[Federal Register Volume 61, Number 106 (Friday, May 31, 1996)]
[Rules and Regulations]
[Pages 27282-27288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13629]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 417
[OMC-004-F]
RIN 0938-AE64
Health Maintenance Organizations: Employer Contribution to HMOs
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule.
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SUMMARY: This rule amends Sec. 417.157 of the HCFA regulations, which
pertains to employer contributions to health maintenance organizations
(HMOs) that are included among the alternatives in health benefits
plans that an employer offers to its employees.
These amendments are necessary to conform that section to changes
made in section 1310(c) of the Public Health Service Act by section
7(a)(2) of the HMO Amendments of 1988.
The intent is to ensure that employees who choose the HMO
alternative are not financially disadvantaged.
DATES: Effective Date: These regulations are effective on July 1, 1996.
FOR FURTHER INFORMATION, CONTACT: Marty Abeln, (410) 786-1032.
SUPPLEMENTARY INFORMATION:
I. Background
Under section 1310 of the Public Health Service (PHS) Act, the
following rules apply:
Certain public and private employers that offer health
benefits plans to their employees must include the option of enrollment
in qualified health maintenance organizations (HMOs) if such HMOs
request inclusion and their requests meet specified conditions as to
content and timing (this is known as the ``employer mandate''
provision);
The procedures for offering the HMO option must take into
account the rules of collective bargaining; and
No employer is required to contribute more for health
benefits than would be required by any prevailing collective bargaining
agreement or any other legally enforceable contract between the
employer and the employees for health benefits.
These provisions are implemented by subpart E of part 417 of the
HCFA rules. Section 417.157 of those rules provides that--
The employer or designee must include the HMO option in
the offering on terms no less favorable, with respect
[[Page 27283]]
to the employer's monetary contribution or designee's cost than the
terms on which the other alternatives are included; and
An employer's contribution must be equal, in dollar
amount, to the largest contribution made by that employer, on behalf of
a particular employee, to a non-HMO alternative included in the plan
offering.
II. Statutory Amendment
Under amendments made to section 1310 of the Public Health Service
Act by section 7 of Public Law 100-517--
If an employer offers a health benefits plan to its
employees and includes an HMO as required by the mandate provisions
discussed above, any employer contribution under the plan must ``not
financially discriminate'' against an employee who enrolls in the HMO;
The employer's contribution does not discriminate if the
``method of determining the contribution on behalf of all employees is
reasonable and is designed to assure employees a fair choice among
health benefits plans''.
The ``employer mandate'' provision expires on October 24,
1995, and employers that voluntarily include HMOs after that date must
meet the nondiscrimination standard for their contributions.
The legislative history of this provision makes clear that, while
the Congress agreed that our current ``dollar for dollar'' test was
consistent with previous law, the Congress now intends to give
employers greater flexibility.
The committee reports accompanying Public Law 100-517 provided
examples of some methods of contribution that would meet the
legislative requirement. (See, for example, the report of the Senate
Committee on Labor and Human Resource, Sen. Rep. No 304, 100th Cong.,
2nd Sess., 9-11 (1988).) We incorporated those examples in the proposed
rule at Sec. 417.157(a)(4). We indicated that, if an employer followed
one of those methods, we would not consider the contributions to be
financially discriminatory.
Method 1: The employer may contribute to the HMO the same amount it
contributes to the non-HMO alternative. For example, an employer that
contributes $80 per month on behalf of each employee who joins an
indemnity plan and pays the same amount on behalf of each employee who
joins the HMO would not be discriminating.
Method 2: An employer's contributions may vary for different
classes of enrollees established on the basis of attributes, such as
age, sex, or family status, that are reasonable predictors of
utilization, experience, costs, or risk. For each enrollee in a given
class, the employer would contribute an equal dollar amount, regardless
of the plan that an employee chooses. To illustrate, one such class
might be single males under the age of 30. If the employer's cost for
the class of single males under age 30 in an indemnity or self-
insurance plan is $60, and the employer's contribution for HMO
enrollment for each employee in that particular class were $60, there
would be no discrimination. The employer would follow this methodology
for each of the other classes. By calculating the contribution for HMO
enrollment for each class in this way, the employer would determine its
total payment on behalf of all employees enrolling in the HMO.
Method 3: If the employer's policy is that all employees contribute
to their health benefits plan, an employer may require employees to
make a reasonable minimum contribution to an HMO. We would consider an
employee contribution that did not exceed 50 percent of the employee
contribution to the principal non-HMO alternative to be reasonable in
such a situation. To illustrate, assume that the HMO's premium is $80,
the alternative plan's premium is $100, and the employer contributes
$80 on behalf of each employee who participates in the alternative
plan. In such a case, employees who join the HMO would have no out-of-
pocket costs while employees who remain with the alternative plan would
contribute $20. If the employer had a policy requiring a minimum
employee contribution for health benefits, we would consider it
reasonable for the employer to require employees who enroll in the
lower cost plan, in this example the HMO, to pay an amount not in
excess of $10, which is 50 percent of the employee contribution to the
non-HMO alternative.
Method 4: An employer's contribution may be the same percentage of
the premium of each alternative the employer offers. For example, if
the employer pays 90 percent of the premium of each non-HMO alternative
offered, we would find no discrimination if the employer pays 90
percent of the HMO premium.
Method 5: Employers and HMOs may negotiate contribution
arrangements that are mutually acceptable. In negotiating those
arrangements with a Federally qualified HMO, an employer may not insist
on terms that would cause the HMO to violate any of the requirements
for being a qualified HMO, as set forth in subparts B and C of part 417
of the HCFA rules. Any negotiated arrangements must meet the basic
criteria for nondiscrimination against employees who enroll in HMOs.
Although the major thrust of the statutory amendment is to provide
greater flexibility to the employer while ensuring fair choice for
employees, two of the committee reports (discussed below in the
response to comment #6) specify that HMOs are also protected from
``discriminatory and unfair contribution practices''.
III. Proposed Rule
On July 5, 1991, at 56 FR 30723, we published a proposed rule that
would amend Sec. 417.157 to implement the statutory change discussed
above, primarily by incorporating the examples.
Also included were proposed minor amendments to those portions of
Sec. 417.107 that pertained to quality assurance and to certification
of institutional providers, and the removal of an outdated requirement.
No comments were received on this part of the NPRM. While this final
rule was under development, the document identified as OCC-015-FC
(published on July 15, 1993 at 58 FR 38062) made the proposed changes.
It removed obsolete paragraph (f), redesignated paragraph (h) as
paragraph (a) of Sec. 417.106, and redesignated paragraph (i) as
paragraph (h) of Sec. 417.124.
IV. Discussion of Comments on the Proposed Rule
We received seven letters of comment; three from HMOs, two from
industry associations, and one each from a law firm and a consultant.
Their comments and our responses to them are discussed under several
subject areas.
A. ``Contribution by Class'' Method
This is the second of the five examples listed in the proposed
rule. Under this method, employers may contribute different amounts for
different classes of employees classes based on factors such as age,
sex, and family status.
1. Comment: One commenter noted that this appeared to allow
differential employer contributions for male and female employees which
would presumably result in different out-of-pocket costs for male and
female employees. The commenter thought this would be illegal
discrimination as it would violate title VII of the 1964 Civil Rights
Act. In addition, the commenter questioned whether an age-based
classification would violate HCFA regulations that require that
employees
[[Page 27284]]
and spouses over age 65 be provided health coverage on the same terms
as coverage for younger employees.
1. Response: This comment has brought to our attention that
``Method 2'', which was taken directly from the legislative history, is
misleading. First, the example assumes that the employer would have
differential costs by age and sex in its contributions towards
indemnity plans, which would be reflected in its payment to HMOs.
However, we understand that health insurers that contract with employer
groups do not vary rates between men and women, or according to age,
but rather develop composite rates similar to the HMO community rates,
i.e.,distinguishing only between individuals and families. This, as a
practical matter, makes the example in ``Method 2'' inaccurate. We are
revising the regulation text accordingly.
However, we note that gender-based distinctions under an employee
benefit plan would likely violate title VII of the Civil Rights Act of
1964, as interpreted by the Supreme Court. That statute is under the
jurisdiction of the Equal Employment Opportunity Commission (EEOC), and
beyond the scope of this regulation. Any questions as to whether a
particular fact situation would or would not violate title VII should
be directed to the EEOC.
We also note that the HCFA regulations cited by the commenter do
not impose a general prohibition against age-based distinctions, but
apply only to distinctions based on attainment of age 65. This
implements explicit statutory language.
2. Comment: Two commenters were concerned that some employers may
wish to use prior year data on attributes that may not be reasonable
predictors of utilization, experience, costs, or risk. In order to
prevent confusion on this issue, one commenter proposed adding the word
``demographic'' to the example, to read:
An employer's contributions may reflect the demographic
composition of enrollees according to attributes such as age, sex
and family status* * *
2. Response: We do not believe that the Congress intended to limit
to ``demographic factors'' the ``attributes'' employers may use in
determining their contribution amount. The supporting committee reports
suggest a broader concern: that employers be able to determine their
contribution using a method that reflects the HMO's actual costs, so
that the employers realize cost savings if their employees use fewer or
less costly services. We believe that the critical language is the
requirement that the attributes must be such as can reasonably be
expected to predict utilization, experience, costs, and risks. Age,
sex, and family status are given only as examples. In summary, if an
employer can establish that a nondemographic attribute can reasonably
be considered a predictor of those factors, it is acceptable. On the
other hand, if an HMO can show that a particular health status factor
cannot reasonably be considered to be a predictor, it is not
acceptable. We do not believe it is necessary or appropriate for the
regulations to elaborate further on the standard.
3. Comment: One commenter had additional questions about the
application of nondemographic factors. He expressed concern about the
validity and potential for abuse of employers' revising their HMO
contribution amount on the basis of studies of health costs incurred by
persons who switched from the employer's self-insured plan to an HMO,
or on national data showing that HMOs receive favorable selection.
The commenter requested that HCFA provide more information about
how prior use data may appropriately be used to predict future health
care costs and thus be a legitimate factor in developing employer
contributions by class. The commenter concluded by proposing that
HCFA--
a. Establish guidelines as to the circumstances under which
employers may make contribution decisions using data on prior
utilization of employees who switch to an HMO, and require
justification for such use;
b. Require employers to obtain prior HCFA approval for any method
not allowed under the guidelines; and
c. Specify the minimum number of employees for whom data must be
obtained, for the data to be considered statistically valid.
3. Response: As previously discussed, under the contribution by
class method, any employee attribute used in an employer's contribution
methodology must be one that can reasonably be expected to predict the
health care utilization, experience, costs, or risk of those employees
who are enrolling in the HMO. Health status attributes such as previous
health care utilization and costs are generally accepted as predictors
of future health care costs and are acceptable for employers to use in
determining their contribution to an HMO.
The legislation requires that the employer's method for calculating
the contribution be ``reasonable'' and ensure employees a ``fair
choice'' among the plans offered. We believe that in order to meet the
standard of being reasonable and ensuring employees a fair choice, the
method of determining the employer's contribution must reflect a
reasonable estimate of the cost of providing health care services for
the actual enrollees of a particular HMO.
We also believe that the intent of the legislation is to provide
employers with flexibility in determining their contribution
methodology, as long as it meets the ``reasonable'' and ``fair choice''
standards. Therefore, we will not specify a minimum number of employees
to be used in the calculations. Although we do not require prior
approval, we do require the employer to make available to HCFA, upon
request, information on how it calculates its contribution. If the HMO
or the employees believe that the contribution does not meet the
``reasonable'' and ``fair choice'' standards, they may request that
HCFA review the methodology.
4. Comment: Two commenters requested that HCFA provide guidance on
possible exceptions to the principle that the ``contribution by class''
method should reflect the actual enrollment of each HMO.
The first commenter noted that it is not unusual for an employer to
offer one or more indemnity plans and several HMOs to achieve HMO
coverage over a broad enough area or for other reasons. In such cases,
the commenter noted, it would be desirable for the employer to
establish a single HMO contribution rate, even though the different
HMOs may in fact charge different rates. To avoid compelling the
employer to find a separate contribution for each HMO, the final
regulations should treat the HMO contribution as acceptable if it meets
the required standard with respect to any of the HMOs or with respect
to the average of the HMO charges.
The second commenter was concerned that an employer might take the
demographic data from all the HMOs it offered and come up with a single
``composite'' contribution amount for all of them. This commenter
believed that a single ``composite'' contribution should not be allowed
because the employer had not developed it on the basis of the expected
demographic characteristics of the mandating HMO. The commenter noted
that if the employer combines the demographic data of the mandating HMO
with the data of another HMO or other health benefits plans it offers
its employees, the employer would not be making an equal dollar
contribution for each employee in a particular class.
4. Response: The basic rule is that the methodology must be
reasonable and
[[Page 27285]]
must offer employees a fair choice among health benefit plans. As noted
above, we take the position that it must reflect the actual attributes
of each HMO's enrollment. It seems unlikely, for example, that an
employer with employees in widely dispersed geographic areas, or in
rural as well as urban areas could establish a ``composite''
contribution that would meet the standard. However, if an employer can
show that in its particular situation, a composite amount would meet
the standard, it could be acceptable. For example, all of the HMOs
might be shown to serve the same general geographic area and attract
the same type of enrollee. Absent such a showing, it would not be
sufficient to meet the standard for a single HMO without considering
the others.
We note that the second commenter objected to a composite
contribution amount on the grounds that the employer would not be
making an equal dollar contribution for all members of a particular
class. Although the ``contribution by class'' method requires equal
dollar amounts within each class, there could be other similar
approaches that do not use equal dollar amounts but still meet the
standard of reasonableness and fair choice.
B. Minimum Employee Contribution Method
5. Comment: One commenter suggested that example (iii), which
states that the employer may require employees to contribute to the HMO
an amount that does not exceed 50 percent of the employee contribution
to the principal non-HMO alternative, include two additional
limitations:
a. The minimum contribution requirement can be invoked only if an
employee would otherwise have to pay little or nothing for the HMO
plan.
b. The employee contribution may not exceed $20 per month.
5. Response: We agree with the commenter that the ``minimum
employee contribution'' approach can be used only if the HMO coverage
would otherwise be available at nominal or no cost. This is
specifically stated in the legislative history and was implicit in the
proposed rule. We are making it explicit in the final rule. However, we
will not establish a $20 maximum because the Congress, in stating that
it would be reasonable to set the limit for the required contribution
at 50 percent of the contribution to the non-HMO alternative,
established that amount as the maximum.
C. Miscellaneous Aspects
6. Comment: One commenter was concerned that the intent of the
Congress that contribution arrangements not discriminate against the
HMO is not evident in the regulation. The committee report language is
essential to an understanding of the legislative intent. There should
be a statement in the final regulation or preamble to the effect that
it is not the intent of the law to allow practices that would be unfair
or discriminatory to the HMO, and that such practices will not be
permitted.
The commenter also suggested that the purpose of the HMO provisions
and the examples set forth in the committee reports could provide a
basis for HCFA to establish strict criteria for evaluating any method
that results in the employer's paying less on behalf of an employee who
enrolls in an HMO than on behalf of an employee who enrolls in a non-
HMO alternative. The commenter urged that exceptions be narrowly
construed and allowed only for compelling reasons. Otherwise, the
underlying purpose for enactment of section 1310 of the PHS Act would
be circumvented. The commenter recommended that we adopt the following
factors as the basis for determining whether an employer contribution
is reasonable and offers a fair choice:
The method proposed by the employer must be consistent
with the purposes of encouraging the effective and efficient delivery
of health care services and reducing health care costs.
Financial discrimination against employees who enroll in
an HMO must be minimal and only to the extent necessary to accomplish
the purposes.
Another commenter asked if a contribution method in which the
employer contributed the difference between the employee contribution
and the health plans' premiums resulting in employees having an equal
expense whether they choose an HMO or a more expensive indemnity plan,
would be prohibited by these proposed rules. The commenter stated that
such a practice clearly discriminates in favor of the more expensive
plan (typically a non-HMO plan) and thus unfairly discriminates against
employees and the HMO.
6. Response: With respect to the first comment, section 1310(c) of
the PHS Act does not mention discrimination against the HMO. The
employer contribution is acceptable if it ``is reasonable and is
designed to assure employees a fair choice among health benefits
plans''. The legislative history cited by the commenter states that the
new standard ``enhances employers' flexibility in determining their
contributions to HMOs while protecting employees and HMOs from
discriminatory and unfair contribution practices.'' (Sen. Rep. No. 100-
304, H.R. Rep. No. 100-417) However, the fact that the statute does not
contain the reference to the HMO indicates that this statement
supports, at most, a balance of the interests of the three parties,
with primary weight given to the employer and employee interests.
With respect to the suggestion that the HMO contribution cannot be
less than the non-HMO contribution, unless it is shown to ``encourage
effective and efficient delivery of health care'', we note that the
legislative history clearly states that a dollar-for-dollar match is no
longer required. Moreover, two of the examples provided in the
legislative history assume that there will be an unequal contribution,
and that it will be to the HMO's disadvantage. First, an employer can
require employees to pay for their HMO coverage even if the methodology
would otherwise result in no cost to the employees.
Similarly, the employer is permitted to contribute equal
percentages of the cost for the HMO and non-HMO options. Under this
method, an employer can contribute far more, in terms of dollars, for
the non-HMO option than for the HMO option. For example, if the HMO
costs $100 per month, and the indemnity plan costs $300, and the
employer pays 90 percent of the cost, it will pay $90 for an employee
who chooses an HMO, and $270 for an employee who chooses the indemnity
plan. (For the employee, the difference between the two options is only
$20.)
Therefore, we see no justification for imposing a stricter standard
simply because the employer pays less for the HMO than the non-HMO
option. In addition, the commenter's proposed ``efficiency and cost
effectiveness'' standard is neither required by the statutory amendment
nor, arguably, supported by its legislative history. The latter states
only that section 1310 was designed to give employees an opportunity to
choose an HMO alternative. It does not mention efficiency and cost
effectiveness.
Finally, with respect to determinations that result in equal
employee contributions for all alternatives, we believe that this
approach is clearly one way to provide a ``fair choice'' to employees.
Under this approach, employees can choose the health plan that best
serves their needs. The commenter's primary concern seems to be that
this approach is unfair
[[Page 27286]]
to employees if they cannot ``share in the savings'' of choosing an
HMO. We note, first, that ``fairness'' is a subjective standard. As
long as an approach can reasonably be viewed as fair, it satisfies the
standard. That judgment is not invalidated simply because there may be
a basis for characterizing it as unfair.
We note further that the legislative history makes clear that the
amendment was, to a large extent, prompted by a concern that the HMOs
were engaging in ``shadow pricing''. Under shadow pricing, the HMOs
would charge the same premium as more expensive non-HMO alternatives
instead of passing the savings along to either the employer or the
employee. Therefore, the argument that equal employee contributions are
unfair because employees cannot ``share in the savings'' (from choosing
a lower cost HMO) is not compelling.
7. Comment: One commenter noted that Sec. 417.157(a)(2) lists five
contribution methods as acceptable, but there are no examples of
unacceptable methods. Several commenters asked for more guidance to
assist them in determining what would be acceptable.
Another commenter strongly suggested that the proposed rules be
amended to provide examples of types of arrangements that would be
considered to be discriminatory, and therefore prohibited, by these
regulations.
7. Response: The employer contribution requirements provide
employers enhanced flexibility in determining their contributions to
HMOs and other health benefits plans they offer. The limits on that
flexibility are established by the statutory language which requires
that the method of determining the contribution be reasonable and not
discriminate financially against employees who choose to join an HMO.
In part, this new flexibility is recognition that HMOs need less
regulatory protection because in recent years they have become more
accepted by both employers and employees and are generally better able
to compete with other health benefits plans.
As previously stated, if the HMO or the employees believe that the
employer's contribution does not meet the ``reasonable'' and ``fair
choice'' standards, they may request that HCFA review the methodology.
Generally, HCFA will not undertake a review if the employer has
followed one of the examples given in the regulation.
If the employer uses a methodology other than one of those
examples, HCFA generally will not review unless the methodology results
in significantly higher costs for employees who select the HMO
alternative. If it undertakes review, HCFA will consider whether the
employer's methodology is based on factors that are reasonable and are
applied fairly. For example, if the HMO has a more comprehensive
benefits package than the principle indemnity plan, that could be a
reasonable factor justifying a higher cost for employees who enroll in
the HMO.
We will not attempt to define all possible reasonable explanations
that would justify a larger contribution from HMO enrollees. We note
however, that the rationale must apply to the actual employees of the
particular HMOs.
8. Comment: One of the commenters, while agreeing that employers
can now make unequal contributions, stated that the right to make
unequal contributions should require substantial justification, be
narrowly construed, and allowed only for compelling reasons.
8. Response: We believe such stringent requirements are not in
keeping with the flexibility the Congress intended employers to have.
As noted below under Changes in the Regulations, the final rule
requires the employer to make available to HCFA, upon request, a
description of the methodology it used to determine its contributions,
and related data on the eligible employee population. HCFA may request
the data on its own initiative or because an HMO or employee requests
HCFA to review the methodology.
A contribution methodology that results in different contributions
to different plans in order to ensure that employees have the same out-
of-pocket costs, no matter which plan they choose, is consistent with
the standards and would, therefore, be acceptable.
9. Comment: One commenter suggested that any method that does not
fall into one of the first four examples provided in the regulation
should be required to fall into the fifth example--the method must be
mutually acceptable to both the employer and the HMO.
9. Response: The five examples of acceptable contribution methods
listed under Sec. 417.157(a)(2) are not meant to be exclusive. We note
that the intent of the legislation is to allow employers increased
flexibility in determining their contribution payment amounts.
Accordingly, we will not restrict feasible contribution methodologies
beyond the requirements already described.
10. Comment: One commenter noted that the last of the five examples
under Sec. 417.157(a)(2) allows for employers and HMOs to negotiate
contribution arrangements that are mutually acceptable. The commenter
goes on to ask if such mutually-agreed-upon arrangements must also meet
the statutory standards of the proposed employer contribution
regulation.
10. Response: Contribution levels that are mutually agreed upon by
the employer and the HMO must also meet the standards established by
this regulation.
V. Changes in the Regulations
A. Changes Required by the Expiration of the ``Employer Mandate''
Provisions Effective October 24, 1995
In Sec. 417.151, we have revised paragraphs (a) and (e) to make
clear that, effective October 24, 1995, inclusion of the HMO
alternative in an employer's health benefits plan became optional.
We have removed Secs. 417.152 and 417.154 because they would no
longer be applicable.
In Sec. 417.153, we have revised paragraph (a) to make paragraphs
(b) and (c) applicable when an employing entity voluntarily includes
one or more HMOs in its health plan offerings.
We have revised Sec. 417.159 to make clear that inclusion of HMOs
is at the employing entity's option.
B. Changes to Implement Statutory Amendments That Were Effective Upon
Enactment.
In Sec. 417.157, we have--
Revised paragraphs (a)(1) and (a)(2) to eliminate the
``equal contribution'' requirement and to incorporate the criteria
specified in the statute;
Revised paragraph (a)(3) to remove the requirement for
increased contribution to the HMO and to give examples of contributions
that would be considered nondiscriminatory;
Added a paragraph (a)(4) ``Adjustment of employer
contribution'' to make clear that what appeared in the proposed rule as
a third ``method'' is rather a general rule applicable, under specified
circumstances, to a contribution determined by any acceptable method.
Adjustment is permitted only when HMO enrollees would, otherwise, have
to pay little or nothing at all because the HMO premium is lower than
the premiums of other plans offered. The payment by the enrollee could
not exceed 50 percent of the payment for the principal non-HMO
alternative, that is, the alternative that covers the largest number of
the employer's employees.
Removed paragraphs (f) and (g) as inconsistent with the
revised policy; and
In response to certain comments, revised the content of
paragraph (h) and redesignated it under new paragraphs (f) and (g).
[[Page 27287]]
VI. Regulatory Impact Statement
Consistent with the Regulatory Flexibility Act (RFA) and section
1102(b) of the Social Security Act, we prepare a regulatory flexibility
analysis for each rule, unless the Secretary certifies that the
particular rule will not have a significant economic impact on a
substantial number of small entities, or a significant impact on the
operations of a substantial number of small rural hospitals.
The RFA defines ``small entity'' as a small business, a nonprofit
enterprise, or a governmental jurisdiction (such as a county, city, or
township) with a population of less than 50,000. We also consider all
HMOs to be small entities. For purposes of section 1102(b) of the Act,
we define ``small rural hospital'' as a hospital that has fewer than 50
beds and is located anywhere but in a metropolitan statistical area.
For reasons noted below, we believe that any economic impact of the
statutory provisions on which this rule is based will be small and
transitory.
Effective as of October 24, 1995, inclusion of HMOs in employer
health plan offerings became voluntary.
Employers that do include HMOs are no longer held to the previous
``dollar for dollar'' rule. An employer could, for example, base its
contribution to an HMO on a reasonable estimate of what it will cost to
provide care for its employees, and thus share in the savings resulting
from efficient delivery of health care by the HMO.
However, the employer's contribution must meet new standards, that
is, it must be an amount that is ``reasonable'' and that ensures
employees a ``fair choice'' among health plan alternatives offered.
This balanced approach means that, while employers benefit from greater
flexibility, employees--and the HMOs they are free to join, are
protected against discrimination.
We have not prepared a regulatory flexibility analysis because we
have determined, and the Secretary certifies, that these rules will not
have a significant economic impact on a substantial number of small
entities or a significant impact on the operation of a substantial
number of small rural hospitals.
In accordance with Executive Order 12866, this rule was reviewed by
the Office of Management and Budget.
VII. Collection of Information Requirements
This rule contains new information collections that are subject to
review by the Office of Management (OMB) under the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 through 3511). The title and description of
the information collection and the description of respondents are shown
below with an estimate of the annual reporting and recordkeeping
burden.
Sec. 417.157(f): Retention and availability of data, is revised to
specify that each employing entity or designee must retain the plan
data for three years and make it available to HCFA upon request. The
data must be that used to compute the level of contribution for each of
the plans offered to employees, a description of the methodology for
computing the level of contribution, and any related data about the
employees who are eligible to enroll in a plan.
Sec. 417.157(g): HCFA review of data, is revised to make clear that
HCFA may request and review the data specified in paragraph (f) of this
section on its own initiative or in response to requests from HMOs or
employees. The purpose of HCFA's review is to determine whether the
methodology and the level of contribution comply with the requirements
of this subpart. HMOs and employees that request HCFA to review the
plan data must set forth reasonable grounds for making the request.
The respondents affected by section 417.157, paragraphs (f) and (g)
are public and private employers and employees.
The burden under paragraphs (f) and (g) of section 417.157 is
estimated at 8 to 10 hours per employer for compiling the data, usually
once a year, and making it available to HCFA when requested.
The agency has submitted a copy of this rule to OMB for its review
of these information collections. When OMB approves these provisions,
we will publish a notice in the Federal Register to that effect.
We invite comments regarding this burden estimate or any other
aspect of these collections of information, including any of the
following:
Whether the information collection is necessary and useful
for carrying out the proper functions of the agency;
the accuracy of the estimated burden;
ways to enhance the quality, clarity, and usefulness of
the information to be collected; and,
recommendations for using automated collection techniques
or other forms of information technology to minimize the information
collection burden.
Please send any comments to HCFA, OFHR, MPAS, C2-26-17, 7500
Security Boulevard, Baltimore, Maryland 21244-1850.
List of Subjects in 42 CFR Part 417
Administrative practice and procedure, Grant programs-health,
Health care, Health facilities, Health insurance, Health maintenance
organizations (HMO), Loan programs-health, Medicare, Reporting and
recordkeeping requirements.
42 CFR Part 417 is amended as set forth below:
1. The authority citation for part 417 continues to read as
follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh); secs. 1301, 1306, and 1310 of the Public
Health Services Act (42 U.S.C. 300e, 300e-5, and 300e-9); and 31
U.S.C. 9701.
2. Sec. 417.151 is amended to revise paragraphs (a) and (e) to read
as follows:
Sec. 417.151 Applicability.
(a) Basic rule. Effective October 24, 1995 1, this subpart
applies to any employing entity that offers a health benefits plan to
its employees, meets the conditions specified in paragraphs (b) through
(e) of this section, and elects to include one or more qualified HMOs
in the health plan alternatives it offers its employees.
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\1\ Before October 24, 1995, an employing entity that met the
conditions specified in Sec. 417.151 was required to include one or
more qualified HMOs, if it received from at least one qualified HMO
a written request for inclusion and that request met the timing,
content, and procedural requirements specified in Sec. 417.152.
---------------------------------------------------------------------------
* * * * *
(e) Employees in HMO's service area. At least 25 of the employing
entity's employees reside within the HMO's service area.
Sec. 417.152 [Removed]
3. Section 417.152 is removed.
4. Section 417.153 is amended to revise the heading and paragraph
(a) to read as follows:
Sec. 417.153 Offer of HMO alternative.
(a) Basic rule. An employing entity that is subject to this subpart
and that elects to include one or more qualified HMOs must offer the
HMO alternative in accordance with this section.
* * * * *
Sec. 417.154 [Removed]
5. Section 417.154 is removed.
6. Section 417.157 is revised to read as follows:
Sec. 417.157 Contributions for the HMO alternative.
(a) General principles--(1) Nondiscrimination. The employer
contribution to an HMO must be in an amount that does not discriminate
financially against an employee who
[[Page 27288]]
enrolls in an HMO. A contribution does not discriminate financially if
the method of determining the contribution is reasonable and is
designed to ensure that employees have a fair choice among health
benefits plan alternatives.
(2) Effect of agreements or contracts. The employing entity or
designee is not required to pay more for health benefits as a result of
offering the HMO alternative than it would otherwise be required to pay
under a collective bargaining agreement or contract that provides for
health benefits and is in effect at the time the HMO alternative is
included.
(3) Examples of acceptable employer contributions. The following
are methods that are considered nondiscriminatory:
(i) The employer contribution to the HMO is the same, per employee,
as the contribution to non-HMO alternatives.
(ii) The employer contribution reflects the composition of the
HMO's enrollment in terms of enrollee attributes that can reasonably be
used to predict utilization, experience, costs, or risk. For each
enrollee in a given class established on the basis of those attributes,
the employer contributes an equal amount, regardless of the health
benefits plan chosen by the employee.
(iii) The employer contribution is a fixed percentage of the
premium for each of the alternatives offered.
(iv) The employer contribution is determined under a mutually
acceptable arrangement negotiated by the HMO and the employer. In
negotiating the arrangement, the employer may not insist on terms that
would cause the HMO to violate any of the requirements of this part.
(4) Adjustment of employer contribution. An employer contribution
determined by an acceptable method may in some cases be adjusted if it
would result in a nominal payment or no payment at all by HMO enrollees
(because the HMO premium is lower than the premiums for the other
alternatives offered). If, for example the employer has a policy of
requiring all employees to contribute to their health benefits plan,
the employer may require HMO enrollees who would otherwise pay little
or nothing at all, to make a payment that does not exceed 50 percent of
the employee contribution to the principal non-HMO alternative. The
principal non-HMO alternative is the one that covers the largest number
of enrollees from the particular employer.
(b) Administrative expenses. (1) In determining the amount of its
contribution to the HMO, the employing entity or designee may not
consider administrative expenses incurred in connection with offering
any alternative in the health benefits plan.
(2) However, if the employing entity or designee has special
requirements for other than standard solicitation brochures and
enrollment literature, it must, in the case of the HMO alternative,
determine and distribute any administrative costs attributable to those
requirements in a manner consistent with its method of determining and
distributing those costs for the non-HMO alternatives.
(c) Exclusion for contribution for certain benefits. In determining
the amount of the employing entity's contribution or the designee's
cost for the HMO alternative, the employing entity or designee may
exclude those portions of the contribution allocable to benefits (such
as life insurance or insurance for supplemental health benefits)--
(1) For which eligible employees and their eligible dependents are
covered notwithstanding selection of the HMO alternative; and
(2) That are not offered on a prepayment basis by the HMO to the
employing entity's employees.
(d) Contributions determined by agreements or contracts or by law.
If the specific amount of the employing entity's contribution for
health benefits is fixed by an agreement or contract, or by law, that
amount constitutes the employing entity's obligation for contribution
toward the HMO premiums.
(e) Allocation of portion of a contribution determined by an
agreement. In some cases, the employing entity's contribution for
health benefits is determined by an agreement that also provides for
benefits other than health benefits. In that case, the employing entity
must determine, or instruct its designee to determine, what portion of
its contribution is applicable to health benefits.
(f) Retention and availability of data. Each employing entity or
designee must retain the following data for three years and make it
available to HCFA upon request:
(1) The data used to compute the level of contribution for each of
the plans offered to employees.
(2) Related data about the employees who are eligible to enroll in
a plan.
(3) A description of the methodology for computation.
(g) HCFA review of data. (1) HCFA may request and review the data
specified in paragraph (f) of this section on its own initiative or in
response to requests from HMOs or employees.
(2) The purpose of HCFA's review is to determine whether the
methodology and the level of contribution comply with the requirements
of this subpart.
(3) HMOs and employees that request HCFA to review must set forth
reasonable grounds for making the request.
7. In Sec. 417.155(d)(2) introductory text, ``which'' is removed
and ``that'' is added in its place.
8. In Sec. 417.159, ``The obligation'' is revised to read ``The
decision'', and ``HMO option'' is revised to read ``HMO alternative''.
9. In the heading of Sec. 417.164, ``qualifiers'' is removed and
``qualification'' is added in its place.
10. In Sec. 417.166(a)(1), ``change'' is removed and ``changed'' is
added in its place.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: August 14, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: December 5, 1995.
Donna E. Shalala,
Secretary.
[FR Doc. 96-13629 Filed 5-30-96; 8:45 am]
BILLING CODE 4120-01-P
