Over the past 25 years, major federal health policy initiatives have largely focused on the expansion of coverage and benefits. This era started with the creation of the Children’s Health Insurance Program in the late '90s, followed by the creation of Medicare Part D drug coverage and the growth of Medicare Advantage. Next came the Affordable Care Act’s dramatic expansion of Medicaid to childless adults and establishment of the significant tax subsidies, benefit standards and protections for individual insurance in the Marketplace Exchange. Significant changes in federal health policy are again in the air, with some big initiatives that will have major consequences for how health plans do business.
The focus of these new initiatives shifts beyond coverage and enrollment into modernizing member-facing plan technology and transparency (Interoperability and No Surprises Act), and managing costs, (either for taxpayers or enrollees) through direct negotiating of drug costs and direct accrual of rebates. In this new era, federal policymakers have moved from just telling the industry what to do to how to do it. This is evident in FHIR regulations determining methods of data exchange with providers and members. It’s more about micromanaging what we do to indirectly and, in some cases, straightforwardly rein in costs—a shift that will change how health organizations do things in the future. It’s important to understand that this is a sea change for the market, as government mandates will now be an expanding factor to control costs in the continued effort to make healthcare more affordable, cost-transparent and accessible.
“No Surprises” for out-of-network service
The first set of regulations with the consumer in mind is the No Surprises Act enacted in late 2020 and signed by President Trump. The initial requirement started in 2022, entailing a required enrollee cost share of certain unplanned out-of-network services, such as emergency room, air ambulance service or non-par provider treatment in-network facilities. Member cost sharing and coverage rules in these situations are now the same, regardless of provider network status. Plus, enrollee’s coinsurance/deductible is calculated with a derived reimbursement rate that approximates what they would be charged in a plan’s contracted network, which is called a Qualifying Payment Amount. This is typically determined by finding a median provider payment rate using all other options under the plan sponsor, issuer or TPA to arrive at a median cost. The new enrollee cost-sharing calculation for certain out-of-network services applies toward in-network deductible & in-network OOP Max.
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Various Blue Cross Issuer Payments for Colonoscopy |
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$2,000 |
Acme Plumbing |
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$2,100 |
East Virginia State Employees |
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$2,200 |
Teamsters Union (MEDIAN provider payment) |
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$2,300 |
William’s Welding |
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$2,500 |
Police Union |
The non-par provider is still paid the plan’s standard non-par amount, less the in-network cost-sharing calculated using the “qualifying amount.” The member’s cost share reduction is where the consumer savings will take place. Medical claims software will need to be modified to reflect this qualified payment amount for adjudication in these situations for the non-par and median rates to calculate the member’s cost share.
Interoperability technology expands transparency and expedites transactions
Much of the tremendous innovation and impact of digital technology over the past 20 years has not been widely adopted by health plans. Some of the lag is due to HIPAA privacy and security regulations for plans and providers. Thanks to emerging interoperability data standards, particularly the Fast Healthcare Interoperability Resource (FHIR) standard, which takes a modern, internet-based approach to connect different discrete elements through query retrieve standards, regulators have a new medium to mandate the exchange of data between plans, enrollees and providers.
Starting with 2020’s Interoperability and Patient Access regulation, CMS required Medicare Advantage, Medicaid MCOs and Federal ACA Exchange plans to make enrollee claims, clinical data, plan network and formulary data available digitally via FHIR Application Programming Interface (API). With patient consent and using OAuth security authentication requirements, the availability of patient data via web and phone apps no longer poses a HIPAA security violation risk to plans. The federal government just expanded this framework in December 2022 by proposing requirements for Prior Authorization requests, and responses between plans and providers to be transacted via a new FHIR API. Prior Authorization requests and updates would also be viewable on patients’ third-party apps and web tools via FHIR APIs. Additional requirements were also proposed for plans to share enrollee claims and clinical data digitally via FHIR API with providers’ Electronic Health Record systems, and also with successor plans when enrollees change carriers. These FHIR API expansions are proposed to take effect in January 2026.[i]
New drug pricing rules for Part D
In August of 2022, President Biden signed the Inflation Reduction act, which will have a major impact on Medicare Part D drug coverage. Over the next four years, our federal government will step in and control drug prices for high-spending brands and biologics without generic or biosimilar equivalents and 9+ years (small-molecule) or 13+ years (biologicals) from FDA approval. This pricing control will expand over time; by 2026 it will be the ten most expensive Part D drugs, with a plan to add 15 more drugs in 2027. In 2028 Part B drugs will be included, typically provider-administered injectables. If this regulation continues as it’s written, there would be 40 drugs in total. Beginning in 2029 and after, they will add 20 more drugs. These mandated drug prices are being called a negotiation between CMS and drug manufacturers.
This negotiation is comprised of instilling a maximum ceiling on drugs based on how far away it is from FDA approval. If manufacturers don’t agree to this negotiation, there is a 65% excise tax on the previous year's sales, i.e., $500M income = $325M excise tax. This excise tax will increase 10% each quarter up to a tax of 95%. Since this will limit long-term revenue for drug manufacturers, there could be a decline in R&D, which could be detrimental to new pharmaceutical treatments. However, it’s possible there could be waiver policies for a new drug that won’t be subject to the excise tax. Also, this tax is for drugs nine and 13 years out from FDA approval, providing some time to recover the R&D expense.
Part D plans will access this growing number of negotiated and controlled prices at the pharmacy point of sale. At this time, only Medicare drugs are covered by the new regulation. It is unclear how state Medicaid programs will react. States do get a 340B discount, which could be better than the price caps that are being put together. Also, there is still the commercial market where this doesn’t apply.
Making coverage more affordable for consumers
As our federal government continues the focus on cost, Part D plans will indirectly benefit from the negotiated lower drug prices realized at the point of sale, but the primary beneficiary will be enrollees. In the near term, The Inflation Reduction Act also includes a co-pay cap for insulin of $35 in Part D. CMS is currently testing a voluntary model, set to expire in December 2025.[ii] Additionally, a Part B insulin copay cap applied to medically administered treatment is set to start in July 2023. These copays are regardless of deductibles. In 2023, coverage coinsurance levels for certain other Part B drugs covered under both Traditional Medicare and Medicare Advantage will also decline, from the attribution of industry rebates directly to the Federal Government, and credited to enrollees through reduced coinsurance. In 2024 Part D will eliminate the 5% catastrophic coinsurance and cap annual premiums increases at 6%, which means plans will take on more of the cost—up from 15% to 20%. These benefits become even more generous in 2025 with a new maximum out-of-pocket (MOOP) of $2,000 and the end of a coverage gap period or “donut hole.” This is a wholesale shift in how Medicare Part D is structured and how plans will price their bid submissions to CMS, since drug rebates will accrue directly to the Medicare trust fund, instead of plans.
Another new feature for Part D enrollees in 2025; they can spread their co-pay across the year rather than paying it at the point of sale. This would be annuitized based on utilization for the previous year. Basically, a payment plan for the consumer, but CMS and plans must figure out how to plan for and administer this.
One other thing of note, ACA Exchange coverage includes the availability of a premium tax credit, which makes “Obamacare” health policies affordable for those with limited income. Premiums for those with income below 200% of FPL ($27,180 for an individual) were further reduced or eliminated, to $0, as part of the March 2021 American Rescue Plan Act (ARPA). For everyone else, ARPA made the advanced premium tax credit no more than 8.5% of income for coverage. The Inflation Reduction Act extends these enhanced subsidies for three more years, through 2025.
These changes not only present additional compliance challenges for health plans but will transform key operational components and even fundamental structures. For commercial plans, out-of-network provider claims must be priced two different ways. For government health programs, plan and member data must be readily accessible on third-party phone and web applications. Medicare drug plan benefits will be reshaped, and the federal government will become a growing presence in drug manufacturer pricing that Medicare plans and enrollees buy. Steep premium discounts will continue to be available through 2025 in Obamacare Exchange plans. Overall, targeted areas of health cost will be constrained and more transparent, but in exchange, plans will need to change how they price certain costs and operate not only to comply but continue to flourish in serving their enrollees.