Patient Protection and Affordable Care Act: Enrollment and Spending in the Early Retiree Reinsurance and Pre-existing Condition Insurance Plan Programs
Published: 2013-04-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In March 2010, the Patient Protection and Affordable Care Act (PPACA) appropriated $5 billion each to establish and carry out two temporary programs--ERRP and PCIP. ERRP reimburses sponsors of employment-based health plans to help cover the cost of providing health benefits to early retirees--individuals age 55 and older not eligible for Medicare. The PCIP program is a high-risk pool that provides access to health insurance for individuals unable to acquire affordable coverage due to a preexisting condition. Both programs are operated by CCIIO within CMS (an agency within the Department of Health and Human Services) and are intended to operate through 2013, after which PPACA will provide new insurance coverage options.
GAO was asked to provide updated information on ERRP and PCIP spending. This report describes the current status of ERRP and PCIP enrollment and spending as well as projected PCIP spending and how CCIIO is ensuring that program funding is sufficient through 2013. GAO obtained the most recent data available on ERRP and PCIP enrollment and spending and on overpayments recovered from ERRP plan sponsors during the claims adjudication process. GAO also obtained other supporting documentation where available. GAO interviewed CMS officials about ERRP and PCIP enrollment and spending as well as their predictions of future PCIP spending and steps they are taking to ensure the sufficiency of PCIP funding.
The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.
section_title: What GAO Found
paragraphs: The Center for Consumer Information and Insurance Oversight (CCIIO) discontinued enrollment in the Early Retiree Reinsurance Program (ERRP) in early 2011 and stopped most program reimbursements the following year to keep spending within the $5 billion ERRP appropriation. Specifically, anticipating exhaustion of funds, CCIIO stopped ERRP enrollment in May 2011. According to CCIIO officials, CCIIO suspended making reimbursements to plan sponsors in September 2012, as reimbursements had reached the $4.7 billion cap established for paying claims under the original appropriation, and the remainder was reserved for administrative expenses. When the cap was reached, significant demand for the program remained with 5,699 ERRP reimbursement requests left outstanding that accounted for about $2.5 billion in unpaid claims. CCIIO officials told GAO that they planned to pay some of the outstanding reimbursement requests by redistributing any overpayments recovered from plan sponsors--when, for example a plan receives a rebate that lowers the total cost of a prior claim--as well as money recovered from program audits. As of January 2013, officials told GAO that CCIIO had recovered a total of $54 million and redistributed $20.7 million of this amount.
Enrollment and spending for the Pre-existing Condition Insurance Plan (PCIP) program have grown substantially. Cumulative PCIP enrollment had reached 103,160 by the end of December 2012, more than doubling from a year earlier. By the end of January 2013, total PCIP spending reached about $2.6 billion, representing over half of the $5 billion PCIP appropriation compared to a year earlier when only about 16 percent of the total appropriation had been spent. PCIP spending has varied on a monthly basis, but overall, monthly spending also has increased over the life of the program. Most recently, monthly spending reached its highest point since the program's inception, increasing about 35 percent from December 2012 to January 2013.
According to CMS, PCIP spending is likely to approach the $5 billion appropriation by the end of 2013, and CCIIO is taking steps intended to ensure it does not exceed this amount. In June 2012, Office of the Actuary (OACT) within the Centers for Medicare & Medicaid Services (CMS) released a projection that the entire $5 billion in PCIP funding would be used "through 2013." Similarly, CCIIO officials told GAO they anticipate total PCIP spending to closely approach $5 billion, and that they are taking program management steps--many of which are not yet reflected in spending data--to ensure appropriated funding lasts through 2013. For example, in the second half of 2012, CCIIO was able to obtain lower provider reimbursement rates for the PCIP program. Also, in January 2013, CCIIO instituted benefit changes that shifted more costs onto PCIP enrollees, including by increasing enrollee coinsurance from 20 percent to 30 percent in many states. Due to growing concerns about the rate of PCIP spending, in February 2013, CCIIO suspended PCIP enrollment to ensure the appropriated funding would be sufficient to cover claims for current enrollees through the end of the program. Officials told GAO that if spending trends begin to indicate that funding will not be used as quickly as they are projecting, they could reinstate PCIP enrollment to use remaining funds.

section_title: Letter
paragraphs: In March 2010, the Patient Protection and Affordable Care Act (PPACA)  appropriated $5 billion each to establish and carry out two temporary  programs, the Early Retiree Reinsurance Program (ERRP) and the   Pre-existing Condition Insurance Plan (PCIP) program. The programs  are intended to provide access to health insurance coverage for early  retirees—individuals age 55 and older who are not eligible for Medicare— and individuals with preexisting medical conditions, respectively. Both  populations historically have faced challenges obtaining health insurance  in the individual market due, among other things, to being charged higher  premiums than younger or healthier individuals on the basis of age or  health status, or to being denied coverage altogether. In addition, while  some early retirees may have access to health insurance through their  employer, the number of large employers offering retiree coverage has  been declining. ERRP and the PCIP program are intended to operate  through December 31, 2013, after which new coverage options will become available through PPACA’s health insurance Exchanges.
ERRP provides reimbursement to participating employment-based health  plans that is intended to cover a portion of the cost of providing health  benefits to early retirees in order to help employers continue to offer these  benefits and provide financial relief to plan participants.  Under the  program, sponsors of health plans—which can include commercial  organizations, government entities, nonprofit organizations, religious  organizations, and unions—may use ERRP reimbursements to reduce  their costs for providing health benefits, plan participants’ health benefit  costs, or any combination of these costs.risk pool that provides access to health insurance at standard market   The PCIP program is a high- rates for individuals unable to acquire affordable coverage due to a  preexisting condition.
In order to carry out responsibilities under various provisions of PPACA,  including ERRP and the PCIP program, the Department of Health and  Human Services (HHS) created the Center for Consumer Information and  Insurance Oversight (CCIIO) in April 2010. enrollment in June 2010 and PCIP enrollment shortly after in July 2010.  We reported in September 2011 on various aspects of ERRP, including  CCIIO’s process for implementing the program, initial program  expenditures and the types of plan sponsors enrolled, and how plan  sponsors intended to use ERRP reimbursements. Also in 2011, we  reported on various aspects of the PCIP program, including initial  enrollment and spending trends, program features, and CCIIO’s  oversight.
CCIIO was initially known as the Office of Consumer Information and Insurance  Oversight. Its name was changed to CCIIO in January 2011 when it was transferred to the  Centers for Medicare & Medicaid Services (CMS) within HHS. month claim costs have been higher than expected, leading some to  question whether spending could exhaust its $5 billion appropriation as  enrollment continues to grow. You asked us to provide updated  information on spending for ERRP and the PCIP program. In this report,  we describe  1.  the current status of ERRP enrollment and spending,  2.  the current status of PCIP enrollment and spending, and  3.  projected PCIP spending and how CCIIO is ensuring that program  funding is sufficient through 2013.
To describe the current status of ERRP enrollment and spending, we  obtained cumulative enrollment and spending data from CCIIO through  October 2012 or the most recent data available at the time of our  analysis. We also obtained information as of January 2013 on funds  recovered from ERRP plan sponsors from overpayments identified  through the claims adjudication process. We interviewed CCIIO officials  about ERRP enrollment and spending and obtained supporting  documentation where available, such as answers to frequently asked  questions on ERRP’s website. We also interviewed knowledgeable  agency officials about their efforts to ensure the quality of the enrollment  and spending data and checked for anomalies. We determined these  data were sufficiently reliable for our purposes.
To describe the current status of PCIP enrollment and spending, we  obtained monthly enrollment data through December 2012 and spending  data through January 2013 from CCIIO, the most recent data available at  the time of our analysis. We interviewed CCIIO officials about PCIP  enrollment and spending and obtained supporting documentation where  available, such as PCIP policies and procedures. We also interviewed  knowledgeable agency officials about their efforts to ensure the quality of  the enrollment and spending data and checked for anomalies. We  determined these data were sufficiently reliable for our purposes.
To describe projected PCIP spending and how CCIIO is ensuring that  program funding is sufficient through 2013, we interviewed CCIIO officials  about their estimates of future PCIP spending as well as steps they are  taking to ensure program funding is sufficient through 2013. In addition,  we discussed estimates of PCIP spending through 2013 with officials  from the Office of the Actuary (OACT) within the Centers for Medicare &  Medicaid Services (CMS). We obtained supporting documentation where  possible, such as documents containing PCIP benefit changes.
We conducted this performance audit from December 2012 to March  2013 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: In implementing ERRP, CCIIO is responsible for, among other things,  determining which plan sponsors are eligible to participate in the program  and providing reimbursements to the participating sponsors. Eligibility for  participation is determined by a plan sponsor meeting a number of  requirements, including being able to document claims, implement  programs and procedures that have the potential to generate cost savings  for plan participants with chronic and high-cost conditions, and having  policies and procedures in place to detect and reduce fraud, waste, and  abuse. When requesting reimbursement, sponsors must provide  documentation of the cost of medical claims, which can include costs  paid by early retirees in the form of deductibles, copayments, or  coinsurance. For eligible claims paid by a plan on behalf of each early  retiree, CCIIO will reimburse 80 percent of the amount that exceeded  $15,000 (the cost threshold) but was not greater than $90,000 (the cost  limit) in a given year. ERRP reimbursement requests are paid in the  order in which they are received, and CCIIO may stop taking ERRP  applications or, if an application is approved, deny all or part of a  reimbursement request, based on the availability of funding.
Plan sponsors are not required to use ERRP reimbursements by the end  of the plan year in which they are provided, but are expected to use  reimbursements as soon as possible and no later than December 31,  2014.  Under PPACA, plan sponsors can use the reimbursements to  reduce their own premium contributions or other health benefit costs;  reduce plan participants’ premium contributions, copayments,  deductibles, coinsurance, or other out-of-pocket costs; or reduce any  combination of these costs. However, sponsors are not permitted to use  the funds received as general revenue, and thus must maintain the same  level of contribution toward the plan as they did prior to applying to enroll  in ERRP. CCIIO may conduct audits of plan sponsors to verify their  compliance with this and other program requirements.
To be eligible for PCIP, individuals must have a preexisting 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 individuals who  likely have been unable to access insurance because of their preexisting  condition. PCIP programs must not impose waiting periods for coverage  based on the enrollee’s preexisting condition, and plan benefits must  cover at least 65 percent of the total cost of coverage until enrollees hit a  statutory out-of-pocket spending limit, at which point PCIP covers   100 percent of the cost. PPACA requires that HHS develop procedures to  transition PCIP enrollees from the program to the Exchanges when they  begin in 2014 and that such procedures ensure these enrollees do not  experience a lapse in coverage. At the same time, if HHS estimates  that, for any fiscal year, PCIP funding will be insufficient to cover the  payment of claims, PPACA authorizes it to make such adjustments as are  necessary to eliminate this deficit and to stop PCIP enrollment.
The Children’s Health Insurance Program is a joint state and federal program for  uninsured children in families whose incomes are too high for Medicaid, but too low to  afford private coverage.
Initial PCIP allocations ranged from $8 million for North Dakota, Vermont, and Wyoming to  $761 million for California. CCIIO reserves the right to reallocate unused funds to states in  future years from initial allocations and make adjustments as necessary to eliminate any  potential deficit due to projected expenses exceeding a state’s allocation. to operate the PCIP in their state. Twenty-seven states elected to operate  a PCIP for their residents, while 23 states and the District of Columbia  opted to allow HHS to operate their PCIPs. For the 27 states that chose  to operate their own PCIPs, HHS directly contracted with states or their  designated nonprofit entities. 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. To implement  the federally run PCIP for the 24 states that opted not to operate their  own PCIP, HHS coordinated with other federal agencies and selected the  Government Employees Health Association, Inc. (GEHA) to help operate  the program. 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. For both the federally and state-run PCIPs, HHS  established a limit on administrative costs of no more than 10 percent of  total spending over the lifetime of the program.
section_title: CCIIO Discontinued ERRP Enrollment in Early 2011 and Stopped Most Reimbursements the Following Year to Keep Spending within the $5 Billion Appropriation
paragraphs: CCIIO stopped accepting applications for ERRP enrollment in May 2011,  anticipating the $5 billion appropriation would be exhausted. As we  previously reported, at that time the total number of approved plan  sponsors was more than 6,000—most of which enrolled within the first   6 months of the program—and CCIIO had already spent $2.4 billion  reimbursing plan sponsors for claims incurred. Officials told us that in  September 2012, CCIIO suspended making reimbursements to plan  sponsors, with reimbursements having exceeded the $4.7 billion cap  established for paying claims under the original appropriation nearly a  year earlier. In anticipation of exceeding the cap, CCIIO had issued  guidance on December 13, 2011, stating that it would not accept  reimbursement requests for ERRP claims incurred after December 31,  2011. However, the program continued to accept requests for claims  incurred on or before this date and officials explained that a number of  factors led to it taking until September 2012 for all $4.7 billion to be spent,  including that reimbursements must go through a clearance process to  make sure funds are paid appropriately. When the $4.7 billion was  reached, significant demand for the program remained with 5,699 ERRP  reimbursement requests left outstanding that accounted for about   $2.5 billion in unreimbursed claims.
CCIIO is recovering portions of the $4.7 billion from plan sponsors that  were overpaid and using those funds to pay outstanding reimbursement  requests in the order in which they were received. Overpayments are  identified through the claims adjudication process and can happen when,  for example, a plan receives a rebate from a provider that lowers the total  cost of a claim after the claim was initially submitted to ERRP. In addition,  because early reimbursement requests were based on summary claims  data, CCIIO required plan sponsors to submit a more detailed accounting  of the actual costs of these requests by April 27, 2012. Officials told us  that if an overpayment was identified for a reimbursement request, or if  sponsors failed to meet the April deadline, costs associated with that  request were to be recovered by CCIIO. As of January 2013, CCIIO had  identified $60.2 million in overpayments and recovered $54 million of this  amount. CCIIO was pursuing collection of the remaining $6.2 million and  estimated that as much as an additional $15 million in overpayments may  be identified and collected in fiscal year 2013.
In addition to recovering overpayments, officials told us that any money  recovered from program audits would also be used to pay outstanding  reimbursement requests. CCIIO hired a contractor with a goal of  conducting audits of 30 ERRP plan sponsors that officials said account  for 30 percent of program reimbursements. As of January 2013, CCIIO  had initiated 17 audits, but had not yet received any audit reports from the  contractor. Consequently, officials told us that they were not yet able to  estimate how much recovered ERRP funds would be identified through  this process.
section_title: PCIP Enrollment and Spending Have Grown Substantially
paragraphs: PCIP enrollment has grown substantially. By the end of December 2012,  cumulative enrollment had reached 103,160, up more than 50,000 from a  year earlier when enrollment was 48,862. (See fig. 1.) Enrollment in state- run PCIPs represents a larger percentage of total enrollment compared to  the federally run PCIP; however, the federally run PCIP has accounted for  an increasing percentage of the total over time. When we last reported on  the PCIP program, as of April 2011, enrollment in the federally run PCIP  represented about 26 percent of total enrollment; by the end of December  2012, it represented about 43 percent. CCIIO officials told us that their  decision to accept, starting in July 2011, a letter from a health care  provider as proof of a preexisting condition in the federally run PCIP likely  contributed to this shift—although CCIIO later reversed this decision in  May 2012. Similar to prior months, PCIP enrollment continued to vary  widely across states, ranging from 1 in Vermont to 15,101 in California.
By the end of January 2013, cumulative PCIP spending reached about  $2.6 billion, representing over half of the $5 billion appropriated for the  program.when about $782 million had been spent, representing about 16 percent  of the total appropriation. (See fig. 2.) Similar to the trend in enrollment,  the federally run PCIP has accounted for an increasing percentage of  total program spending. The percentage of PCIP spending used for   This represents a substantial increase from a year earlier  administrative costs has declined over time and by the end of December  2012 it had fallen to about 7 percent.
PCIP spending has varied on a monthly basis, but overall, monthly  spending also has increased over the life of the program. Most recently,  monthly spending reached its highest point since the program’s inception,  increasing about 35 percent from the end of December 2012 to the end of  January 2013. (See fig. 3.)
PCIP spending also varied across states, with some states spending  more than they were originally allocated and some states spending less.  For example, CCIIO officials said that as of January 2013, three states— New Hampshire, South Dakota, and Utah—have spent more money than  they were originally allocated because of higher than expected enrollment  or per member costs. Additionally, CCIIO has obligated to five states— Alaska, Colorado, Montana, Oregon, and New Mexico—more funding in  2012 than was in their original allocation, but these states have yet to  spend the additional funds. Officials also said that other states have had  lower than expected expenditures—for example, North Carolina was  originally allocated $145 million, but, through December 2012, had only  spent about $26 million due primarily to lower than expected enrollment.  Thus, officials said that CCIIO reallocated money originally intended for  these states to the states that were exceeding their expenditure  projections.
section_title: PCIP Spending Is Likely to Approach the $5 Billion Appropriation in 2013, and CCIIO Is Taking Steps Intended to Ensure Spending Does Not Exceed This Amount
paragraphs: According to CMS, PCIP spending is likely to approach the $5 billion  appropriation in 2013. In June 2012, CMS’s OACT released a projection  of PCIP spending, and reported the entire $5 billion in funding would be  used “through 2013.” When asked for more specifics, OACT officials told  us that this projection was not intended to produce a point-in-time  estimate for when the program would run out of money, but rather  represents their expectation that the entire $5 billion appropriation would  be needed to pay for care provided through 2013. Officials also said that  their projection was informed by historical enrollment, cost, and utilization  data, as well as discussions with CCIIO staff about program experience.  Officials noted that the historical data they used were through February  2012—the most recent program data available at that time.
CCIIO officials similarly told us that they anticipate total PCIP spending  will be close to $5 billion, and that they are taking program management  steps—many of which are not yet reflected in the spending data— intended to ensure that the appropriated funding lasts until the end of  2013. For example, on behalf of the federally run PCIP, GEHA contracted  in August 2012 with United Healthcare to access lower provider  reimbursement rates than those the federally run program had previously.  While the extent of this rate reduction varies by state, officials said that  there has been about a 20 percent reduction on average. To further  reduce rates, GEHA also worked with United Healthcare to approach  approximately the top 100 hospitals in terms of PCIP utilization to attempt  to renegotiate federally run PCIP hospital facility fees to the same rate as  Medicare. According to officials, about one quarter of the hospitals  approached agreed to the renegotiation. Officials told us that some states  have similarly approached hospitals to lower reimbursement rates,  negotiated other discounts with providers, or implemented other cost  control strategies, such as disease management programs.
More recently, CCIIO instituted benefit changes for the federally run PCIP  that shifted more costs onto enrollees starting in January 2013. For  example, it increased enrollees’ out of pocket maximum for in-network  services from $4,000 to $6,250 and for out-of-network services from  $7,000 to $10,000. It also increased enrollee coinsurance from   20 percent to 30 percent. As another step, CCIIO officials said that  whereas they had previously had annual contracts with states under the  PCIP program, in 2013, they moved to quarterly contracts that will allow  them to allocate funding based on each state’s near-term expenditures  and thus prevent over-obligation of funds. Finally, due to growing  concerns about the rate of PCIP spending, in February 2013, CCIIO  suspended PCIP enrollment to ensure the appropriated funding would be  sufficient to cover claims for current enrollees through the end of the  program. In addition, CCIIO requested that state-run PCIPs institute the  same benefit changes that were instituted in the federally run program in  January 2013 by April 1, 2013, or the earliest possible date thereafter for  all of their enrollees. Officials told us that if spending trends begin to  indicate that funding will not be used as quickly as they are projecting,  they could reinstate PCIP enrollment to use remaining funds.
section_title: Agency Comments
paragraphs: We provided a draft of this report to HHS for comment. HHS provided  technical comments, which we incorporated as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of Health  and Human Services and other interested parties. In addition, the report  will be available at no charge on the GAO website at http://www.gao.gov.
If you or your staff 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 key contributions to this report  are listed in appendix I.
section_title: Appendix I: 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; George Bogart; Laura Brogan; Richard Krashevski; Yesook  Merrill; Laurie Pachter; and Rachel Svoboda made key contributions to  this report.
section_title: Related GAO Products
paragraphs: Pre-Existing Condition Insurance Plan: Comparison of Implementation  and Early Enrollment with the Children’s Health Insurance Program.  GAO-12-62R. Washington, D.C.: November 10, 2011.
Private Health Insurance: Implementation of the Early Retiree  Reinsurance Program. GAO-11-875R. Washington, D.C.: September 30,  2011.
Pre-Existing Condition Insurance Plans: Program Features, Early  Enrollment and Spending Trends, and Federal Oversight Activities.   GAO-11-662. Washington, D.C.: July 27, 2011.