October was a busy month in the battle over the future of the Affordable Care Act (ACA).
This blog post will discuss one aspect of this busy month – the presidential executive order (“EO”) issued by President Trump to facilitate use of alternative health coverages outside of the ACA rules.
The EO directs the Departments of Treasury, Labor and Health and Human Services to consider:
• Expanding access to association health plans (“AHPs”);
• Expanding coverage through the use of short-term limited duration insurance (“STLDI”); and
• Changes to the rules governing health reimbursement arrangements (“HRAs”) so “employers can make better use of them for their employees.”
Association Health Plans
Expanding the use of AHPs could potentially allow (otherwise) unrelated employers to join an entity formed solely for the purpose of offering group coverage to employees. Of the three directives in the EO, the AHP directive would take the longest time to generate any changes—but the changes created by this directive could be the most far-reaching for employers.
The AHP directive would, in effect, require government agencies to reinterpret the definition of “employer” under ERISA. The courts, the legislative history of ERISA and the Department of Labor have, over the years, concluded that plans marketed to unrelated employers are not “employer” plans under ERISA. So, anybody challenging new initiatives on AHPs will have plenty of legal ammunition and courts would not be as likely to show deference to any new interpretations of the law.
However, if this directive is ultimately implemented, unrelated employers with some connection (based on factors such as geography or industry) could form a large group and create a self-insured plan. Such plans would not be subject to many of the benefit mandates imposed on individual or small group coverages under ACA (such as the requirements that plans cover essential health benefits and the prohibition on charging higher premiums to people with preexisting conditions) or state oversight in areas such as licensing, financing and consumer protections. This lightened regulatory burden (along with the ability to selectively recruit employers) would enable AHPs to offer attractive “teaser” premiums and could draw small employers (especially those with lower anticipated costs) away from the insurance markets.
These lower premiums come at a cost. In the past AHPs have been linked to questionable practices and an increase in AHPs could create the risk that AHP-related scams would grow. Additionally, under AHPs employers share the claims experience of the other employers in the same AHP. Legal issues aside, the risk of sharing catastrophic claims with an unrelated employer would cause employers to be wary of AHPs.
So, the AHP initiative may be slow to take hold but, if it does, it could change the health insurance markets.
Short Term Limited Duration Insurance
Short-term limited duration insurance (“STLDI”) is not subject to ACA rules regarding minimum, essential benefits that must (otherwise) be provided under regular health insurance. So, STLDI carriers can deny coverage for preexisting conditions, can deny renewals because of health claims, and place significant limitations on the benefits covered.
Any expansion of STLDI could occur more quickly than AHP expansion – the rules to facilitate the expansion of STLDI are more squarely within the authority of regulators. Under current regulations, STLDI coverage cannot be for a period longer than 3 months (including extensions). Regulatory guidance could ease restrictions on the duration and use of STLDI. Additionally, regulators could try to stretch the law to allow individuals to use STLDI to meet the individual mandate.
The STLDI component of the executive order will have the smallest direct impact on employers, but could have the greatest overall impact on health insurance markets. STLDI is very profitable for carriers – according to data from the National Association of Insurance Commissioners, the average medical loss ratio (MLR) for STLDI coverage in 2016 was 67.4 percent, and the largest insurer had an MLR of only 47.5 percent. So, we can expect heavy marketing geared toward the most attractive (underwriting) risks.
Drawing these individuals away from the individual insurance markets (and perhaps from employer-sponsored coverage) will cause costs in those individual and employer markets to increase. The only question is how much.
HRAs are employer-funded vehicles for covering employees’ health care costs (including out of pocket expenses and premiums). In the current environment, it is not clear that employers will look to put additional money into these vehicles. So, of the three parts in the executive order, the HRA directive may be the least significant in the near term. There are, however, several places where changes to HRA rules may have an impact:
• Under current regulatory guidance, employer HRA contributions can be used to determine if employers’ plans meet the ACA affordability standards in only limited situations. This rule could be relaxed by administrative action and employers could use HRAs (including existing HRA plans) to more easily meet the ACA’s affordability standards.
• Additionally, employers are (effectively) preventing from using HRAs to pay for employees’ individual coverage. This rule could be changed administratively and employers could use HRAs to incent employees to purchase individual coverage.
(It should be noted that the EO does not affect the change in the law (effective 1/1/17) permitting “qualified small employer health reimbursement arrangements” (or “QSEHRAs”). QSEHRAs are available only to employers that provide no other health coverage and must be provided to all eligible employees.)
ACA currently imposes very few limits on HRAs, so it is not clear that regulatory actions to expand them will have as much impact on the markets as the other portions of this EO.
This Administration action will take some time to have an effect. In the meantime, the Administration’s actions will not do anything to change the portions of the ACA that create the greatest burdens on employers (such as the employer mandate and the Cadillac tax on higher cost health plans). Also, ACA reporting requirements remain in place. These provisions are in the law until Congress can reach agreement on a replacement for ACA and although the Administration can issue regulatory guidance to soften some of the harsher edges of these provisions, they cannot be eliminated through administrative action.
The wrangling over the ACA has created uncertainty in the markets. As the regulatory agencies act on this EO, expect more to come.