Guidance Regarding Federal Rules and NYS Insurance Law in Relation to Whether Policy Changes Constitute a Product Discontinuance or a Uniform Modification
The US Department of Health and Human Services issued final rules on May 27, 2014 providing guidance as to whether certain policy changes constitute a product discontinuance or a uniform modification. The rule is effective for changes on or after July 28, 2014.1 The distinction is important because product discontinuances and uniform modifications require different notices and procedures. The information below is intended to provide guidance to issuers (including HMOs) with respect to these federal requirements for the individual, small, and large group markets.
The determination by an issuer of whether a policy change constitutes a product discontinuance or a uniform modification requires the following two step analysis:
1. Change Made Solely Pursuant to State or Federal Requirements
A policy change made solely pursuant to state or federal requirements (includes statutes, rules, regulations, and any other applicable authority) will be considered a uniform modification if:
- the change is made within a reasonable time period after the imposition or modification of the federal or state requirement, and
- the change is directly related to the imposition of the federal or state requirement.
If these requirements are met no further analysis is necessary.
For example: Cost sharing changes to keep a policy at an existing metal tier that are due solely to the mandatory application of the federal Actuarial Value (AV) calculator will be treated as a uniform modification.
2. All Other Policy Changes Must Meet ALL of the Following Criteria to be Considered a Uniform Modification:
A. Same Issuer.
The product must be offered by the same issuer (45 CFR 147.106(e)(3)(i)). If a product is not offered by the same issuer, it is considered a product discontinuance. An affiliated company within an issuer's holding company system would not be considered the same issuer.
B. Same Network Type.
The product must also be offered as the same network type (for example health maintenance organization, preferred provider organization, exclusive provider organization, point of service, or indemnity) (45 CFR 147.106(e)(3)(ii)). A change to a product's network type that affects the fundamental structure of a product such as adding a gatekeeper or changing a preferred provider organization to an exclusive provider organization will be considered a product discontinuance.
We also clarify that a change to a product's provider network will be a considered a uniform modification if the network type is not affected and the network continues to meet New York network adequacy standards.
C. Same Service Area.
Under federal rules, a product will be considered discontinued if it no longer covers "a majority of the same service area" (45 CFR 147.106(e)(3)(iii)). However, under New York law, all products (and all plans within a product) offered by an issuer in the individual or small group market must be offered throughout the issuer's entire service area, unless otherwise approved by the Superintendent (and the New York State of Health: the Official Health Plan Marketplace when the product is offered through the Marketplace).
Although an issuer in New York must offer all its products in the issuer's entire service area, an issuer may choose to reduce the size of its current service area. In that case, as long as a "majority" of the same service area is covered, such a service area reduction constitutes a uniform modification of coverage, not a product discontinuation. DFS interprets "majority of the same service area" to mean more than half of the counties in which the product was offered at the time of the change. Thus, in order for the product not to be deemed discontinued in the entire service area, the new service area must comprise more than half of the current service area. If the new service area is comprised of half or fewer of the counties of the current service area, all individual and small group products offered by the issuer would be considered discontinued.
For example, if an issuer's service area is comprised of ten counties, under New York law all products (and all plans within a product) offered by the issuer in the individual and small group markets must be offered in all ten counties. If the issuer decides to reduce its service area, the new service area would have to be comprised of at least six of those ten counties in the following year in order for any coverage offered by the issuer to be renewed. If the new service area is comprised of five or fewer counties, products offered by the issuer in all counties in the small group and individual market would be considered discontinued.
If the new service area is comprised of six of the ten counties, the product may be withdrawn in the four counties that no longer make up the service area, and, so long as the product is continued in the other six counties, the action will be considered a uniform modification of coverage. The renewal notice to enrollees in the six counties must describe the reduction in service area as part of the changes to coverage.
The non-renewal notice to enrollees in the four counties must be provided consistent with the time frame for providing notice of a product discontinuance as described below.
D. Same Cost Sharing Structure.
Within the product, each plan must have the same cost sharing structure as before the modification, except for any variation in cost sharing solely related to changes in cost and utilization of medical care, or to maintain the same metal tier level (45 CFR 147.106(e)(3)(iv)).
New York interprets the federal rule as follows:
- If the plan stays within the same metal level, it will be considered a uniform modification. A change in cost sharing will be considered a product discontinuance if it results in a change in a plan's metal tier.
- A change in the structure of cost sharing at the plan level, which means any changes resulting in a significant impact on benefits, will be considered a product discontinuance. For example, changing the cost sharing from a co-payment based plan to a co-insurance based plan would be a product discontinuance.
E. Same Covered Benefits.
The product must provide the same covered benefits. Benefit changes (other than those changes made solely pursuant to applicable state or federal requirements) will be considered a product discontinuance if they cumulatively impact the premium rate for any plan within a product by more than 2 percent (either + or -) (45 CFR 147.106(e)(3)(v)).
Issuers must demonstrate whether or not the impact of the change in benefits meets or exceeds the 2 percent threshold.
Templates for product discontinuance and renewal notices regarding the form and content of the notices are available here.
Timeframes: Product Discontinuance Notices
- Small and large group markets and individual products issued by Article 42 insurers: Notices must be delivered at least 90 days before the termination date (45 CFR 146.152(c)(1), Insurance Law §§ 3216(g), 3221(p), 4305(j)).
- Individual products issued by managed care organizations and Article 43 corporations: Notices must be delivered at least five months before the termination date (Insurance Law § 4304(c)). Issuers should provide a second reminder notice in October when replacement options will be known. The notice should remind insureds they must enroll in a new policy during the open enrollment period in order to avoid gaps in coverage and, where applicable, provide information about rates and benefits of replacement policies.
In addition, all Ian's Law requirements (Insurance Law §§ 3221(p) and 4305(j)) remain applicable to all group product discontinuances.
Timeframes: Renewal Notices
- Grandfathered products in the individual market and for all products in the small and large group markets: Notices must be delivered at least 60 days before the date of renewal of the coverage (45 CFR 146.152(h) and 148.122(i)).
- Non-grandfathered products in the individual market: Notices must be delivered before the first day of the annual open enrollment period (45 CFR 147.106(f)(1)).
- If a renewal notice in the individual or small group markets includes notice of final rate adjustment, or is intended to be the notice of final rate adjustment, it must be provided at least 60 days prior to implementing the approved rate adjustment (Insurance Law §§4308(c) and 3231(e)).
1 Further guidance was issued by CCIIO on September 2, 2014.