Acting on his promise, communicated in a tweet earlier this week, that "[s]ince Congress can't get its act together on HealthCare, I will be using the power of the pen to give great HealthCare to many people - FAST," President Donald Trump yesterday morning signed an executive order (EO) “Promoting Healthcare Choice and Competition Across the United States.” The EO sets in motion a process intended to lift restrictions placed upon association health plans, or AHPs, by the Affordable Care Act (ACA). But he didn't stop there. In a late-night press release that same day, the White House announced that the federal government would discontinue making cost-sharing reduction payments (CSRs) to insurance companies under the ACA immediately.
The EO, in part, instructs the Labor, Treasury, and Health and Human Services (HHS) Departments to rewrite federal rules to allow more groups and individuals to participate in AHPs, which are able to offer health plans without the essential health benefits required under the ACA and do not have to base premium rates on community rating. In addition, the EO directs agencies to expand access to short term, limited duration (STLD) insurance and health reimbursement arrangements (HRAs). Interestingly, the EO begins by setting forth a policy of the executive branch “to the extent consistent with law, to facilitate the purchase of insurance across State lines,” but then goes on to focus more specifically on AHPs, STLD coverage and HRAs, with no further mention of allowing purchases across state lines.
In the late night press release, the White House said that HHS, based on guidance from the Department of Justice, had “concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare, ” and therefore it would no longer reimburse insurers for lowering costs for customers under the ACA. These payments, which are expected to total $7 billion this year, could likely have little immediate impact, as insurers have already filed their rates for 2018 and built in this contingency. But the elimination of CSRs is expected to have serious consequences for insurance company participation in the ACA in 2019 and beyond.
What are AHPs?
AHPs provide an alternative way for individuals to purchase insurance beyond the traditional individual and employer marketplaces. These plans are typically offered through organizations, trade associations, or employers who share a common interest. To date, both prior to and after the passage of the ACA, state regulators and the Labor Department have required that any association that offers insurance to its members be a “bona fide” group, formed for purposes other than obtaining insurance.
Since the implementation of the ACA, AHPs have been required to cover 10 essential health benefits and are subject to the ban on preexisting condition exclusions. Under the Trump administration, there have already been attempts by Congress to deregulate AHPs, most recently in March 2017, when H.R. 1101, the "Small Business Health Fairness Act of 2017," passed in the House (236-175) but never made it to a vote in the Senate.
What does the EO mean for AHPs?
President Trump's EO aims to loosen the restrictions placed on AHPs by permitting them to be exempt from many of the restrictions created by the ACA and by permitting consumers to purchase insurance from AHPs across state lines. Because the EO directs implementation through the traditional rulemaking process, the nuances of its implications for consumers, employers, insurance carriers, regulators and other stakeholders will continue to evolve.
What the EO, in connection with the associated White House press release, does make clear, however, is that it would broaden the definition of AHPs to permit employers to join together to offer coverage to their employees. The press release refers specifically to employers “in the same line of business” anywhere in the country; the EO is less specific, referring to common geography or industry,” but notes that groupings could be for purposes of self-insurance or the purchase of “large group health insurance.” Based on how the Agencies choose to implement this change, it could mark a very significant break from the longstanding state and federal requirement, described above, that associations be formed for purposes other than obtaining insurance. It is unclear through what mechanism a grouping of unrelated employers would “self-insure” and what changes to the Employee Retirement Income Security Act of 1974 (ERISA) and state law might be required to effectuate such a change. The EO refers to potential expansion of “the conditions that satisfy the commonality-of-interest requirements” with respect to the definition of “employer” at section 3(5) of ERISA.
It also remains unclear how agency actions to roll back ACA requirements relating to associations will interact with limitations on association health insurance that were in place in most states before the ACA. Federal agencies may attempt to preempt such regulations, but such an attempt would almost certainly be subject to litigation by at least some states seeking to maintain their pre-ACA restrictions.
Finally, we note that, according to the press release, the administration intends that the EO would continue to make AHPs subject to the ban on preexisting condition exclusions. It also says that AHPs would not be able to exclude any employee from such plans. Again, these details will not be final until rulemaking is final.
How soon could we expect to see changes with respect to AHPs?
The EO directs the agencies to promulgate proposed regulations on AHPs and short term limited duration insurance within 60 days and to allow for a notice and comment period. Proposed HRA regulations are required within 120 days.
We will continue to monitor agency implementation with respect to these key issues.
What is STLD insurance and how is it used?
STDL insurance is coverage that lasts less three months and that is issued in the individual market. (Recently, in October 2016, the timeframe within the definition was reduced from twelve to three months, the culmination of efforts of the Obama administration to further reduce consumer reliance on STDL products.) STDL insurance is meant to fill gaps in coverage, such as when an individual is between jobs or travelling out of the country. As a result, it is exempt from many ACA requirements, including the ban on preexisting condition exclusions and the requirement to offer essential health benefits. And when the individual mandate was enforced, it did not constitute minimum essential coverage (i.e., it is not major medical coverage). Nonetheless, STDL insurance is attractive to “young healthy” consumers and consumers without preexisting conditions who cannot afford major medical coverage. The EO directs federal agencies to consider “expanding coverage” under STDL insurance, most likely by reverting to a 12-month or longer duration and by allowing renewal at the option of the consumer (i.e., potentially adding a guaranteed renewability requirement to make the coverage more like major medical coverage).
What are the implications of these changes for individuals?
AHPs are popular with both the associations that create them and the consumers that use them, in part because they can often offer better rates and benefits that may not be available to individual consumers. Although AHPs do not have the market presence that larger insurers have, they do have more negotiating power than is available to individuals in the individual market. Presumably, lessening the restrictions that AHPs are currently subject to will enable such plans to have even more bargaining power in the marketplace, and therefore increase competition, and will potentially lower premiums for some consumers since the coverage offered by the AHPs may not include all of the currently required essential health benefits.
Conversely, expanding AHPs would likely create concerns regarding market stability. Relaxing restrictions on AHPs could compound adverse selection issues in the individual market (with more, presumably healthier, employees leaving the individual market to enroll in employer AHPs). In addition, consumers could potentially have the ability to switch back and forth between AHPs and other market pools depending on the amount of coverage desired and the cost in each.
Expanding the use of STLD products, which are significantly less expensive than individual market major medical products, would lead to adverse selection in the same way--healthier individuals without preexisting conditions would choose STLD products, leaving the state’s individual market risk pool with a higher ratio of high cost individuals. On the plus side, individuals who arguably do not “need” major medical coverage, could buy more affordable coverage that better suits their needs.
What are the implications of these changes for insurers?
Health insurers have expressed mixed views regarding the deregulation of AHPs. Insurers who have expanded into the individual insurance market may face the threat that the pool of consumers which they serve may become smaller and also, more costly based upon, at least in part, AHPs pulling healthy consumers into that market instead of mainstream ACA plans.
There are, however, opportunities for insurers.
Interestingly, based on how the agencies implement the EO, we would anticipate that insurers other than traditional major medical carriers would offer STLD products. While major medical carriers do offer STLD products, other insurers typically specialize in these “excepted benefits” products which tend to be marketed and supported differently from major medical products.
Since the ACA was passed, there has been great interest from existing carriers and start-ups in creating novel insurance offerings that can “fill the gaps” as out of pocket costs for consumers grow. Any relaxing of ACA regulations will be viewed by some in the industry, and entrepreneurs outside of the industry, as a potential for innovation.
On the other hand, traditional major medical carriers, providers and consumer protection groups have vocally opposed the ACA “repeal and replace” efforts to date. This EO combined with impending tax cut proposals likely to be funded by cuts to Medicare and Medicaid, are essentially a work-around aimed at the same ends (referred to as “synthetic repeal”). Insurers have implemented ACA requirements at great cost. Stopping the enforcement of the individual mandate while continuing to require carriers to cover individuals with preexisting conditions (not to mention guaranteed renewability and availability) will almost definitely cause premiums to continue to rise. As described above, the EO may further cannibalize major medical business through increased sales of STLD and AHP products.
How will the EO impact state regulatory agencies?
Some state regulators have expressed concerns about a decrease in their ability to enforce state regulations and protect consumers if insurers are permitted to sell insurance across state lines. Additionally, if AHPs are increasingly regulated by the Department of Labor, instead of individual states, there is also concern that the Department of Labor will not have the comprehensive tools used by states to protect consumers.
Some states have questioned the legality of the EO, such as the Massachusetts Attorney General, who stated that her office "will oppose any attempt to undermine" the state's commitment to offer health insurance. However, her reaction is far from unanimous. There are many proponents for the deregulation of AHPs who argue that an increase in competition will only aid consumers in getting the coverage they need for lower premiums.
What is the NAIC's position on the EO?
The National Association of Insurance Commissioners (NAIC) has consistently opposed the deregulation of AHPs because it believes that such an action "would fragment and destabilize the small group market, resulting in higher premiums for many small businesses." Additionally, the NAIC has expressed concerns regarding the interstate sale of insurance because this would enable insurers to choose their regulator—thus preventing regulators from being able to effectively assist the consumers within their state.
In a statement issued yesterday, Ted Nickel, NAIC President and Wisconsin Insurance Commissioner, stated:
The NAIC and its members have long-supported the goals of giving consumers broad access to quality, affordable healthcare. We recognize the intention of today's Executive Order is to meet those objectives. With respect to short-term duration plans, we welcome and support returning to state regulators authority and market oversight of these products. The NAIC has long expressed concerns with expanding AHPs in a manner that reduces consumer protections or solvency requirements that promote safe and sound markets. We also have concerns about the impact of such a proposal on already fragile markets. We look forward to working with the Administration and DOL in their rule making process to help address these concerns. Finally, we continue to urge the Administration to take steps in the near term to stabilize the individual market.
The elimination of CSRs
CSRs are a central pillar of the ACA. The ACA requires insurers in the individual market to provide discounts to people based on their income level. For low-income people, the insurer is required to foot most or all of the cost of coverage, with the federal government reimbursing the insurer through CSR payments. Thus, CSRs are the central mechanism for providing affordable coverage to lower-income people in the individual markets. Without CSR payments, insurers will either have to raise their rates across the board or leave the individual marketplace.
CSRs have long been subject to legal challenge based on an argument that Congress failed to make a specific appropriation for them. The Obama administration lost its defense of the CSRs in federal district court last year. That case is now on appeal, and 17 state attorneys general have intervened to defend the CSRs. The White House announcement that the administration is discontinuing CSR payments was based on a Justice Department finding siding with the challengers in the lawsuit. The announcement places new focus on that litigation and on bipartisan efforts in the Senate to revise the ACA, appropriate for CSR payments, and otherwise stabilize the health insurance markets.
Dentons will be closely monitoring the evolution of the EO and its implementation, as well as the ongoing battle over CSR payments. Our innovative teams are prepared to analyze the risks and opportunities for all stakeholders. With our deep bench of former insurance regulators and attorneys general, insurance regulatory counsel, ERISA and tax teams, and health care market and public policy expertise, we are uniquely situated to help our clients leverage these developments to their best advantage.