In the wake of the collapse of Republican efforts on Capitol Hill to repeal and replace the Affordable Care Act (ACA), three new channels are shaping the future of the controversial health care reform law – with implications for employers and the ACA employer shared responsibility mandate:
President Trump says the purpose of the executive order is to promote health care choice and competition in individual insurance markets, slow the surge in insurance premiums and offer better options to smaller employers and consumers generally. The main target seems to be the ACA requirement that all health plans sold in the individual and small business markets offer a mandated package of 10 “essential health benefits (EHB).”
The October 12 executive order directs the heads of the Departments of Labor, Health & Human Services and Treasury to develop regulations addressing three specific areas under the umbrella of the Affordable Care Act – association health plans (AHPs); short-term, limited-duration insurance (STLDI) policies; and health reimbursement arrangements (HRAs).
Association Health Plans (AHP) would potentially allow small businesses and possibly individuals to group together to create larger risk pools and either self-insure like larger organizations, or qualify for large group insurance rates. In either case, such AHPs could avoid the ACA mandate to offer comprehensive essential health benefits packages. The Trump Executive Order directs the Labor Department to take steps to expand access to these AHPs.
Short-term, limited-duration health insurance policies (STLDI), which are exempt from ACA’s EHB requirements, were severely restricted by the Obama Administration, requiring that they last for no more than three months with no extensions. The Executive Order directs federal agencies to propose regulations to expand the availability of STLDIs, possibly by allowing longer durations as well as extensions.
Health Reimbursement Arrangements (HRAs) are employer-funded health benefits accounts that help employees to pay for out-of-pocket medical costs. The Executive Order directs federal agencies to propose regulations to expand the use of HRAs, possibly to allow employees to use HRA funds to pay premiums for individual market coverage.
While each of these initiatives has the potential to chip away at the Affordable Care Act, including by offering less expensive and more flexible alternatives outside ACA specifications, how much impact AHPs, STLDIs and HRAs would have is not clear. Small business employers especially, as well as their employees, could have greater health insurance options under these alternatives.
And, of course, the Executive Order directs federal agencies to propose regulations within 60 or 120 days. Agency heads will decide on the details of these regulations and public comments may add additional months. It would be surprising, therefore, if any of the three initiatives would take legal effect before late 2018 at the earliest.
Unlike the Executive Order, which will play out over some months and ultimately have minor effects on the ACA and health insurance markets, news that the Trump Administration will end the CSR program may send shock waves through Obamacare, exploding premiums, driving out insurers and destabilizing ACA exchanges – especially with open enrollment set to begin on Nov. 1.
The Affordable Care Act created two types of subsidies for those who enroll in federal or state exchanges. More widely known are subsidies that help enrollees afford insurance premiums. Of the estimated 10 million Americans currently enrolled in ACA exchanges, over 80% receive premium subsidies.
In addition, roughly seven million of the 10 million also qualify for cost-sharing reductions (CSRs) that subsidize out-of-pocket medical costs like deductibles and copays. Those in households earning between 100% and 250% of the federal poverty level are eligible for CSRs. The federal government pays roughly $7 billion annually in CSRs directly to insurers, enabling them to hold down the cost of exchange premiums.
The problem is that the legality of the CSR program is in dispute, with the House of Representatives arguing in the federal courts during the Obama Administration that the U.S. Department of Health & Human Services (HHS) could not fund the program absent a specific appropriation of funds by Congress. A federal court found in favor of the House position but delayed that ruling pending appeals.
In the meantime, the Trump Administration has provided funding for CSRs on a month-to-month basis in the expectation that Congress would resolve the issue as part of Obamacare repeal and replace legislation. President Trump has repeatedly threatened to stop CSR funding and now appears to have decided to end the program.
A statement from HHS made this clear:
“After a thorough legal review by HHS, Treasury, Office of Management and Budget (OMB), and an opinion from the Attorney General, we believe that the last Administration overstepped the legal boundaries drawn by our Constitution. Congress has not appropriated money for CSRs, and we will discontinue these payments immediately.”
Now what? Health policy experts in and out of government predict that terminating CSR payments to insurers will have two immediate effects starting with open enrollment Nov. 1:
First, in some counties premiums will have to be increased by 20% or more (according to the Congressional Budget Office) to compensate for CSR payments and avoid heavy losses for insurance plans.
Second, even more insurance carriers will abandon the federal and state exchanges because they anticipate fewer and sicker enrollees, further skewing risk pools toward high-cost medical claims in classic “insurance death spiral” scenarios.
In a Fact Sheet accompanying the president’s Executive Order, the White House asserted that, “In 2018, more than 1,500 counties (nearly 50% of all counties) are projected to have only one option on their individual insurance exchanges, according to the Centers for Medicare and Medicaid Services.” And, “From 2013 to 2017, average premiums for individual health insurance plans have doubled, increasing by $2,928 according to the Department of Health and Human Services.”
Terminating the CSR program almost certainly will result in even fewer counties having insurance plans and insurance premiums rising even more rapidly – a formula for destabilizing Obamacare exchanges.
Why is the Trump Administration playing hardball? This question brings us to the third channel that’s shaping the future of the Affordable Care Act right now.
Everyone knows that the Republicans’ ACA legislation is dead. But is it?
The Senate Health, Education, Labor and Pensions Committee (HELP), under the leadership of Senator Lamar Alexander (R-TN) and Senator Patty Murray (D-WA) have been working behind the scenes to draft a bipartisan bill to “stabilize” the ACA exchanges for 2018. Republicans and Democrats have their own priorities for the bill, with Republicans pushing to scale back as much of Obamacare as possible, and Democrats fighting to preserve as much of Obamacare as possible.
Prospects for a bipartisan deal to prevent ACA exchanges from collapsing and give states more flexibility on ACA regulations have brightened and dimmed since the collapse of repeal and replace legislation, with neither side apparently willing to make many concessions.
Before the Oct. 12 Executive Order and CSR announcement, few held out much hope for a bipartisan compromise to stabilize ACA. Now, however, and especially with termination of CSRs, President Trump may be putting pressure on both sides to prevent a complete unraveling of the ACA.
While the Executive Order has the potential to give small business employers and employees more flexibility and choices for health insurance, it could be a year or more before final regulations take effect. Termination of CSRs, to be sure, could collapse some exchanges and close off a new option for some employers to provide employee health insurance.
Legislation, on the other hand, offers employers two promising possibilities:
First, a Republican-Democrat compromise on health care policy would represent an important breakthrough on what has been a bitterly contested issue for seven long years. The Social Security Act, the Civil Rights Act, ERISA and the Fair Labor Standards Act are shining examples of the sustainability of bipartisan legislation.
The Affordable Care Act and Republican bills to repeal and replace it were all single-party partisan initiatives. Employers will breathe a sigh of relief if Republicans and Democrats can come together on any piece of health care legislation.
Second, if bipartisan legislation gets underway in the U.S. Senate, and it would need to be approved by the Republican-controlled House as well, the door would open to possible changes in the ACA section 4980H employer shared responsibility mandate and in ACA compliance.
The definition of full-time employee (30 hours per week), the definition of applicable large employer (Applicable Large Employer at 50 or more full-time employees), look-back and prospective stability periods, ACA section 6055 and section 6056 health coverage information reporting, penalties, indeed the employer “play or pay” mandate itself, all could be on the table.
Taken together, President Trump’s Executive Order, the end of the CSR program and the revival of possible bipartisan legislation represent bad news and good news for employers.
The bad news is that new uncertainty and instability have been introduced into the public policy process around Obamacare. The good news is that this could ultimately lead to constructive changes in the law that could stabilize insurance markets, potentially ease employer ACA compliance burdens and offer a glimpse of much-needed and long-overdue bipartisan cooperation on U.S. health care policy. Employers should be watching closely.
With more than 30 years of experience in federal legislative and regulatory affairs, Jim O’Connell focuses on HR and PAYROLL POLICY ISSUES, keeping customers informed about fast-changing and complex compliance regulations and workforce trends. Follow him on Twitter JOCWashDCView Collection