October 13, 2017
On Thursday, October 12, President Trump signed an Executive Order aimed at changing the Affordable Care Act (“ACA”). The Order, titled Promoting Healthcare Choice and Competition Across the United States, doesn’t take any specific action, but instead instructs the Secretaries of the Treasury, Labor, and Health and Human Services (the “Agencies”) to consider proposing regulations or revising existing guidance in three key areas. Additionally, later that same day, the administration confirmed that it will not make the cost sharing reduction payments (“CSRs”) to insurers under the ACA.
The bottom line is that there is no immediate impact to employers from either the Order or the cost sharing reduction payments decision. However, both actions could have significant impacts down the road. Below, we discuss the Executive Order and the potential implications of ending the CSRs for employers in more detail.
Association Health Plans (“AHPs”)
Currently, AHPs are plans formed by associations of businesses in the same general line of business that offer insurance coverage to association members as a single plan. Pre-ACA, the idea was that the association, as one large purchaser, would be exempt from the small employer rating rules and mandates, thus providing more design flexibility, and would also have greater pricing power than each of the members separately.
After the ACA, AHPs became subject to a state’s small group rating and plan design mandates, unless the association was treated as the only plan sponsor. However, most AHPs were treated as a group of separate plans sponsored by each of the members. Those types of AHPs were largely disbanded in 2014 when the new rating rules for small group became effective because one of the key advantages of the AHP (i.e., the exemption from the small group rating rules) had been taken away. Small employers (those with less than 50 employees, or 100 employees in some states) were the most impacted, as they were forced to purchase coverage from the small group market.
The Executive Order directs the Secretary of Labor to, within 60 days, consider revising existing rules to expand access to AHPs. An expansion of AHPs could result in additional insurance options for small employers. It may also potentially lead to the ability to purchase insurance across state lines, which President Trump discussed during his campaign.
Short-Term, Limited Duration Insurance (“STLDI”)
Regulations under the ACA define STLDI medical plans as those lasting less than three months. Such plans do not have to follow all of ACA’s insurance requirements. For example, the insurer cannot price the policy based on the health or claims of the individual applying for coverage and the plan does not have to cover specific services required of other plans under the ACA. Additionally, individuals who are covered by these plans could still be subject to penalties under the individual mandate as if they didn’t have insurance.
The Executive Order requires the Agencies, within 60 days, to consider revising rules to expand the availability of STLDI. The Order specifically mentions allowing these policies to be issued for durations longer than the current maximum of less than three months.
Health Reimbursement Arrangements (“HRAs”)
HRAs are employer-funded arrangements that reimburse employees for certain medical care expenses incurred by employees and their covered dependents. IRS guidance prohibits HRA funds from being used towards the purchase of individual health insurance policies (other than for certain small employers using Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)). Historically, the agencies have been concerned that employers would encourage their least healthy employees to seek individual coverage by paying for it to keep those employees off the employer’s plan.
The Executive Order is aimed at expanding employers' ability to use HRAs to reimburse employees for non-group (individual) coverage that they purchase. The Agencies have been given 120 days to address these items. It is worth noting, however, that the reimbursement of individual policies presents a series of compliance questions beyond the ACA. As just one example, under COBRA rules, a group of individual policies can be considered a group health plan subject to COBRA. However, it is not clear how COBRA would apply in that context.
Ending Cost-Sharing Reduction Payments (“CSRs”)
In addition to the Executive Order, the Trump Administration has also said they will end CSRs. The CSRs are paid to insurers in the individual market to help reduce the cost-sharing (e.g., deductibles, co-insurance, etc.) for certain lower income individuals who qualify. Even without these payments, the ACA still requires that qualifying individuals receive plans with reduced cost sharing. Ending the cost sharing reduction payments simply means the government is not reimbursing the insurers for the reductions in cost sharing. As a result, insurers will likely recoup the additional costs through increased premiums.
While ending cost sharing reduction payments does not directly impact employer plans, it could have an indirect impact. To the extent employees were purchasing individual market policies (with or without CSRs) and their premiums increase, they may find coverage from their employers more attractive to the extent it is available.
Additionally, individuals who see high increases in their individual premiums as a result may choose to go without insurance. If they do so, this could increase emergency room visits and other uncompensated care by providers. That could, in turn, result in increased premiums for employers as providers increase prices to make up for their losses.
While the broader ACA repeal and replace efforts have stalled for the moment, the President still has the ability to influence overall policy. However, the Executive Order does not immediately change any compliance obligations. Therefore, for the time being, employers should continue with ACA compliance and wait and see. There is nothing else to do until the Secretaries propose regulations or revise guidance under the Executive Order. Given the timing of the Order, it is unlikely to impact open enrollment for 2018.
Regarding the cost sharing reduction payments, while there is no immediate employer impact, ending those payments could result in lawsuits from state Attorneys General. It may also force Congress into action to address the funding of CSRs and possibly other aspects of the ACA.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.