On the morning of October 29, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a press release, fact sheet, and an unpublished final rule on its website that implements the group health plan (“plan”) and health insurance issuer (“issuer”) portions of the Administration’s Executive Order on Improving Price and Quality Transparency (E.O. 13877).[1] The Executive Order seeks to enhance the ability of patients to make fully informed choices about their healthcare and protect patients from harmful practices such as “surprise billing.” This long-awaited final rule complements the hospital price transparency final rule, which goes into effect on January 1, 2021.[2] Specifically, this final rule includes the following requirements for plans and issuers in the individual and group markets:

• Disclosure of cost-sharing information upon request to an enrollee or their authorized representative;
• Posting of estimated cost-sharing information on a public website;
• Disclosure of in-network provider negotiated rates, historical out-of-network allowed amounts and associated billed charges, and negotiated rates for prescription drugs in machine-readable files posted on an internet website; and
• Credit in Medical Loss Ratio (MLR) calculations for savings that issuers share with enrollees.

In short, plans and issuers will now be required to disclose the price they pay for covered services and prescription drugs and the estimated cost a patient will have to pay for an item or service. Unless otherwise noted, these changes are effective 60 days after publication in the Federal Register.[3]

CMS Expands ACA’s Transparency in Coverage Requirements

This rule builds off earlier efforts implemented as a result of the Patient Protection and Affordable Care Act (PPACA).[4] This Act reorganized, amended, and added provisions relating to health coverage requirements for plans and issuers in the group and individual markets and incorporated these requirements into the Employment Retirement Income Security Act (ERISA) and the IRS code.

The result of these changes is that plans and issuers seeking certification as a qualified health plan (QHP) for an Exchange would have to comply with certain disclosure requirements while plans not offered on an Exchange would be required to disclose information as directed by the Secretary of Health and Human Services and the relevant state’s insurance commissioner. Together, these provisions require plans and issuers that cover about 92 percent of the private health insurance population submit “information as determined appropriate by the Secretary.” [5] Thus, the additional requirements in this Final Rule receive their authority based on the framework implemented by PPACA.

3 Year Phase-In of Cost-Sharing Disclosure Requirements

The Departments[6] will finalize provisions in the final rule across their respective regulations and adopt a three-year, phased-in approach regarding the disclosure of cost-sharing information.

• Plans and issuers must make cost-sharing information available for 500 items and services identified by the Departments for plan years[7] beginning on or after January 1, 2023 and
• Plans and issuers must make cost-sharing information available for all items and services for plan years beginning on or after January 1, 2024.

Disclosure of Pricing Information in Machine-Readable Files

The rule requires that plans and issuers disclose pricing information via three machine-readable files for plan years beginning on or after January 1, 2022:

• Payment rates negotiated between plans/issuers and providers for ALL covered items and services;
• Allowed amounts as well as associated billed charges for covered items or services furnished by out-of-network providers; and
• Pricing information for prescription drugs.

CMS Changes MLR Calculations to Allow Shared Savings

Another result of the PPACA was that issuers were required to submit an annual medical loss ratio (MLR) report that details the percentage of premium revenue that was used for clinical services provided to covered enrollees or used for activities that improve health care quality. Issuers are required to provide annual rebates to enrollees if their MLR falls below specified standards (generally 80 percent for individual and small group markets and 85 percent for large group market).

To encourage innovative benefit designs that incentivize consumers to make use of the new pricing information resulting from this rule, CMS makes changes to the MLR formula to count shared savings payments to consumers in the numerator of the MLR calculation. For example, in the case that an enrollee shops for and receives low-cost, high-value services from a provider and the issuer receives savings because of the choice, they may share some of those savings with the consumer and still count the expected amount against their MLR. Other plan designs considered in these changes include value-tiers and shared savings in the form of gift cards, reductions in cost-sharing, and/or premium credits.

Severability of Provisions

The rule is split into the separate regulations of each of the Departments and includes severability clauses that provides the opportunity for any of the Departments to eliminate any provision found to be unlawful while allowing the remaining provisions to still take effect.

[1] Health insurance issuer and group health plan are defined in 42 U.S. Code 300gg-91

[2] https://www.govinfo.gov/content/pkg/FR-2019-11-27/pdf/2019-24931.pdf

[3] The Federal Register has not issued a publication date, but the effective date should be around January 1, 2021.

[4] https://www.congress.gov/111/plaws/publ148/PLAW-111publ148.pdf as amended by https://www.congress.gov/111/plaws/publ152/PLAW-111publ152.pdf

[5] The final rule includes comments that preview expected legal challenges.

[6] Departments of Treasury, Labor, and Health and Human Services.

[7] Everywhere it states plan years, substitute the term “policy years” in the case of the individual market.