Proposed rule would stifle health plan innovation and expose Exchanges to fraud

The Biden administration is proposing several changes to federal requirements on health insurers and health insurance Exchanges. The changes are included in the 2024 Payment Notice, which is an annual rule issued by the Centers for Medicare & Medicaid Services. While parts of this rule are non-controversial technocratic changes, the rule includes some major changes that threaten to both restrict consumers’ access to innovative new health plans and undermine the integrity of the Exchanges.

Last week American Experiment filed comments with The Heritage Foundation urging the Biden administration to abandon specific proposals that pose the largest threat to health plan innovation and the federal deficit. Here’s a summary of the major issues that our comments flagged.

Limits on non-standardized health plans

As in any industry, health insurance consumers depend on robust competition between health issuers to access better, more innovative health plan options from year to year. Competition depends on the ability to introduce and test innovative new products. The market for health insurance is no different. Yet the proposed rule includes several policies that will limit the number and type of health plans which health issuers can offer.

The most harmful proposal would limit the number of non-standardized plan options. A federal rule finalized last year requires health plans on the federal health insurance Exchange platform to offer a standardized plan. This basically requires each health plan to offer a product with the exact same federally defined benefits and cost-sharing as the next health plan. The federal government is now proposing to restrict health plans to offering only two non-standardized options alongside the standardized option in each product tier.

This proposal would effectively lock out health plan design innovations from Exchanges because they would only be able to test new designs on one of two non-standardized options. Limited to just two non-standardized plan options, at best a health plan might reserve one of the two plans for some modest innovations. Moreover, this limitation will impose substantial disruption on the market. The federal government admits the new requirement would end the current coverage for 2.72 million people, which is 26.6 percent of the market.

Mandates use of provider networks

The Biden administration also proposes a strict mandate that all health plans on the Exchanges must use a provider network. Like the limits on non-standardized health plans, this mandate will mainly work to block consumer access to better, more innovative health plan designs.

This is an especially bad time to lock out innovation in the design of health plans. Federal rules recently went into effect which take historic steps to require both hospitals and health plans to finally make the care prices they negotiate transparent. To date, health plans have not been designed to reward patients for making value-conscious decisions. Now that accurate and actionable pricing information is becoming available to patients, there is a significant new opportunity for health plans to innovate in designing plans that incentivize enrollees to choose more cost-effective care.

Price transparency may hold particular promise for developing new plan designs that don’t use a network. Fully transparent prices will potentially increase the competitive pressure among providers to lower prices in a way that lessens or even obviates the need for health plans to negotiate pricing.

Removes basic income verification requirements to qualify for premium subsidies

Federal regulations require applicants to provide basic information to confirm their income to ensure that they are eligible for advance payments of the premium tax credit (APTC) subsidies. Applicants must file a tax return and reconcile the receipt of APTCs for any year where tax data is necessary to verify eligibility. If the applicant does not have a tax return on file with the IRS to verify income, then the applicant must provide “satisfactory documentary evidence” to verify their income. The current rules give applicants 90 days to provide this documentation. All of these requirements are carefully coordinated to ensure the accuracy of the applicant’s claimed income to calculate the appropriate amount of the APTC subsidy.

The Biden administration now proposes three changes that would substantially weaken all three elements of this income verification process. First, they propose to require Exchanges to wait two consecutive tax years to pass before revoking eligibility from someone who fails to file and reconcile their taxes. Second, they propose to allow people to self-attest to their income without providing any other verification when the IRS has no tax data. Thus, anyone who fails to file their taxes under the first step will get to self-attest to income when the IRS has no tax data. Finally, anyone who still has to provide documentation for any reason would get an automatic 60-day extension.

Altogether, the proposed changes would loosen the federal income verification process to a point where there is virtually no verification and open the process to substantial abuse. This will come at a substantial cost to federal taxpayers. The proposed rules regulatory impact analysis admits that loosening eligibility standards will increase federal APTC spending by $548 million per year. Moreover, looser eligibility standards will worsen the risk pool by making it easier for people to wait until they become sick to enroll in coverage.


These proposed rule changes would add to and aggravate changes finalized by the Biden administration in prior rulemaking that increase federal costs and weaken the individual market risk pool. American Experiment previously submitted comprehensive formal comments on most of these rules, including the 2022 Payment Notice, reopening Georgia’s 1332 Waiver, 2023 Payment Notice, the illegal administrative fix to the so-called “family glitch,” and Medicaid eligibility streamlining.

This administration appears committed to maximizing enrollment in subsidized coverage for people who don’t even qualify without any consideration for the negative consequences. In the process, hard working Americans will lose access to affordable coverage on the individual market and the overall cost of health care will continue to rise higher on everyone.

Read the Full Comment Letter