Health Care Reform Update
Anticipated Outcomes of Latest Trump ACA Workarounds
This update is part of a Brown & Brown series summarizing new guidance issued in connection with the Patient Protection and Affordable Care Act (also known as the ACA or Health Care Reform). We are joining forces with our business partner, the law firm of Miller Johnson, to provide these updates to you. For this edition of the Monthly Update, we highlight some recent announcements by the Trump Administration to modify the ACA by Executive action.
October 12, 2017 Executive Order
In the Executive Order, President Trump directs the Departments of Labor, Treasury and Health and Human Services to consider issuing proposed regulations or revised guidance in three areas. The Departments are to take action within 60 to 120 days of the Executive Order. Any such proposed regulations would be subject to a public “notice and comment” period. As a result, any regulations will likely not be effective until sometime in 2018, at the earliest.
The three directives in the Executive Order are as follows:
- Association Health Plans An Association Health Plan is where multiple employers who are not commonly owned band together to offer group health coverage. The Trump Administration wants to expand the current rules to allow more employers, particularly small employers, to form Association Health Plans. As part of this initiative, since the employers in the Association Health Plan could be located in different states, the new rules would also enable the sale of insurance across state lines (a favorite proposal of Congressional Republicans). The rationale for this proposal is that if a small employer can be treated as a large employer under an Association Health Plan, the coverage will not be subject to the ACA essential health benefits and community rating rules for the small group market. Avoiding these rules will enable employers to offer coverage at a lower cost. While smaller employers may welcome the rules, this proposal may also cause more small employers to leave the small group market which may weaken it.
- Health Reimbursement Arrangements (HRAs) After the enactment of the ACA, the Obama Administration issued guidance limiting HRAs to certain confined circumstances such as retiree only HRAs, HRAs reimbursing limited expenses such as dental and vision care and HRAs integrated with employer group health coverage. HRAs cannot reimburse individual insurance policies pursuant to post-ACA guidance from the Obama Administration. The only exception to this rule is pursuant to the 21st Century Cures Act legislation from late 2016 which permits certain small employers to reimburse individual insurance under a qualified small employer HRA (QSEHRA) in limited circumstances. The Executive Order appears to direct a lifting of the HRA restrictions for both large and small employers to permit the pre-tax reimbursement of individual insurance premiums. On one hand, this proposal is designed to give employers more options. On the other hand, it is interesting because it assumes that individual insurance coverage on the marketplace exchange may be a desirable option (thus assuming that the viability of the marketplace exchange is desired). In addition to trying to sort out the mixed signals sent by the Executive Order (whether the marketplace exchanges should be supported or permitted to fail) there are unanswered questions regarding this HRA directive which will need to be addressed in guidance. For example, if a large employer offers such an HRA would it constitute minimum essential coverage for the employer to avoid pay or play penalties? And, for an individual, how will the employer HRA benefit impact an employee’s eligibility for premium tax credits and/or cost-sharing subsidies on the exchange?
- Short-Term, Limited-Duration Insurance (STLDI) STLDI isn’t individual insurance subject to the ACA market reforms. Many view this type of coverage as a bare bones or skinny policy. Current regulations permit STLDI to be offered for up to three months. Target markets for the coverage include individuals who are between jobs and individuals who missed their open enrollment periods but who want coverage. The White House wants the maximum coverage period for STLDI to be expanded (for example, a 12-month maximum period has been previously proposed). The concern with this proposal is that the increased length of coverage will make STLDI more attractive to younger and healthier individuals who may elect it rather than individual insurance on the exchange, further hurting the risk pool for the exchange and undermining the continued viability of individual exchange policies.
Discontinuation of Funding for Cost-Sharing Reduction (CSR) Payments
The ACA provides premium tax credits to low income individuals (with incomes between 100% and 400% of the federal poverty level), to reduce the premium cost of coverage on the exchange. In addition, a subset of this group (with incomes of less than 250% of the federal poverty level), may also qualify for CSR payments for the purpose of reducing their deductibles and other out-of-pocket costs with respect to their exchange coverage. While the ACA requires insurers to provide the CSR payments, Congress never appropriated the funds for insurers to finance the obligation. The Obama Administration stepped in and arranged for the CSR funding which led to litigation challenging the constitutionality of the CSR payments.
On October 12, 2017, HHS announced it would discontinue funding the CSR payments to insurers due to the concerns raised by the litigation. Since insurers are still obligated to provide the CSR payments but will no longer be receiving funding, the expected consequences are that some insurers may discontinue selling policies on the exchange or may increase premiums.
Senators Alexander (R-Tennessee) and Murray (D-Washington) have negotiated a bipartisan agreement which is anticipated to be the foundation for a Senate Bill to provide certain fixes to the ACA aimed at stabilizing the individual insurance market. Part of the proposal is to restore CSR funding. However, President Trump has signaled that while he may be in favor of the bill, he is not in favor of providing funding to insurance carriers. The Republican rationale for the legislation is that if the individual coverage on the exchange is not stabilized it will cause a collapse of the marketplace leading to a replacement single payer system.
As stated above, the Trump Administration seems to be sending mixed signals regarding the ACA. On one hand, proposed changes concerning Association Health Plans and STLDI would appear to weaken the marketplace exchange. On the other hand, allowing employers to reimburse individual coverage through an HRA would appear to suggest the Trump Administration wants the marketplace exchange to succeed. Adding to the confusion, the IRS also recently issued a statement indicating that it will reject 1040s for 2017 (filed in 2018) which do not answer the question regarding whether the individual is enrolled in minimum essential coverage. Last year, the IRS did not reject returns not answering this question. This new position would appear to support the ACA individual mandate penalty.
These issues and other recent ACA developments will be discussed at our upcoming webinar on October 30, 2017.
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