CMS Issues Final Rule on New Premium Assistance Option

As my diligent colleague Tricia Brooks reported, CMS issued an important final rule on July 5th  that we have been expecting for some time. While the rule did not finalize a number of issues, it did include slightly revised rules for states interested in pursuing premium assistance in the individual market – sort of a hot topic now as new marketplace exchanges come online in 2014 offering better individual coverage options.[1]

Indeed as I write this, I am stranded on the tarmac at the Bill and Hillary Clinton airport (affectionately known as the “HillBilly”) in a certain state that is pursuing such a premium assistance option for the entirety of its Medicaid expansion. In fact, Arkansas’ waiver proposal on this score is out for public comment right now, which is why I am here, but that is a topic for another blog.

The final rule provides important information on how states like Arkansas will need to structure their programs (although Arkansas will still need a waiver because their plan requires Medicaid beneficiaries to enroll in the exchange).  A state plan option, such as is described in the rule, can only be pursued if enrollment is voluntary.

So what does the rule say and how did it change?

The preamble makes clear that: “Under all premium assistance arrangements, Medicaid and CHIP-eligible individuals remain Medicaid or CHIP beneficiaries and continue to be entitled to all Medicaid/CHIP benefits and cost-sharing protections.” (Preamble, p. 91). This is an important statement that we should all memorize so we have it at the tip of our tongues anytime questions arise about what these arrangements mean in practice.

On the critical question of benefits and cost-sharing, the regulatory language is clear that should a state elect to buy individual coverage, the agency must furnish all benefits for which the individual is covered under the state plan.  These benefits are commonly referred to as a “wraparound”. The agency must also ensure that the individual does not incur any cost-sharing charges in excess of what the state plan requires. This is consistent with the proposed rule, and with guidance that CMS issued in March on how they will consider waiver proposals from a state like Arkansas.

Promising beneficiaries that they won’t lose any benefits is obviously a very important principle, though concerns remain about how well wraps work in practice. The final rule does include some new language about the obligation of states to inform beneficiaries as to how they would access any wraparound services, which is a helpful change.

On the important issue of how cost-effectiveness will be determined, the final rule incorporates a change we recommended to clarify that this calculation must really be an “apples to apples” comparison. In particular, the final language says “the total cost of purchasing such coverage, including administrative expenditures, the costs of paying all cost sharing charges in excess of the amounts imposed by the agency (under the State plan), and the costs of providing (wraparound) benefits … must be comparable to the cost of providing direct coverage under the State plan.”

The proposed rule had not specified that all cost-sharing charges needed to be included in the calculation, so this is a helpful clarification. However, CMS left some room for fudginess in how they will approach the issue of cost-effectiveness. The preamble says that the word “comparable” was chosen “to allow flexibility because the amount, duration and scope of the QHP coverage, or the nature of the QHP service delivery system, might be different from direct coverage under the state plan.” (Preamble, p. 95) In other words, a state could argue that QHPs have better provider networks and factor that into its cost-effectiveness argument in a situation where straight Medicaid appears to be less expensive.

I think this gives us some clue as to how CMS will approach the budget neutrality section of the Arkansas waiver that will likely be pending at the federal level in August. I will blog on the Arkansas topic in the near future!

[1]For those who want to take a close look, see §435.1015 and the Preamble pps. 90-99.


Joan Alker
Joan Alker is the Executive Director of the Center for Children and Families