television, or print advertisements; and four  paid agent referral bonuses. The amount of money states have spent on  marketing varies, with one state spending as much as $1.1 million and  others spending nothing. Any spending on marketing is limited by the   10 percent cap on administrative expenditures.
section_title: States and HHS Spent about 2 Percent of Total Program Funding by March 2011
paragraphs: As of March 31, 2011, federal expenditures for the PCIP program totaled  about $106 million, significantly lower than projections. Specifically, state- run PCIPs collectively expended about $78 million as of March 31, 2011,  and HHS expended almost $26 million for the federally run PCIP and  about $1.6 million for its own administrative expenses, which together  represented about 2 percent of the total $5 billion appropriation. (See  table 3.) Related to lower-than-expected enrollment, expenditures have  been significantly lower than projections. State-run PCIPs had initially  projected that they would collectively spend about $123 million in  calendar year 2010 and over $644 million in 2011. Initial spending  projections for the federally run PCIP were nearly $71 million in fiscal year  2010 and over $555 million in fiscal year 2011. While spending varied  across states, according to CCIIO officials, it is too soon to predict  whether they will need to reallocate funds. See appendix IV for additional  information on state-level PCIP expenditures.
On average, state-run PCIPs spent about 19 percent of their total  expenditures on administrative expenses as of March 31, 2011. In sum,  state-run PCIPs spent the most on marketing, eligibility screening, claims  processing, personnel costs, and “other” costs, which included such  expenses as case and utilization management, consultant services, audit  fees, and pharmacy benefits management. According to state PCIP  officials we spoke to, it is expected that administrative expenditures as a  percentage of program spending will drop to below 10 percent of total  expenditures over the lifetime of the program that was established in the  interim final rule.
Administrative expenditures by the federally run PCIP were incurred by  federal agencies and GEHA, and represented about 16 percent of its total  spending as of March 31, 2011. Specifically, OPM received interagency  payments totaling $2.2 million to manage the daily operations with GEHA  and NFC, though according to CCIIO officials, OPM had only expended a  portion of the funds and will return any unused funds to HHS. NFC is  authorized to receive up to $63.7 million through fiscal year 2011 to  conduct eligibility screening and premium collection, though as of   March 31, 2011, the agency had not withdrawn any funds from HHS.  Administrative expenses also included payments to GEHA to reimburse  its incurred costs for such items as claims processing, customer service,  and member materials. In addition, GEHA received $865,000 in  payment for its contractual fixed award fee, which was set at 5 percent of  projected administrative costs. Due to lower than expected enrollment,  actual administrative costs were only 13 percent of projections in 2010,  and thus projections were revised significantly downward for 2011 to  about $6 million with a fixed award fee of $296,400.
section_title: Federal Oversight Activities Intended to Ensure Compliance with PCIP Program Requirements Are in Place or Being Planned
paragraphs: Contained in the contracts CCIIO established with states and GEHA are  provisions intended to help CCIIO assure program requirements are met.  Three federal agencies—CCIIO, OPM, and HHS Office of Inspector  General (OIG)—are currently engaged in or planning oversight activities.
subsections: section_title: CCIIO Established Contracts Intended to Ensure Key Program Requirements Are Met
paragraphs: The contracts HHS signed with states and GEHA to provide PCIP  coverage are a primary means to ensure that the state- and federally run  PCIPs are implemented efficiently and as intended.
For state-run PCIPs, CCIIO developed a model contract requiring states,  or their non-profit designees implementing the PCIP on their behalf, to  conduct key activities consistent across all states. The contracts  formalized and operationalized the federal requirements established in  PPACA and the interim final rule. For example, state-run PCIPs are  contractually required to:  verify that the enrollee meets all PCIP eligibility criteria;  implement disease and utilization management procedures to ensure  enrollees receive necessary but cost-effective care;    establish a detailed claims database that tracks each covered service;   develop operating procedures to detect and report to CCIIO  incidences of fraud, waste, abuse, and insurer dumping;    notify CCIIO if enrollment reaches 75 percent of projected levels or if  the state expects its expenses to exceed its allotted funding, and  develop a mitigation strategy to control costs, which may include  raising premiums, reducing benefits, or capping enrollment, as  approved by CCIIO;  submit monthly cost reports—certified as being accurate and  complete—with information on administrative expenses, paid claims,  premiums collected, and withdrawals from HHS;    provide CCIIO with an independently audited financial report detailing  all PCIP finances by June 30 of each year, 2011 through 2013, in  accordance with the state’s standard accounting practices or  generally accepted accounting principles.
Additionally, states with existing high-risk pools were required to  segregate PCIP funding from expenditures associated with the operation  of the existing pool, and to comply with the maintenance of effort  requirement that they maintain funding for their existing high-risk pools.  CCIIO required that states include in their proposals a description of how  they would comply with the maintenance of effort requirement and  stipulated in the signed contracts that any state-run PCIP shall notify the  agency of any changes in the state’s funding levels or methods of the  existing pool.
For the federally run PCIP, GEHA was generally subject to contractual  requirements similar to those applied to state-run PCIPs, such as  implementing disease and utilization management, reporting cases of  fraud or insurer dumping, and submitting regular cost reports. As do the  state-run PCIPs, GEHA is also required to submit independently audited  financial statements each year. Notable differences from the state PCIP  contracts included provisions related to periodic data reporting and  reporting of fraud, waste, and abuse. Rather than the monthly cost  reports required of state-run PCIPs, GEHA is required to report similar  information biweekly, including claims and administrative expenses and a  reconciliation of expenditures to withdrawals from HHS. Regarding fraud,  waste and abuse, HHS stipulated additional requirements for GEHA— specifically that it would annually (by March 31) report detailed  information on the disposition and dollar amounts associated with any  identified cases. In the first such report required, GEHA identified one  active case.
section_title: Three Federal Agencies Are Engaged in or Planning Future Oversight Activities
paragraphs: CCIIO is engaged in or planning a range of PCIP oversight activities.  While ultimately responsible for the entire program, CCIIO also relies on  OPM in its capacity as administrator of the contract with GEHA to perform  oversight. Additionally, the OIG is considering its role.
CCIIO, in its role directly overseeing state-run PCIPs, relies on several  mechanisms to monitor their compliance and performance. For example,  according to CCIIO officials, the agency uses the data provided by state- run PCIPs in their monthly reports to conduct comparisons between  projected and actual costs, and reported withdrawals of federal funds.  According to CCIIO officials, the agency also conducts a more formal  annual reconciliation in March of each year to compare state-reported  claims and state-reported withdrawals with records of actual withdrawals  from HHS’s Payment Management System. CCIIO notifies any state with  identified discrepancies, asking them to correct or clarify the difference.  For example, as part of its first reconciliation, CCIIO identified a small  number of states for which reported withdrawals did not match records  from HHS’s Payment Management System in a given month. In addition,  CCIIO officials said they will examine the independently audited financial  statements each state-run PCIP is required to provide by June 30th of  each year. In addition to financial audits, CCIIO officials stated that they  are developing a performance audit strategy, which will include oversight  of enrollment, disenrollment, spending as a percentage of allocated  funds, and other performance metrics. To identify which states to review,  CCIIO officials told us they will conduct a risk assessment of state-run  PCIPs based on such factors as enrollment, premium revenue, claims  expenditures, and applicability of the maintenance of effort provision.
OPM, as the agency overseeing GEHA’s day-to-day operation of the  federally run PCIP, reviews GEHA’s compliance with contractual  requirements and its financial reports. According to OPM officials, they  monitor GEHA’s daily reimbursements from HHS and request detailed  information when needed to explain any unusually high claims. OPM also  plans to review the annual independently audited financial report to  compare claims and administrative expenses to the withdrawal of federal  funds. OPM is also responsible for reviewing GEHA’s reported  performance measures and determining the amount of its incentive award  fee. While GEHA’s performance is self-reported, the systems it relies on  to calculate performance will be evaluated by an independent auditor as  part of its annual financial audit, according to OPM officials.
Finally, the OIG has authority to initiate reviews of state or federal PCIPs  at its discretion, per the signed contracts with state PCIPs and GEHA.  Although still in the planning phase, OIG included in its fiscal year 2011  work plan an evaluation of the methods used across the PCIP program  (state and federal) to prevent and identify fraudulent health care claims.  An OIG official told us in May 2011 that it is reconsidering whether to  conduct the audit given lower than expected enrollment in the program.
section_title: Agency Comments
paragraphs: We provided a draft of this report to HHS for comment, and received a  written response, which is included in this report as appendix V. In  commenting on the draft, HHS emphasized our findings addressing its  recent and planned efforts to increase enrollment by expanding outreach  activities, providing additional ways for applicants to demonstrate  eligibility, and reducing premiums. Regarding our finding that  administrative costs incurred by the federally run and some state-run  programs have exceeded 10 percent of total expenditures during the first  year, HHS said that it anticipates administrative costs will average   10 percent or less of total expenditures over the life of the program as  required by the interim final rule, and will continue to monitor those costs  closely. HHS also provided technical comments, which we incorporated  as appropriate.
As arranged with your office, unless you publicly announce the contents  of this report earlier, we plan no further distribution until 30 days after its  issuance date. At that time, we will send copies of this report to the  Secretary of Health and Human Services, the Administrator of the  Centers for Medicare & Medicaid Services, and other interested parties.  In addition, the report will be available at no charge on the GAO web site  at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-7114 or dickenj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix VI.
section_title: Appendix I: Pre-Existing Condition Insurance Plan (PCIP) Cost Sharing Features by State, 2011
subsections: section_title: State
section_title: Date PCIP first became effective
paragraphs: Legend: N/A = Not applicable  This deductible only applies to brand name drugs.  The 24 states in the federally run PCIP are Alabama, Arizona, Delaware, District of Columbia,  Florida, Georgia, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Massachusetts, Minnesota,  Mississippi, Nebraska, Nevada, North Dakota, South Carolina, Tennessee, Texas, Vermont, Virginia,  West Virginia, and Wyoming.
The three plan options are the Standard, Extended, and Health Savings Account options, which have  annual medical deductibles of $2,000, $1,000, and $2,500, respectively.
section_title: Appendix II: Premiums for the Most Popular Pre-Existing Condition Insurance Plans (PCIP) by State, June 2011
section_title: Appendix III: Criteria for Demonstrating a Pre-Existing Condition by State, June 2011
paragraphs: State-run Pre-Existing Condition Insurance Plans (PCIP)
section_title: Appendix IV: Enrollment and Expenditures for State- and Federally Run Pre-Existing Condition Insurance Plans (PCIP)
paragraphs: Appendix IV: Enrollment and Expenditures for  State- and Federally Run Pre-Existing  Condition Insurance Plans (PCIP)
subsections: section_title: State
paragraphs: Legend: N/A = Not applicable  For the federally run PCIP states, administrative expenses and federal reimbursements were not  available on a state-by-state basis.
section_title: Appendix V: Comments from the Department of Health & Human Services
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Randy DiRosa, Assistant  Director; Laura Brogan; Drew Long; Perry Parsons; Said Sariolghalam;  and George Bogart made key contributions to this report.