Insurers, brokers call to replace 80th percentile with percentage of Medicare

The Alaska Division of Insurance received 33 comments in response to the Division soliciting amendments or alternatives to the 80th percentile rule.

Out of the 33 comments, nine medical providers and one consumer submitted comments supporting the 80th percentile rule. Three insurers, five consumers, and fifteen brokers submitted comments against the 80th percentile rule.

Read our coverage of comments received from medical providers here.

Aetna, America’s Health Insurance Plans, (AHIP) and Premera Blue Cross Blue Shield were the three insurance companies that submitted comments against the current 80th percentile rule. They argued that the rule provides an incentive for providers not to contract with insurers because providers are still reimbursed at nearly the full bill charge. Premera argues that the rule “sets a reimbursement floor without providing a ceiling” in submitted comments

While Aetna did not propose a solution, it “would appreciate the opportunity to participate in a robust discussion on restructuring the current payment structure with either a percentage of Medicare or other viable solutions.”

Aetna’s comments included a comparison of billed charges for the claims and the allowed amount at the 80th percentile to the 125% of Medicare, which is used in other states.

AHIP did propose a solution, a “greater of three” methodology:

“Instead of using billed charges, we believe that the reimbursement methodology should be based on what the market is already paying for those services and what providers are accepting as payment for such services. The simplest path is for the state to adopt the Affordable Care Act’s reimbursement model for emergency services for both emergency and non-emergency services. This will provide further consistency to the standards used around the country and continue to promote affordability.”

The federal regulations require insurers to pay out-of-network emergency providers an amount equal to the greatest of:

  1. The median amount negotiated with in-network providers for the service furnished;
  2. An amount based on the same methods used by the health insurer to pay for out-of-network services; or
  3. The amount Medicare would pay for services provided

California, Connecticut, and Maryland all use the “greater of three” methodology.

Premera offered a number of suggestions in whatever solution the Division pursues, but specifically recommended using a percentage of Medicare as a method:

“Set the allowed amount for non-contracted providers at a percentage of Medicare; Medicare rates are already adjusted to take into account the unique aspects of the Alaska health care market, and therefore constitute a fair basis. Medicare rates are also updated annually to adjust for changes in medical practice resource needs and costs. We recommend 250% of Medicare as the minimum required, but are open to further discussion. Most lower-48 states allow for the standard use of 125% of Medicare for non-contracted services.

We also suggest that the unique variations in provider availability, access to care, and willingness to contract throughout the State of Alaska may necessitate solutions that are more geographically specific. This may include a different approach for the greater Anchorage area than for remote and underserved parts of the state, where the latter calls for greater consumer protections than the former.”

Other suggestions from Premera included:

  • Reduce the frequency of allowed-amount review and adjustments from twice annually. We believe that an annual review is fair and adequate.
  • Limit the applicability of the rule to services received within Alaska. The Division has taken the position that the current rule applies world-wide. Lack of geographic data in other areas results in payment based on actual billed charges.
  • Prohibit balance-billing by non-contracted providers – i.e., the practice of collecting from the patient the difference between the allowed amount set by the carrier and the actual amount billed by the provider. We caution, however, against an attempted solution that addresses only balance-billing, without including the other elements listed above.

Out of the 15 comments received from brokers against the 80th percentile rule, 13 were from members of the Alaska Association of Health Underwriters (AAHU), one of whom submitted another comment outside of the association. The Wilson Agency also commented.

Comments from the AAHU supported moving to a reimbursement based on a multiple of Medicare:

“Replacing the 80th percentile rule with a reimbursement based on a multiple of Medicare or other ‘reference based’ pricing would help control costs and ensure that providers are paid a fair fee. AAHU recommends beginning with a reimbursement payment up to 250% of Medicare. A reference based option will need to be adopted in a way so that it does not regulate over payments for charges that are now lower than whatever percentile of Medicare is selected. We suggest wording that includes ‘payment up to’ language rather than ‘an amount that is at least’. As noted in the Oliver Wyman report, there were some Provider Specialty’s reimbursement levels lower than 250% of Medicare.”

The AAHU also called for a once a year adjustment for whatever is used as a reference for reimbursing out-of-network claims and balance billing legislation.

The Wilson Agency supported the solution proposed by the AAHU in its comments. The Wilson Agency also offered support for legislation in New York and New Jersey related to the 80th percentile and balance billing:

“The Wilson Agency would be very supportive if Alaska would consider implementation of the 80th percentile rules as NY has done.  Their version states that carriers for small group (under 50) only need to have a few plans in NY that use the 80th percentile as a reimbursement measure. It should also be noted that in NY, plans for groups over 50 lives are not subject to the 80th percentile regulation in any way. Today, most plans of all sizes in NY that are regulated by the DOI are using Medicare as a reimbursement reference.

Additionally, NY passed several consumer measures over-the past few years (as did NJ) to protect consumers from “surprise bills.” On March 31, 2015 a law was passed that protects consumers from surprise bills for out-of-network claims. That same law also protects all consumers from surprise bills for emergency services. This was followed up recently (June 2018) by legislation signed this year to further restrict surprise billing. It is suggested by industry experts that in fact the reason NY’s health insurance premiums have been held to low trends recently is due to this legislation and nothing to do with the 80th percentile.”