President Trump Issues Executive Order Toward Healthcare Reform
On October 12, 2017, President Trump issued an Executive Order (the “Order”) related to the availability and expansion of association health plans (AHPs), short-term limited duration insurance (STLDI) policies and health reimbursement arrangements (HRAs).
On the same day, the White House also announced that it would no longer continue payment of cost-sharing reduction subsidies to insurers.
What is in the Executive Order?
In effort to increase competition and provide access to alternative coverage in the health insurance market, the Order encourages the Department of Labor to propose regulations that expand access to AHPs and allow coverage sales across state lines.
The concept of AHPs isn’t entirely a new one — not only was a similar provision included in two previous Republican Senate proposals, but many states currently allow association plans. In those states, employers with a certain “commonality of interest” – who are not part of a controlled group – are permitted to come together to purchase health insurance in a move known as a “multiple employer welfare arrangement” under ERISA.
Such plans have increased reporting requirements to both the state Department of Insurance and the Employee Benefits Security Administration. However, most states prohibit or restrict self-insured association plans and discourage employer participation across state lines. This Order encourages the Department of Labor to propose regulations permitting both practices as well as review the definition of “commonality of interest” to grow the number of employers allowed to participate in an association plan.
This arrangement may be helpful to some employers who are currently in the small group market with age-banded rates and mandated essential health benefits. If they joined an AHP with other employers, they would escape community rating and move to large group experience premium rating, which can lead to lower premiums for an older, yet healthy employee population. Opponents of this arrangement fear that it would lead to increased premium rates in the small group market if a large number of healthy groups migrated to the AHPs, leaving high claimant groups in the small market pool.
Another portion of the Order encourages the Treasury Department, DOL and HHS (“the Departments”) to propose regulations that allow individuals to continue STLDI coverage for a longer period of time. The individual mandate currently requires Americans to have minimum essential coverage (MEC) for at least 10 months of a calendar year or pay a penalty on their personal income tax return — unless one of the exemptions applies.
Access to an individual policy offered through an exchange is restricted, however, in terms of when an individual may enroll. Enrollment through the exchange occurs during the annual open enrollment period. If an individual misses the opportunity, he or she may only enroll mid-year following a qualified special enrollment period event — such as birth, adoption, change residence, becoming eligible for a premium tax credit, losing other coverage. To accommodate for the period of time in which they would be otherwise uninsured, an individual may purchase STLDI.
STLDI is, importantly, not MEC, not required to cover essential health benefits and limited in coverage. The individual may still owe an individual mandate penalty, but the policy provides protection for some healthcare costs. Currently, an individual may only be covered under STLDI for a maximum of three months. The Order encourages the Departments to propose regulations that allow individuals to continue STLDI coverage for a longer period of time.
Finally, the Order encourages the Departments to consider proposing regulations or revising guidance to increase the usability of HRAs; more specifically, the Order encourages the use of HRAs with non-group coverage.
For some background, a large employer may currently only offer and maintain an HRA when it is integrated with a major medical group plan. The HRA cannot reimburse the cost of individual policy premiums. A small employer who does not offer a group health plan may reimburse the cost of individual policy premiums through the use of a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). The maximum reimbursement under a QSEHRA is $4,950 per employee.
Opponents say this is not enough to cover an individual’s out-of-pocket expenses and premiums under an individual policy. In the proposed regulations, the Departments may consider increasing the annual maximum QSEHRA contribution or provide a way for large employers to reimburse the cost of an individual policy through an HRA.
What About Cost-sharing Reduction Subsidies?
Late Thursday night, Oct. 12, 2017, the White House is reported to have announced that the Administration will not continue payment of cost-sharing reduction subsidies. As we’ve reported in the past, these payments provide reduced cost-sharing – for example, deductible, copayments and coinsurance – to lower income individuals who purchase an individual health policy through the exchange and have household income between 100 percent and 250 percent of the federal poverty level.
Although CSR subsidies have been the subject of ongoing litigation, both the Obama and Trump administrations have been continuing payments during ongoing legal proceedings. Without payments from the Administration, the insurers will still be required by the Affordable Care Act to provide the subsidies — which is why this issue has been the driving factor behind insurer decisions to pull out of the individual market in 2018 and increase premiums to better account for increased cost.
What happens now?
From here, the Departments will begin the traditional rulemaking process. The Order indicates that the DOL shall consider proposing regulations related to AHPs (within 60 days) while all three Departments shall consider proposing regulations related to STLDI (within 60 days) and the expansion of HRAs (within 120 days). Following the issuance of proposed regulations, the Department will receive public comments. Final regulations will not be issued until the comments are considered and evaluated by the Departments. This process will not be completed in 2017 and will continue into early 2018.
What does this mean for individuals and employers?
Looking ahead, employers may have alternatives available to them. Joining association health plans or reimbursing individual policy premiums through an HRA are both on the table, but for now nothing has changed.
Many employer groups are currently preparing for their 2018 offerings with renewal discussions and open enrollment. Those decision and efforts should continue as these announcements have no immediate impact on 2018 group coverage. Similarly, individuals who are preparing to purchase individual coverage for 2018 will be able to do so starting Nov. 1, 2017. The options and rates for those individual policies were finalized before the announcement regarding the payment of cost sharing reduction subsidies.
As always, our credentialed team continues to monitor future developments which impact employers and their benefit programs.