As September 2017 drew to a close, it appeared significant legislative efforts to repeal and replace the Affordable Care Act (ACA) were on hold until at least 2018 and would likely be joined by a bipartisan approach to amend and “save” the ACA. Against that backdrop, October 2017 was a busy month for both executive and regulatory action intended to loosen certain ACA requirements to allow greater flexibility to offer lower cost health insurance coverage options to consumers than is feasible under the existing ACA. Some of these actions are likely to put pressure on the long-term viability of the public insurance marketplace (e.g. Healthcare.gov and state-run insurance exchanges), potentially unraveling a key component of the ACA if not the ACA itself, which may cause Congress to act, perhaps improving the chances of repealing and replacing the law.
The October actions included:
- Interim final regulations expanding the types of entities that can claim relief from the ACA’s preventive services mandate to provide women’s contraceptive services
- Proposed regulations giving states greater flexibility to establish benchmark plans beginning on or after 2019 that will enable states to narrow the services defined as minimum essential health benefits
- An Executive Order directing federal agencies consider expanding the availability and use of association health plans, short-term, limited duration insurance, and health reimbursement arrangements
- Executive and agency action ending the practice of paying for cost-sharing reduction subsidies for low-income individuals without a specific appropriation from Congress
This article focuses on actions #3 and #4, both of which occurred on October 12, 2017. Additional guidance related to these topics could appear at any time, although this is not expected before 2018.
I. Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States, October 12, 2017
This Executive Order directs the U.S. Departments of Health and Human Services (HHS), Labor (DOL), and the Treasury (the “Departments”) to “consider proposing regulations or revising [existing] guidance” related to expanding the availability and use of association health plans, short-term, limited duration coverage, and health reimbursement arrangements. While the Executive Order does not literally order the agencies to issue regulations or change existing guidance, it is likely the agencies will do so. This process could take many months, and the Executive Order should be viewed as a signal of change rather than change itself. There are few details at the time this article was written, but a high-level summary of the Executive Order’s directives and open issues is below:
A. Association Health Plans (AHPs)
The DOL was asked to consider ways to make it easier to form an AHP by loosening the existing membership rules under ERISA. The intent is to enable employers that would otherwise have to separately purchase small group insurance subject to a large number of ACA mandates to pool together and participate in large group insurance or self-insured ERISA coverage subject to fewer ACA mandates. This should give the AHPs greater flexibility to offer lower cost coverage and/or a different premium structure than available small group coverage. For example, small group insurance policies issued in a state must cover all benefits identified as essential health benefits in that state’s benchmark plan. By contrast, the selection of a benchmark plan by a large group insured or self-insured plan merely determines which benefits offered under those plans are defined as essential health benefits for ACA purposes, but the plans are not required to offer coverage for all of the essential health benefits covered under the benchmark plan. Existing ACA guidance also permits large group insured or self-insured plans to select from among any of the available benchmark plans which provides a sort of compliance continuity for employers with plans covering employees in multiple states.
There are several issues that need to be resolved. Insured plans are obviously subject to state insurance law and regulation, which is also generally true for self-insured plans not subject to ERISA. Similarly, self-insured ERISA plans covering two or more unrelated employers are considered multiple employer welfare arrangements (“MEWAs”) which limits ERISA preemption and also subjects the plans to state regulation. This limits the ability to offer an AHP across state lines.
The Administration may intend the DOL to circumvent this, perhaps through a determination that an AHP covering employers with strong relational and/or geographic ties may be considered a single employer plan under ERISA. There have also been prior proposals related to selling insurance across state lines that would permit policies to select a situs state and receive reciprocity in other states. In other words, a policy sitused in Arizona could be issued in neighboring states while only having to comply with Arizona law.
States have historically been unwilling to surrender the authority to regulate insurance issued within their borders, although this is generally what happens with self-insured ERISA coverage that is not a MEWA. An alternative may be future guidance promoting the formation of insurance compacts between states in which a state would view an AHP as complying with its laws if the AHP complies with the state requirements where the AHP is sitused. Finally, unless an AHP is treated as a single employer plan for all participants, it appears that AHP membership could not be expanded to include self-employed individuals as participants in a single member plan under an AHP if the AHP intends to qualify as an ERISA plan as ERISA plans must generally cover at least one employee or former employee. It is not clear that the administration or DOL could legally affect this sort of change independent of Congress.
B. Short-Term, Limited Duration Insurance (STLDI)
Under existing law, certain short-term health coverage is not subject to the ACA. Coverage under a non-ACA compliant short-term health plan does not cause an individual to fail the ACA’s individual mandate requirement as long as the individual is covered by the policy for less than three months. The Executive Order requests the Departments explore expanding the permitted short-term coverage period to less than twelve months.
C. Health Reimbursement Arrangements (HRAs)
The clear intent of the Executive Order is to enable employers to offer HRAs to current employees that can be used to purchase insurance policies from the individual insurance market. This could be accomplished by either permitting HRAs to integrate with individual insurance coverage for the purposes of ACA compliance – a reversal of current guidance – and/or exempting such HRAs from having to comply with the ACA’s plan design requirements (e.g., this includes the prohibitions on annual and lifetime limits for “essential health benefits”). Interestingly, the AHP and Cost Sharing Reduction Subsidies issues discussed elsewhere in this article may ultimately reduce the number of individual policies available through the public insurance marketplace.
Small employers gained the ability to offer the somewhat similar Qualified Small Employer Health Reimbursement Arrangement (“QSEHRA”) as of January 1, 2017. Under the QSEHRA rules, a small employer cannot offer both a QSEHRA and group health plan coverage. Unlike the QSEHRA, we expect large employers will be able to continue to offer other group health plan coverage in addition to an HRA that can be used to pay for individual insurance coverage.
For now, we do not know if a large employer solely offering a premium reimbursement HRA will be treated as having made an offer of coverage for the purpose of the ACA’s employer mandate. If the Departments determine that these premium reimbursement HRAs will qualify as an offer of coverage to current employees either on an integrated basis with individual policies or on a standalone basis, certain relief for employers appears necessary:
- Employers shouldn’t be required to determine whether the individual policies integrated with the HRA are ACA compliant. The Departments could also resolve this issue through guidance requiring that the individual policies purchased must be metallic (i.e. gold, silver, bronze, etc., levels) coverage offered through the public insurance marketplace.
- For ACA reporting purposes (e.g. Form 1095-C), some sort of coding solution similar to the workaround to reflect offers of coverage through multiemployer plans seems likely. Otherwise, it’s not clear how an employer would address issues related to whether the offer of coverage meets minimum value or how to reflect the “cost” of the coverage offered.
It seems probable that employers will have the option to choose whether their HRAs can be used to pay for individual insurance coverage or exclude this by design similar to the ability to limit an HRA to reimbursing for dental and/or vision expenses.
II. Executive and Agency Action Ending Obama Administration Practice for Reimbursing Cost Sharing Reduction Subsidies (CSRs), October 12, 2017
The ACA provides for CSRs to help lower the out-of-pocket expenses for individuals who are enrolled in a “Silver Plan” through the public insurance marketplace and whose household incomes are between 100 percent and 250 percent of the federal poverty limit. Silver Plan insurers are required to provide these CSRs to eligible enrollees, and the insurers receive reimbursement from the federal government. There has been a lengthy legal dispute regarding whether this reimbursement to insurers requires a specific appropriation from Congress or if they can be paid from other funds. Under the Obama Administration, no specific Congressional appropriation occurred, and reimbursements were paid to insurers out of a more general, discretionary fund. The Trump Administration had threatened this practice throughout 2017 and eventually halted it on October 12, 2017 (through the Attorney General and HHS).
The ACA actually requires Silver Plan insurers to provide the CSRs whether they are reimbursed by the federal government or not. Without reimbursement, insurers will either increase premiums to offset cost of CSRs, coincidentally affecting premium subsidies, or exit the public insurance marketplace. While Congress may address the CSR issue through a specific appropriation of funds, the uncertainty facing insurers appears to have already had an effect as a recent survey from Avalere Health indicates that the premiums for Silver Plan coverage will increase approximately 34 percent for 2018.