Authored by Jeff Maffitt
Draft guidance was issued Sept. 30, 2020 by the Centers for Medicare & Medicaid Services (CMS) Center for Consumer Information & Insurance Oversight (CCIIO) for the Treatment of Risk Corridors Recovery Payments in the Medical Loss Ratio (MLR) and Rebate Calculations.
Health insurance organizations who currently offer or have previously offered Affordable Care Act (ACA) compliant products should take note of this proposed guidance as it may require revised MLR reports to be filed and may also require additional rebate payments to enrollees.
The Supreme Court ruled in April 2020 that unpaid risk corridor amounts for benefit years 2014 to 2016 must be paid to insurers, and since that time the U.S. has begun making payments to insurers for these risk corridor amounts. The payment of these risk corridor amounts in 2020 for prior benefit years creates a reporting and rebating scenario not contemplated in the original rules for the ACA’s MLR program.
MLR rules generally require an insurer to provide rebates to enrollees if the ratio of premium revenue to claims and quality improvement expenses (i.e. the MLR) of the insurer is less than a defined threshold percentage (80% in the individual and small group markets and 85% in the large group market). The determination of whether an insurer must make an MLR rebate is determined by the average MLR over the three preceding years (e.g., MLR rebates paid in 2020 are based on the average MLR from benefit years 2017 to 2019). Under previous guidance and rules from CMS the actual risk corridor payments received by an insurer are subtracted from the MLR numerator, reducing the MLR, and potentially increasing rebates; while risk corridor charges paid by an insurer are added to the MLR numerator, increasing the MLR, and potentially reducing rebates.
The CMS draft bulletin proposes that risk corridor payments from 2014 to 2016 will be retroactively applied to insurers MLR filings for those plan years (i.e., MLR years 2015 to 2018). This proposed treatment will mitigate large MLR rebates that would result if these risk corridor payments were treated as a lump sum payment for plan year 2020.
Insurers must revise their MLR calculations for 2015 to 2018 reporting years, using the risk corridor payments received, to determine if the revised rebate liability is greater than originally calculated. Insurers with a greater rebate obligation based on the inclusion of the recovered risk corridor payment amounts for one or more of the applicable prior reporting years must submit the revised reporting forms to CMS by Dec. 31, 2020, or within 60 days of receiving additional risk corridor payments, whichever is later. Insurers that do not have a higher rebate obligation based on the inclusion of the recovered risk corridor payment amounts for any of the applicable reporting years do not need to submit a revised MLR reporting form.
Insurers with a greater rebate liability must pay the additional outstanding rebate amounts to the enrollees who were enrolled in the respective MLR reporting year within 60 days of submitting their revised MLR reporting forms to CMS. Insurers are required to make a good faith effort to locate and deliver to an enrollee the additional rebate amount, which may be a challenge for enrollees who left the insurer’s plan years ago.
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