Patient Protection and Affordable Care Act: Enrollment and Spending in the Early Retiree Reinsurance and Pre-existing Condition Insurance Plan Programs
Released: 2013-05-30T00:00:00

Letter

Background

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.

CCIIO Discontinued ERRP Enrollment in Early 2011 and Stopped Most Reimbursements the Following Year to Keep Spending within the $5 Billion Appropriation

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.

PCIP Enrollment and Spending Have Grown Substantially

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.

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

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.

Agency Comments

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.

Appendix I: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.

Related GAO Products

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.