Employer Update/Health Care Policy Change Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

Amazon, JP Morgan, and Berkshire Hathaway Team Up To “Disrupt” the Provision of Health Care Benefits

Last Tuesday, Amazon, JP Morgan, and Berkshire Hathaway issued a press release putting the world on notice that the 3 companies were going to set up a non-profit company for the purpose of “addressing healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs.” The press release further explained that: “The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.”
- Analysis: As you know, the stock market went NUTs over this announcement, and we saw health care sector stocks (e.g., for insurance carriers, hospitals, and drug makers) tumble by a couple percentage points. Policy experts and stakeholder executives were quickly interviewed by the press and asked: “What does this announcement mean for health care?” As you would expect, many experts and executives didn’t say much. That’s because they didn’t have much to go on. That is, most came to realization that the only information they had to rely on was information in the press release itself. Which said very little. Now, I do not say all of that to be critical. I only say it because it is generally what everyone else is now saying, which is: “We do not have enough information to figure out what the heck Amazon, JP Morgan, and Berkshire Hathaway are cooking up here.” “We all hope it will be as ‘disruptive’ as the CEOs of these 3 companies are making this new endeavor out to be.” “We will just have to wait and see whether and when more information comes out to get a better handle on what this all means.” Despite the fact that we have very little information, I want to first tell you what I do NOT think this announcement means:

- - Is this an Association Health Plan (AHP)? One of the first reactions people had was: “Well, it appears that Amazon, JP Morgan, and Berkshire Hathaway are going to set up this non-profit company to provide health benefits to the respective companies’ employees.” My response: If Amazon, JP Morgan, and Berkshire Hathaway are going to indeed “band together” to provide health benefits to their employees, well then, these 3 companies would be creating a “multiple employer welfare arrangement” (MEWA), otherwise known as an AHP. Note, these 3 companies are definitely allowed to form an AHP if they wanted to. And, they are allowed to self-insure the AHP (i.e., the health benefits would be made available to the 3 companies’ employees through a self-insured “group health plan”). BUT, here is the problem: As a self-insured MEWA, their self-insured AHP MUST comply with ALL of the State MEWA statutes in each State in which the health benefits would be offered. As we all know, these 3 companies have employees ALL over the country. And this would mean that Amazon, JP Morgan, and Berkshire Hathaway would have to navigate ALL of the legal requirements of ALL of the State MEWA laws in ALL of the States where the companies would be providing benefits to their employees. These 3 behemoth companies certainly have the financial resources to pay a lawyer(s) to research, understand, and provide counsel on all of the various State MEWA statutes in ALL of the States the 3 companies would be offering health benefits (pssstt…pick me, pick me!). BUT, even if they picked me to be their lawyer, here is why I won’t be buying a boat anytime soon. California and New York currently PROHIBIT self-insured MEWAs from offering health coverage in their States. That means that if Amazon, JP Morgan, and Berkshire Hathaway established a self-insured AHP to offer health benefits to ALL of the respective companies’ employees, these 3 companies would NOT be able to offer health benefits to their employees in California and New York through this newly created self-insured MEWA. I don’t think I need to quantify the number of Amazon, JP Morgan, and Berkshire Hathaway employees who are located in California and New York, but I would bet you a boat that it is A LOT of employees. Soooo, just based on this, I think we can cross-off-of-the-list the notion that these 3 companies are going to set up a non-profit company (i.e., a self-insured AHP) to offer health benefits to their employees.

Then What Is Amazon, JP Morgan, and Berkshire Hathaway Trying To Do? (no news story)

Again, although we don’t have a lot of information to go on, here is my speculation:
- Analysis: As discussed above, there are barriers to Amazon, JP Morgan, and Berkshire Hathaway forming a non-profit company to offer health coverage to their own employees. BUT, there are essentially NO barriers to forming a non-profit company to serve as an aggregator of health claims data (a data warehouse of sorts). And, there are NO barriers to analyzing this data (i.e., performing data analytics) to determine (1) health trends and (2) patterns of spending and the amount of spending in different parts of the country and at different health care providers. This information can then be used by Amazon, JP Morgan, and Berkshire Hathaway to negotiate prices with health care providers in the areas where their employees are located. They can also negotiate their own prescription drug prices directly with drug makers as a kind of “purchasing cooperative,” essentially cutting out Pharmacy Benefit Managers. Amazon, JP Morgan, and Berkshire Hathaway could – through this non-profit company – also use this data to develop “performance measures” and “outcomes” that they would like certain hospitals/health systems to meet, and they may choose to create a “center of excellence”-type program where this non-profit company would negotiate bundled payments with those hospitals/health systems that met these performance standards. Employees of the 3 companies who then obtain medical services from these selected providers could enjoy a reduction in their cost-sharing as an inducement to receive treatment at the selected providers. I firmly believe that these 3 companies will develop additional “value-based care” strategies through this non-profit company, to be incorporated into their respective health benefit offerings. Another aspect of this announcement is “technology.” Most observers believe that Amazon will seek to create some sort of “health care tool(s)” to help people consume health care. For example, it makes sense to speculate that Amazon may seek to create some sort of “transparency tool” – through an app or otherwise – and with the health claims data that the 3 companies collect through their newly formed non-profit company, Amazon will be able to deliver pricing and quality information to all of the employees working for Amazon, JP Morgan, and Berkshire Hathaway. In other words, Amazon will “test” its technological break-throughs on its own employees, and the employees of JP Morgan and Berkshire Hathaway. Then, once the technology is perfected, Amazon will go-to-market with the “transparency tool” (and/or other tools intended to help people better understand and consume health care), and JP Morgan and Berkshire Hathaway will have some sort of financial stake in Amazon’s success in selling the technology. It also appears to me that these 3 companies may try to engage in direct-to-provider-contracting, with contract terms based on shared-risk payment models. But, to make direct-to-provider-contracting work, you need a large concentration of employees in one geographic area, and other than New York (for JP Morgan) and Washington State (for Amazon), these 3 companies may not have enough employees located in one area to pull off direct-to-provider-contracting. But, don’t under-estimate what Amazon, JP Morgan, and Berkshire Hathaway could be capable of accomplishing.

Association Health Plan Update

Senate HELP Subcommittee Holds Roundtable Discussion on “Association Health Plans”

As you may know, last Tuesday, I was asked to participate in the Senate HELP Subcommittee’s Roundtable discussion on “association health plans” (AHPs). Attached is my written statement, and also my oral statement. I am re-visiting the AHP issue because – unfortunately – understanding what rules apply and what rules do not apply to AHPs is complicated.
- Analysis: Below, I am going to ask a series of questions, provide a direct answer, and then provide some background (because here is a much better forum to provide “background” than a Congressional hearing full of Senators):
Q: Do the requirements under the Affordable Care Act (ACA) apply to self-insured AHPs? A: Yes.
Q: Are there any exceptions to these ACA requirements? A: Yes. A self-insured AHP would NOT be subject to the “essential health benefits” (the Federal EHBs) and “actuarial value” (AV) requirements. The AHP would also NOT be subject to the new adjusted community premium rating rules and the single-risk pool requirement.
Q: What ACA requirements actually apply to a self-insured AHP? A: A self-insured AHP (1) cannot deny a person who is eligible to participate in the plan health coverage if they have a pre-existing condition, (2) cannot refuse to cover preventive services (rather, the AHP must provide free coverage for certain government-approved preventive services), and (3) cannot impose annual and lifetime limits on the Federal EHBs covered under the plan. Other notable ACA requirements like coverage for adult children up to age 26, free access to emergency care, and the prohibition against rescinding coverage absent fraud apply.
Q: Do these ACA requirements – and exceptions – apply in addition to the rules under the Employee Retirement Income Security Act (ERISA)? A: Yes.
Q: What other rules and requirements apply to self-insured AHPs? A: State “multiple employer welfare arrangement” (MEWA) laws. It is my understanding that about 23 States have MEWA statutes (although I am in the process of confirming this). Some State MEWA laws outright prohibit self-insured MEWAs from operating within the State. Other State MEWA laws impose certain coverage and/or rating requirements on self-insured MEWAs. And even other States simply require the self-insured MEWA to “register” with the Department of Insurance, and prove to the Insurance Commissioner that the self-insured MEWA has, among other things, capital for adequate reserves, stop-loss insurance to protect against catastrophic claims, and a third-party administrator to perform enrollment functions and adjudicate claims.
Q: Are there solvency requirements that a self-insured AHP must meet? A: Yes. At this time, I do not have a survey of all of the States that have solvency requirements currently in place (another piece of information I am trying to find out). However, it is my understanding that the 23 States that have MEWA statutes do indeed have some sort of solvency requirement that is typically as good or better than the solvency requirements applicable to insurance companies operating the in the State. Other States that may not have MEWA statutes may still have solvency requirements for self-insured MEWAs (again, similar to the solvency requirements for insurance companies operating in the State).
Q: Last questions: What about fully-insured “large group” AHPs? A: The ACA requirements discussed above – in addition to the exceptions (i.e., no EHBs, no AV, no adjusted community rating, and no single risk pool) – apply to fully-insured “large group” AHPs.
Q: Anything else on fully-insured “large group” AHPs? A: Yes. Fully-insured “large group” AHPs are subject to State benefit mandates, which in many cases are as good as if not better than the ACA’s Federal EHBs. It is true that some States may not require coverage for every EHB on the Federal list, but in my experience, “large group” health plans sponsored by an employer offers a comprehensive level of coverage that again, is equal to or superior to the Federal EHBs. It is for this reason why the drafters of the ACA exempted “large group” plans – and self-insured plans – from the Federal EHB requirement.

Association Health Plans vs. Short-Term Health Plans (no news story)

Based on my observations, critics of the Trump Administration are either purposefully – or unknowingly – confusing the rules applicable to short-term health plans and the rules that apply to AHPs. For example, short-term health plans ARE PERMITTED to deny a person coverage based on a pre-existing condition. While AHPs CANNOT deny health coverage to an eligible participant because they have a pre-existing condition. As you know, I have repeated, and repeated, and repeated this point about AHPs over, and over, and over again. But, for some people – be it health care stakeholders, the media, and even members of Congress – they either have purposefully ignored this extremely important point, or they continue to remain ignorant to the rules that apply to AHPs (in my opinion, willfully ignorant).
- Analysis: There are other very important rules that apply to AHPs that do NOT apply to short-term health plans. Namely, (1) State benefit mandates do NOT apply to short-term health plans (while they apply to fully-insured “large group” AHPs), (2) the prohibition against imposing annual and lifetime limits do NOT apply to short-term health plans (while this rule applies to both fully-insured “large group” and self-insured AHPs), and (3) the prohibition against imposing cost-sharing for certain preventive services do NOT apply to short-term health plans (while this rule applies to both fully-insured “large group” and self-insured AHPs). I am purposefully trying to compare short-term health plans and AHPs to make this point: If the short-term health plan regulations ever come out, I believe they will cloud the debate over AHPs. As you know, the rules around AHPs are complicated enough. And, the outcry from ACA supporters that are sure to meet the short-term health plan rules will be unhelpful to the further development of AHPs. For example, stakeholders, the media, and some members of Congress are going to continue to believe that – like short-term health plans – AHPs can deny coverage if a participant has a pre-existing condition, which is FALSE. But that won’t stop them from saying that BOTH short-term health plans and AHPs should NOT be permitted because they do not provide the necessary protections that sick people need. Another thing that ACA supporters and other stakeholders are going to continue to raise alarms over is the Federal EHBs. These critics are going to argue that because short-term health plans – and also AHPs – do NOT have to comply with the Federal EHBs, these plans are “evil” (and the Trump Administration is evil for allowing both of these plans to even exist). Admittedly, I can see the critics’ point when it comes to short-term health plans. No, not that they are evil, but the concern over the level of coverage under a short-term health plan. BUT, what these critics overlook – or do not understand – is that fully-insured “large group” AHPs must provide coverage that is as good if not better than the Federal EHBs on account of the State benefit mandates applying to these plans. When it comes to self-insured AHPs, often times a State MEWA statute will impose coverage requirements on these plans, thus ensuring a comprehensive level of coverage. Note, in those States that may not have a MEWA statute in place, I agree that an argument can be made that self-insured AHPs can limit the coverage they may offer. BUT – in my opinion – we cannot forget that one of the main reasons why employers offer health coverage to their employees – even through an AHP – is to attract and retain talent. And a strong argument can be made that to remain competitive among their peers, employers – especially those offering health coverage through an AHP – are going to make sure that their plan offers a comprehensive level of coverage so they can attract and retain talented workers. This same motivation as it relates to “coverage” is NOT present in the case of short-term health plans, which is why the debate over these 2 types of health coverage CANNOT be conflated. Last comment: I disagree with the critics of AHPs, and I feel that their concern over AHPs is over-blown, mainly for political reasons. Admittedly though, I cannot go without saying that yes, there will likely be “bad” AHPs out there, which are formed to only offer a very slimmed down selection of benefits. I do not, however, think these types of AHPs will be wide-spread. Instead, just like the majority of employers who I believe are currently “doing the right thing” and offering affordable, quality health coverage to their employees, so too will the employer members of an AHP.

ACA “Repeal and Replace” Update

Are Republicans Putting Aside ACA “Repeal and Replace”?

Recent comments from Senate and House Republicans seem to indicate that Republicans are moving-on from trying to “repeal and replace” the ACA, at least until after the mid-term elections.
- Analysis: Depending on what additional news comes out on this over the coming week, I want to table an examination of what these statements mean until next week’s update. But I do want to say this:

- - This should NOT come as a surprise. The Senate now only has 51 seats. And, the Senate could not “repeal and replace” the ACA when Republicans had 52 seats. More importantly though, we are in an election year. And, it is always ill-advised to take on a social policy issue during the weeks and months in the run-up to election day, let alone taking on the ACA (an issue that Republicans already lost on). Adding to this: While not a guarantee, Democrats are poised to the take the majority in the House. Why would House Republicans want to give Democrats more ammunition to topple them on Nov. 6^th? Especially when House Republicans should be touting Tax Reform (and tax cuts), increased wages, and the economy. Why step on your accomplishments by taking on an issue (i.e., “repeal and replace”) that people are viscerally opposed to? You don’t want to be Jimmy Kimmeled on the eve of the election.