On October 12, President Trump signed an Executive Order directing the federal agencies in charge of implementing the Affordable Care Act (ACA) to propose new regulations or revise existing guidance to expand access to association health plans (AHPs), short-term insurance plans, and health reimbursement arrangements (HRAs). While the order directs the agencies to consider changes that would have a sweeping effect on the health insurance industry, it has no immediate effect – any changes in rules or regulations will be subject to standard notice and comment periods.
Separately, the President intends to stop the government’s reimbursement of cost-sharing reduction (CSR) payments made by insurance carriers that participate in the ACA’s Health Insurance Marketplaces. A letter from Health and Human Services (HHS) to the Centers for Medicare and Medicaid Services (CMS) indicated that payments will stop immediately, effective with the payment scheduled for October 18, 2017. The move resulted in a lawsuit filed on October 13, 2017, in federal court in the Northern District of California by a coalition of nearly twenty states against the Trump administration seeking declaratory and injunctive relief requiring that the CSR payments continue to be made. If the CSR payments are not continued by Congress (by appropriating funds for the payments) or through judicial action (by finding that the ACA contains a permanent appropriation for the payments), it will have a much more immediate and disruptive effect on the individual market than the Executive Order. It may also impact the small and large group markets, which rely on the individual market to provide coverage in certain cases to part-time employees, an alternative to COBRA, and encourage early retirement by offering a bridge to Medicare, as well as avoiding further cost-shifting from health care providers to private plans in response to shortfalls in public payments.
Notably, the cessation of CSR payments does not impact an employer’s obligations under the ACA’s “pay-or-play” mandate, as penalties under that mandate are triggered by a full-time employee’s receipt of a federal premium tax credit, which continue to be funded under the ACA’s permanent appropriation.
Executive Order – Expansion of Association Health Plans
The order provides that, within 60 days of October 12, the U.S. Department of Labor (DOL) should consider proposing regulations or revising guidance to allow more employers to form AHPs. The order directs the DOL to consider expanding the conditions that satisfy the commonality of-interest requirements under current Department of Labor advisory opinions interpreting the definition of an “employer” under the Employee Retirement Income Security Act of 1974 (ERISA). In addition, the order directs the DOL to consider ways to promote AHP formation on the basis of common geography or industry.
While the order itself is brief and does not offer much detail, an expansion of the definition of “employer” under ERISA might mean that the administration is considering ways to allow individuals and small employers to be treated as “large groups” for purposes of the ACA’s market reforms. Under the ACA, health plans offered to individuals and small employers generally must include coverage for services in all ten categories of essential health benefits, and the premium rates cannot vary based on health status (rates may vary based only on age, tobacco use, geographic area, and family size). If individuals and small employers could form “associations” to purchase health insurance as “large groups,” they could offer leaner, less expensive plans that might appeal to younger, healthier individuals. For example, large group plans may, subject to any state insurance mandates applicable to fully-insured plans, exclude coverage for mental health and substance use disorders, prescription drugs, or other costly services that tend to be used by individuals who are older or less healthy.
States traditionally have authority to regulate association health plans and insurance sold in their state and would likely challenge any rules that they perceive could damage their insurance markets. In the past, when association coverage legislation was proposed, there has been opposition by various state governments, consumer, business, labor and health care provider and patient advocacy groups because of concerns regarding “cherry-picking” of healthier individuals (in turn, causing those with pre-existing conditions to pay more for such coverage on the open market) as well as concerns that such plans promote fraud and insolvency. Depending on how the rules are written, associations could potentially offer plans across state lines, thus weakening states’ regulatory authority. The extent to which any new rules regarding associations will attempt to supersede state authority remains to be seen.
It will also be difficult under existing rules and regulations to fit non-employment based associations within the framework of ERISA, which requires an employment relationship between the plan sponsor and participants. The order doesn’t address the potential MEWA status of AHPs. Unless existing regulations are revised, AHPs composed of unrelated employers would still be viewed as multiple employer welfare arrangements (MEWAs) under ERISA, which means that they would be subject to state insurance laws such as solvency and licensing requirements and, except in limited situations, have additional administrative burdens (e.g., Form M-1 filing requirement). It remains to be seen if future regulations would attempt to apply ERISA preemption to certain state requirements that may otherwise apply to MEWAs.
Executive Order – Short-Term Limited-Duration Insurance
Short-term limited-duration insurance (STLDI) is exempt from the ACA’s insurance mandates and market reforms. It is intended to bridge gaps in coverage – for example, individuals between jobs or having just graduated from school. Because it’s exempt from the ACA, insurers offering STLDI plans may underwrite based on medical history and charge higher premiums for individuals based on health status. In order to prevent younger, healthier individuals from leaving the individual market, Obama-era regulations limited the coverage period for STLDI from less than 12 months to less than 3 months and prevented any extensions beyond 3 months of total coverage.
The order provides that, within 60 days of October 12, HHS, the DOL and Treasury should consider proposing regulations or revising guidance to expand the availability of STLDI. In particular, as long as it is supported by sound policy, the order provides that agencies should consider allowing STLDI to cover longer periods and be renewed by the consumer. As with the section of the order dealing with association plans, states may challenge this order as infringing on their ability to regulate their insurance industry and may resist rules they consider to be disruptive or potentially damaging.
About the Authors: This alert was prepared for Aldrich Advisors by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at firstname.lastname@example.org or email@example.com.
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 The lawsuit highlights various efforts by the Trump administration aimed at weakening the Marketplace, including the administration’s substantially reduced efforts to educate and encourage individuals to sign up for health insurance through the Marketplace. In addition, HHS has reduced its advertising budget for the Marketplace program to $10 million, a 90% decrease from the $100 million allocated for the program in 2016. HHS also reduced the amount of money granted to nonprofit organizations that serve as “navigators” to help individuals enroll in health plans offered through the Marketplace to $36 million, as compared to $63 million in 2016. HHS has also reduced the Marketplace open enrollment period from twelve weeks to six, and has announced that it will shut down the HealthCare.gov website for 12 hours every Sunday during the open enrollment period.