As health insurers are beginning to operationalize the requirements of the Affordable Care Act (the “ACA”), they are increasingly attempting to pass new expenses, taxes and payment cuts through to contracting providers and purchasers. In doing so, it is becoming increasingly clear that, when negotiating contracts, including participation agreements and purchasing arrangements, providers and purchasers must insist on detailed definitions that clearly allocate responsibility in order to provide predictability and avoid future disputes. In this post, we describe two ACA programs have recently created tensions between health insurers and providers and/or large employers and other purchasers.
Most recently, this has come to light in the implementation of the Risk Adjustment Program of the ACA (the “Program”). Section 1343 of the ACA directs States to operate a risk adjustment program that includes all non-grandfathered plans in the individual and small group market intended to spread the financial risk borne by issuers evenly in order to stabilize premiums. Under the Risk Adjustment Program, payments are transferred from issuers with relatively lower-risk populations to issuers with relatively higher-risk populations. We have seen that as health insurers make payments under the Program, they are attempting to pass the expenses to providers with percentage of premium risk arrangements, by claiming that such payments are deductions or adjustments to the amount of premium actually received, and then proceeding to reduce the payments to providers accordingly.
Most providers, however, are taking the position that Program payments are above the line payments that are the responsibility of the health insurer and are not actually attributable to premiums, of which they are entitled to get a specific percentage. The answer lies in the definition of “premium” in the agreement between the parties. However, in our experience, such definitions are not this granular. Going forward, providers should ensure that such payments are clearly identified as plan obligations. A definition that simply excludes “taxes and fees” may be insufficient.
Another example arises from the implementation of the ACA’s health insurer’s premium tax. Section 9010 of the ACA imposes an annual fee on health insurers, the first payment of which was due in September, 2014. Health insurers have attempted to pass these tax payments across to large employers and other purchasers of insurance, resulting in increased premiums and expenses for the purchasing of insurance. If not addressed in prior years, purchasers should expect health insurers to seek language in new deals intended to pass these costs on. Once again, this requires attention to renegotiations and negotiations of new arrangements, and clear provisions delineating responsibility for payment.