Participation Fees are the revenue for Covered California to become self-sustaining.
The contract to offer health insurance through California’s new health insurance market place mandates that plans pay a monthly Participation Fee per person enrolled for the privilege of being in Covered California. The $13.95 Participation Fee for individual members per month is just one of the many elements of the proposed Covered California contract that plans must adhere to if they want to be a contractor in the exchange for 2014.
Covered California is active purchaser of insurance
Even though California residents will be making premium payments to the specific health insurance company when they select a plan through the state exchange, Covered California is actually purchasing the insurance which means the insurance companies are contractors. The proposed contract spells out the expectations of Covered Californian for participating health insurance contractors, how they will be evaluated, and specific responsibilities and performance standards for Covered California. [wpdm_file id=73 desc=”true” ]
Shaping the market by ending plans
Within the contract the health plans must comply with certain mandates that might seem above and beyond the scope of a normal business relation agreement. In an effort to prevent health insurance companies from maintaining or offering new plans that might siphon away sales from the state’s exchange, Covered California has included a provision that the plans must stop offering plans that don’t look substantially like those offered through the exchange by December 31.
3.04 Offerings Outside of Exchange
(b) Contractor agrees that, to the extent not already required to do so by law, effective no later than December 31, 2013, it shall terminate or arrange for the termination of all of its non-grandfathered individual health insurance plan contracts or policies which are not compliant with the applicable provisions of the Affordable Care Act. Contractor agrees to promote ways to offer, market and sell or otherwise transition its current members into plans or policies which meet the applicable Affordable Care Act requirements. This obligation applies to all non-grandfathered individual insurance products in force or for sale by Contractor whether or not the individuals covered by such products are eligible for subsidies in the Exchange.
Reducing competition with exchange plans
Covered California staff had earlier suggested a March 31, 2014 date for ending such plans but that has obviously been bumped up. While this provision will stem any sales erosion from participating plan offerings, there will be several insurance companies that are not under any condition to mirror Covered California health insurance benefit structure. This provision could put some plans at a competitive disadvantage for the non-subsidized market segment in California.
No mid-year rate increases?
There is a hopeful tone with in the contract that the plans won’t raise their rates during the year which can be common place. The contract calls for annual negotiation of rates for the subsequent year. Covered California can’t make a plan lower their rates or stop an increase, but they can exclude them from the exchange if they wanted. This power of terminating a plan for excessive premiums is more leverage than the Department of Insurance has over health insurance rates.
3.09 Rate Information
(b) Individual Exchange: For the Individual Exchange, rates shall be established through an annual negotiation process between the Contractor and the Exchange and are set for the following calendar year. The parties acknowledge that: (1) the Agreement does not contemplate any mid-year rate changes for the Individual Exchange in the ordinary course of business, and (2) the annual negotiation process must be supported by Contractor through the submission of information in such form and at such date as shall be established by the Exchange to provide Contractor with sufficient time for necessary analysis and actuarial certification.
Modifying rate increases with the exchange
If the exchange proves effective in driving business toward the insurers then annual negotiations and the threat of not being able to participate in the exchange could prove fruitful for ameliorating rate increases. If, however, the exchange is only a modest success in attracting healthy premium paying members, the insurers may place less emphasis on whether they are in the exchange and will price their plans according to the outside market.
Are you being served?
Covered California has been diligently working to overcome the perception that all state bureaucracies lack any customer service component – which is probably true. They have added a Customer Service section to the contract that applies not only to the contractors but the state exchange as well.
3.18 Customer Service
…Contractor shall provide and maintain all processes and systems required to ensure customer service, record protection and uninterrupted service to the Exchange and Contractor’s Enrollees in the Exchange in accordance with the standards set forth at Attachment 6 (“Customer Service Standards”)…
The all important Attachment 6 is separate from the main contract and is fairly specific on the details. There are sections on when their call centers must operate, transferring calls to the exchange to verify income for subsidies, notices, enrollment material and staff training.
The teeth of the tough talk
But all the happy print about customer service is just talk unless it is backed up with some penalties for non-compliance. Attachment 14, along with Article 6 of the contract, delineates the performance standards and penalties for both contractor and exchange.
6.01 Performance Measurement Standards
(b) The Exchange and Contractor shall agree to performance standards for the Exchange, which, if not satisfied, will provide credits to Contractor which can be applied to any penalties accrued to Contractor. Such credits may reduce up to 25% of Contractor’s performance penalties that may be assessed under Section 6.02 below.
The performance standards are broken in four groups:
- Customer service for contractor
- Operational performance standards of the contractor
- Quality, network management and delivery of healthcare
- Customer service standards for Covered California
[wpdm_file id=74 desc=”true” ]
Where’s the penalty for bad “Hold” music?
One example of the performance standards is the timeliness of answering phone calls. The expectation is that 80% of the calls will be answered in 30 seconds. There is a 5% performance penalty if less than 80% of the calls are answered in 30 seconds and no penalty for a percentage of 80% – 90%. The contractor will get a 5% performance credit if over 90% of the phone calls are answered in less than 30 seconds. There are also measurements for processing ID cards, dropped calls, initial call resolution of a problem and grievance resolution. All of the same customer service measurements apply to Covered California with the exception of issuing ID cards.
Participation Fees are foundation of Penalty Fees
Penalties are real dollars based on participation fees.
5.03 Participation Fee
(a)(i) Individual Exchange. The Participation Fee payable to the Exchange during each month of this Agreement shall be equal to a per member per month (“PMPM”) rate of $13.95 multiplied by the number of Enrollees in Contractor’s QHPs for such month. The Participation Fee is based on the Exchange’s estimates of the revenue required to support the transition of the Exchange to being self-sufficient beginning in 2015. The Participation Fee is based on a rate equivalent to approximately three percent (3%) of the estimated individual market premium of $465 per month, an amount which represents the Exchange’s planning estimate of total premium paid to plans for each Enrollee in the Individual Exchange, inclusive of Federal subsidies. The Participation Fee will be assessed by the Exchange and payable monthly by Contractor based on enrollment in Contractor’s QHPs sold through the Individual Exchange in 2014.
Performance penalties will be a percentage of the plans overall Participation fee. From Attachment 14:
The assessment of the penalties by the Exchange shall be determined in accordance with the computation methodology set forth in the appendix to this Attachment 14 and shall based on the following conditions: (i) the aggregate amount at risk with respect to Contractor’s failure to comply with each of the Performance Measurement Standards shall not exceed ten percent (10%) of the total Participation Fee that is payable to the Exchange in accordance with the terms set forth in Section 5.03 of the Agreement, (ii) the performance penalties shall be based on the weighted average assigned to each Performance Measurement Standard that the Contractor fails to meet or exceed, as such weighted averages are set forth in the table below (“Performance Measurement Table”), and (iii) the amount of performance penalty to be assessed with respect to Contractor’s failure to meet a Performance Measurement Standard shall be offset (i.e., reduced) by a “credit” that is provided in the event that Contractor exceeds a Performance Measurement Standard in a separate category; provided, however, that in no event shall the credit to Contractor exceed the amount of aggregate amount of the performance penalty that may be assessed during any applicable period.
Penalties plus Credits equals wash
It’s possible that an insurer could accrue penalties equal to credits for either excellent performance in an area or poor performance by Covered California and not pay any penalty for a given month. Penalties paid in cash to the exchange go to reduce future participation fees that are meant to support Covered California’s operations.
How can the credits be applied?
What is unclear is if the performance credits to the contractor, in the absence of any penalties, reduce the monthly Participation Fee. If the contractor exceeds all the performance goals and receives credits, probably not exceeding 10% like the penalties, do they reduce their monthly participation fees or are the credits only to reduce penalties?
Participation Fees are the “tax” to run the exchange
The Participation Fee is the revenue for Covered California. After 2014 the federal grant money to operate the exchange slowly drops to zero. By law, Covered California must become self-sufficient by 2015 and be allocated no general fund monies. The Participation Fee charged insurers for enrollment through the exchanged is $13.95 per person in an individual plan and $18.90 per person in a group plan per month. The insurers can’t load the fee all onto the members that come through the exchange.
5.03 Participation Fee
(a) Contractor Allocation and Collection of Participation Fee. Contractor recognizes that the total cost of all Participation Fees for the Exchange must be collected by Contractor by spreading the cost across the premiums charged to Contractor’s entire individual risk pool (both inside and outside the Exchange) for the Individual Exchange Participation Fees and across the small employer risk pool (both inside and outside the Exchange) for SHOP Participation Fees. No rate charged to an Enrollee can have a higher per member per month fee to cover this overall Participation Fee than is charged to all other enrollees of the respective risk pool.
More Fee than it is worth?
This might prove to be a hefty expense for some plans that see little enrollment through the exchange. There is also the added forces of potentially higher expenses for individuals who enroll through the exchange and competition from plans that don’t have the Participation Fee. All of these factors may have some insurers reconsidering their participation in the exchange if the increased membership doesn’t materialize. Large diverse insurance companies will have a greater membership outside of the exchange to spread the Participation Fee over. Some regional plans might find their Participation Fee a larger expense percentage to their overall business compared to the statewide plans.
If Covered California is able to enroll 2 million of the estimated 2.6 million individuals eligible for tax credit premium subsidies (2 million x $13.95 x 12 months) that would equate to $334,800,000 annually in Participation Fee revenue for the exchange.
Creating a sales channel for the exchange
The Covered California contract has provisions to channel existing health insurance consumers into the exchange. In addition to the closure of plans that might compete with exchange plans, 3.04 Offerings Outside of Exchange, insurers must submit a transition plan for current customers.
3.36 Transition Plan
On or before August 1, 2013, Contractor shall submit to the Exchange a transition plan for notification of the benefits available through the Exchange to Contractor’s current enrollees in individual coverage who may be eligible for subsidies in the Exchange.
Plan of transition
At the very least plans will have to send letters to existing members potentially telling them their existing health insurance plan may be eliminated as of December 31 and how they can enroll or transition to a new exchange plan and possibly be eligible for a subsidy. The Covered California contract is essentially telling the insurers to encourage their existing members to purchase insurance through the exchange. If the member stays with the insurer but goes through the exchange, it will cost the insurer a $13.95 Participation Fee. I am not sure if paying to keep your existing customer base is an incentive or not.
New membership carrot
Covered California has several carrots to attract and keep health insurance plans. For one, California residents will only be able to get the subsidies when they purchase through the exchange. If a health insurance organization wants a piece of that pie, they need to sign the contract. Sometime in 2014 we’ll find out if the plans selected to be in the exchange are satisfied with the operation of the exchange and the conditions placed on them.