COVID/Health Care Policy Update
COVID/Health Care Policy Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
The Federal COBRA Subsidies In the COVID Stimulus Package
- As you have undoubtedly read in the press, the COVID Stimulus Package includes a provision that calls for Federal subsidies to help people eligible for COBRA coverage (e.g., former employees) to pay for a portion of their COBRA premiums. Under this new provision, COBRA enrollees will only be required to pay 15% of the cost of their COBRA premiums, and the Federal government will pick up the remaining 85% of the premium. These COBRA subsidies are available beginning the first day of the first month after enactment of the COVID Stimulus Package (e.g., April 1st, if Democrats can get the Package across the finish line by their self-imposed deadline of mid-March) and ending on Sept. 30th.
- Analysis: That seems straight-forward enough, doesn’t it? Yes BUT, there are a lot more details on who will be eligible for these COBRA subsidies that the press does NOT talk about. In addition, there are new notice requirements for employers, and it is important for employers – and insurance carriers – to be reminded how 85% of the COBRA premiums must initially be paid for.
So what are these details?
Eligibility: The COBRA subsidies are available to employees who are involuntarily terminated by their employer – and also – to employees who experienced a reduction in hours (who lose eligibility under their employer plan on account of NOT working enough hours). In addition, if a person happens to already be eligible for COBRA PRIOR to the enactment of the COVID Stimulus Package (because, for example, their employer terminated them in 2020), this former employee WILL ALSO be eligible for a COBRA subsidy if they elect COBRA coverage (provided this former employee elects COBRA within 60 days of being notified of the opportunity to access a COBRA subsidy (I talk about this “Notice” more fully below)). The best example to illustrate this additional eligibility requirement is this: Let’s say Jane was laid off on Sept. 1, 2020. Here, because of specific guidance issued by the Trump Administration that extended the deadlines for electing COBRA, Jane WILL STILL be eligible to elect COBRA if the COVID Package is enacted some time in March. This means that Jane can choose to elect COBRA starting, for example, April 1st, and Jane can access the COBRA subsidy that will pay for 85% of her COBRA premiums, at least through Sept. 30th. Alternatively, Jane can elect COBRA coverage retroactive to September 1, 2020 in accordance with the Trump Administration’s guidance extending the deadlines for electing COBRA (but note, there is a “glitch” in when this deadline extension expires, which I talk more about below). Importantly, in the event Jane elects retroactive COBRA coverage, the COVID Package does NOT appear to allow Jane to receive COBRA subsidies to pay for any retroactive premium payments (back to Sept. 1, 2020). BUT, Jane WILL be eligible to receive the COBRA subsidies for 85% of her premiums starting April 1st through Sept. 30th. This will make it easier for Jane to pay for any retroactive premium payments (back to Sept. 1, 2020) that are NOT subsidized by the government, which may allow Jane to make such retroactive premium payments out of her own pocket. I will also note, the legislation makes clear that for purposes of covering a former employee’s/employee’s 15% of the COBRA premium, any person – including a family member, BUT ALSO a medical provider or a non-profit foundation – may pay for the former employee’s/employee’s portion of the COBRA premium. I note this because as I have discussed previously, insurance carriers and self-insured employers remain concerned that providers and/or certain foundations may choose to pay the COBRA premiums on behalf of high-medical utilizers so these high-medical utilizers can remain on private insurance coverage as opposed to enrolling in Medicaid (which reimburses providers at a much lower rate than private plans).
Additional Employer Notice Requirements: In line with this policy goal of allowing employees who were eligible for COBRA even PRIOR to the enactment of the COVID Stimulus Package to access the COBRA subsidies, employers are required to send to all of their involuntarily terminated former employees a Notice explaining to these former employees that they may now be eligible to receive the COBRA subsidies if they elect COBRA. The Notice must also include forms that the former employee must fill out to receive the COBRA subsidy, along with certain other information including an explanation that the former employee has 60 days after receipt of this Notice to elect COBRA and access the COBRA subsidy (and if they do NOT elect within the 60 days, they are NO longer eligible for the COBRA subsidies). Employers must send this particular Notice to their former employees within 60 days after the first day of the first month after enactment of the COVID Stimulus Package. So again, assuming that the COVID Stimulus Package is enacted by mid-March, that would make April 1st the “first day of the first month,” and 60 days after that would be June. The Federal Departments are directed to issue a Model Notice within 30 days of enactment (e.g., by mid-April, assuming enactment of mid-March). In addition to notifying former employees/employees of the availability of the COBRA subsidy, employers are ALSO required to send a Notice informing those former employees/employees who elected COBRA that their COBRA subsidies are about to END. More specifically, no earlier than 45 days – and no later than 15 days – before Sept. 30th, employers MUST send a Notice explaining that the COBRA subsidy will be ending soon, and also, that the former employee/employee can continue their COBRA coverage by paying the FULL amount of the COBRA premium if they so choose. The Federal Departments are directed to issue a Model “expiration” Notice within 45 days of enactment.
“Fronting” the 85% of Premium: Employers sponsoring a self-insured plan are required to “front” the money to pay for 85% of the COBRA premiums on behalf of all of the former employees/employees who elect COBRA coverage in accordance with this Federal COBRA subsidy provision. Employers will then subsequently receive reimbursement for all of the money that they “fronted” by claiming an advance-refundable tax credit on their quarterly payroll tax return. Insurance carriers underwriting a fully-insured group health plan are ALSO required to “front” the money to pay for 85% of the COBRA premiums on behalf of all of the former employees/employees who elect COBRA coverage in accordance with this new provision. In other words, in cases where an employer is sponsoring a fully-insured plan, the insurance carrier – and NOT the employer – is required to “front” the money. The insurance carrier will then subsequently receive reimbursement for all of the money that they “fronted” by claiming an advance-refundable tax credit on their quarterly payroll tax return.
“Different” Coverage: Interestingly, the Federal COBRA subsidy provision allows an employer to allow its employees to elect coverage that differs from their current coverage. According to the existing COBRA rules, my employee benefit attorney friends and I believe that an employee electing COBRA coverage can ONLY elect coverage under their current plan design (i.e., we do NOT believe that current law allows employees to elect “different” – or additional – coverage when electing COBRA). Importantly – and this is VERY important – the Federal COBRA subsidy provision specifically states that allowing employees to elect “different” coverage is 100% voluntary. Meaning, if the employer does NOT want to allow former employees/employees to elect “different” coverage when they elect COBRA, the employer does NOT have make this option available. BUT, even if an employer DOES allow its former employees/employees to elect “different” coverage, the former employee/employee CANNOT “buy-up.” More specifically, legislative language states that this “different” coverage CANNOT cost more than the employee’s existing coverage, and we all know that typically, more robust coverage (e.g., a plan that covers additional benefits and/or has a lower deductible) will cost more, thus, NO “buying up.” In addition, an employer CANNOT allow its former employees/employees to switch from their current coverage to an “excepted benefit” (like indemnity coverage) or a Flexible Spending Arrangement (FSA). Why? Because these types of coverage are NOT major medical coverage, and Congressional Democrats want people covered by comprehensive coverage (in this case, a “group health plan”). Also, a former employee/employee cannot switch to a small employer HRA (that can be used to purchase an individual market plan). Why? Because it appears that Democrats do NOT want high-medical utilizers who would otherwise be electing COBRA to enter the ACA’s “individual” market.
When Does the COBRA Election Deadline Extension End?
- Okay, so a weird thing is going on when it comes to the extension of, for example, the COBRA election deadline.
- Analysis: As I have told you back in April 2020, the Trump Administration issued guidance giving people who lost their job the ability to wait to elect COBRA until 60 days AFTER the COVID “public health” emergency ends. WELL, as we all know, the COVID public health emergency has NOT ended. Sooooooo, at least according to the Federal regulations, the COBRA deadline extension is STILL in effect. AND, because the law currently calls for this extended COBRA election deadline, that is why I discussed (above) the interaction between the Federal COBRA subsidy provision and the Federal regulations that currently extends the deadline for electing COBRA coverage. BUT, there appears to be a “glitch” in how long this COBRA election deadline should remain extended. What I mean is this: The 2nd Stimulus Package that was enacted back in March 2020 directed the Federal Departments to issue regulations extending various employer plan deadlines, including the COBRA election deadline. HOWEVER, the language in the 2nd Stimulus Package states that any such deadline extensions shall only last for “a period of up to 1 year.” Because the effective date of the 2nd Stimulus Package was March 1, 2020, it would appear that, for example, the COBRA election deadline extension should end on Feb. 28, 2021. If this is the correct way the law should operate, this would mean that Jane (who – in our example above – was terminated on Sept. 1, 2020) would have 60 days starting March 1, 2021 to elect COBRA coverage. If Jane elected COBRA coverage on say April 29, 2021 (which is the 60th day after March 1st, and the last day Jane could elect COBRA), Jane could elect that her COBRA coverage go all the way back to Sept. 1, 2020, provided Jane pays the full amount of retroactive premiums for each month between Sept. 1, 2020 and March 31, 2021. On April 1, 2021, however, Jane would be able to take advantage of the Federal COBRA subsidy provision and access COBRA subsidies starting April 1, 2021 through Sept. 30th.
Does This Present Problems In “Reconciliation”?
- Okay, so let’s say that – in accordance with the language in the 2nd Stimulus Package – the COBRA election deadline must end on Feb. 28, 2021. If Jane decided to elect COBRA coverage on May 1, 2021, Jane would NO LONGER be eligible to elect COBRA because Jane would have failed to have elected COBRA by end of her election deadline. Here, Jane would NOT be able to access the COBRA subsidies.
- Analysis: BUT, the Federal COBRA subsidy provision in the COVID Package appears to allow Jane to STILL elect COBRA coverage even on May 1st (or afterwards), and the provision further indicates that Jane would be able to access the COBRA subsidies, presumably retroactive to April 1st. If the Federal COBRA subsidy provision in the COVID Package indeed allows all of this, then the underlying “reconciliation” bill would be creating a NEW eligibility rule under COBRA. Normally, Congress can change the statute to say anything Congress wants. BUT, the “reconciliation” process is NOT normal. And in most if not ALL cases, Congress CANNOT develop new policy through a “reconciliation” bill. Sooooooo, I would argue that allowing people like Jane – who were terminated from employment PRIOR to the enactment of COVID Stimulus Package – to elect COBRA and access the COBRA subsidy AFTER Jane’s election period ended would VIOLATE the “reconciliation” rules because this change in the law is a “policy change” and NOT directly related to revenue and spending. Stated differently, this provision is too closely related to a change in “insurance rules,” and the Parliamentarian has previously ruled that changes to “insurance rules” CANNOT be included in a “reconciliation” bill (most recently, during the 2017 ACA “repeal and replace” exercise). Last comment: The Biden Administration has been made aware of this “glitch” by employee benefit attorneys like me. As a result, I would expect that the Biden Administration will issue regulations clarifying that the end of the COBRA election deadline is NOT tied to the language in the 2nd Stimulus Package, but rather, the end of the election deadline is tied to the end of the public emergency, which has still NOT ended yet. If the Biden Administration does NOT issue clarifying regulations, I would argue that the Federal COBRA subsidy provision may run into some problems with the Senate Parliamentarian. Even with new Federal guidance in this area, the Democrats may still have problems with the Parliamentarian.
TEMPORARY – Increasing the ACA’s Premium Subsidies and Eliminating the Income Limit for Subsidy Eligibility Are ONLY Temporary
- As the COVID Stimulus Package continues to barrel through Congress, it is looking more and more likely that the Biden Administration and Congressional Democrats will successfully (1) increase the ACA’s premium subsidies (by increasing the government’s share of Exchange plan premiums) and (2) expand eligibility for the premium subsidies by eliminating the income limit on subsidy eligibility.
- Analysis: BUT, it is VERY, VERY important to understand that that these 2 proposals are only TEMPORARY. More specifically, these 2 provisions are ONLY effective for 2021 and 2022, which is really ONLY 1-½ years, considering these provisions would first be effective mid-way through 2021 (e.g., April 1st or May 1st, depending on when the Democrats can get the COVID Stimulus Package across the finish line). Why are these 2 proposals only temporary? First, because of the “reconciliation” rules. As discussed below, these 2 proposals cost a TON of money even though the proposals are only effective for 1-½ years. If these proposals were permanent –or even if they were required to sunset after 10 years – the spending for these 2 proposals would be SIGNIFICANT. And without proper “offsets” that would continue to “offset” these 2 proposals in the out-years, the Parliamentarian would likely say that these 2 proposals VIOLATE the “reconciliation” rules. Second, BOTH Republicans AND Democrats like to make policy changes temporary. Why? So they can set up another “fight” over the policy change in only a few short years. This helps with fund-raising, and it also helps with political messaging because the press – and members of Congress – can continue to talk about the policy change to gin up support with the party-base. In addition, if the policy change is a popular one, it sets up a situation where the minority party may be goaded into supporting an extension of the policy change. And if the minority party says NO, the majority party can vilify the minority party and call them evil for failing to extend a popular policy change. Again, BOTH parties do this.
How Will Increasing the Premium Subsidies and Eliminating the Income Limit for Subsidy Eligibility Impact Coverage?
- The Congressional Budget Office (CBO) estimated that 1.3 million more people would have health insurance if these 2 proposals became law. That is a coverage gain. HOWEVER, this is a much SMALLER coverage gain than I would have expected. HOWEVER, it is always a good thing when uninsured individuals are getting coverage irrespective of the size of the increase.
- Analysis: Adding to this 1.3 million of newly insureds, CBO estimates that 100,000 individuals will shift from their employer plan to a subsidized Exchange plan (presumably because their employer is dropping the employer plan), giving us a grand total of 1.4 million more people entering the “individual” market for the FIRST TIME by purchasing an Exchange plan in 2022 (when these 2 proposals are in full effect for the entire plan year). In my opinion, adding more lives to the “individual” market is always a good thing. HOWEVER, this additional 1.4 million lives ONLY translates into a 1% increase in “individual” market enrollment (assuming there are about 14 million people currently in the “individual” market). BTW, I would have thought this number would have been much HIGHER.
How Will Increasing the Premium Subsidies and Eliminating the Income Limit for Subsidy Eligibility Impact “Affordability”?
- It is well-established that individuals who have incomes just over the 400% of FPL mark (e.g., 401% to say 450% of FPL) are paying a TON of money out-of-their-own pocket for an “unsubsidized” individual market plan. These 2 proposals coupled together would provide these individuals with SIGNIFICANT savings, thereby SIGNIFICANTLY reducing the amount of money they must pay out-of-their-own pocket for health coverage.
- Analysis: For example, if these 2 proposals became law, CBO estimates that a 64-year old with income at 450% of FPL will pay $7,950 less for their coverage. For a 45-year old at 450% of FPL, he/she will pay $1,250 less. And, a 21-year old at 450% of FPL will pay $0 for their Exchange plan. The proposal to increase the premium subsidies ALSO helps low-income individuals (e.g., with incomes between 133% and 150% of FPL) by reducing their premium for an Exchange plan to $0, thus reducing how much these individuals have to pay by $800 (which is a lot of money for people making around $20,000 a year). HOWEVER, with this increase in “affordability,” I would have thought there would be a larger coverage gain (more than 1.3 million), and a larger increase in “individual” market enrollment (more than just 1%). BUT, something is better than nothing, right?!? HOWEVER, if we were just focusing on (1) the uninsured, or (2) the increase in enrollment in the “individual” market, or (3) “affordability,” I would say that CBO’s estimates are all good results. BUT, we ALSO have to factor in the cost these 2 proposals present to the Federal government. As discussed below, the cost to the government is SIGNIFICANT relative to the how long these 2 proposals are effective, and relative to the small coverage gain and the small increase in “individual” market enrollment.
Here Is Another Thing Related to Both Coverage and “Affordability”
- Among the individuals who would be purchasing a subsidized Exchange plan, CBO estimates that only 680,000 people whose income is currently ABOVE 400% of FPL would purchase an Exchange plan in 2022 (again, when these 2 proposals are in effect for a full year). CBO indicates that 300,000 (of this 680,000) would include individuals who are ALREADY purchasing an “unsubsidized” individual market plan. The remaining 380,000 would be made up of uninsured individuals who CANNOT afford an “unsubsidized” individual market plan (but now can with access to a premium subsidy).
- Analysis: Again, I would have thought (1) the number of people currently in the “unsubsidized” market – AND – (2) those uninsured individuals sitting on the side lines because the “unsubsidized” market is so expensive who are NOW purchasing a subsidized Exchange plan would have been much HIGHER than 680,000. After all, it is well-accepted that there are at least 4 million people currently in the “unsubsidized” market. AND, we know that over the past few years, 2.5 million people exited the “unsubsidized” market (presumably because costs were too high, but they also could have gotten a job). I recognize that for higher income people, in most cases, an Exchange plan is going to cost LESS than 8.5% of their income, and thus, these higher income people would NOT be eligible for a premium subsidy even if the 400% of FPL income limit is eliminated. BUT, I still would have thought that MORE people who are currently “unsubsidized” (which appears to be like 6 million people) would JUMP at the opportunity to enroll in a subsidized Exchange plan.
How Will Increasing the Premium Subsidies and Eliminating the Income Limit for Subsidy Eligibility Impact Cost to the Federal Government?
- CBO estimated that these 2 proposals would cost $34.2 billion dollars over 10 years. However, in real terms, we are ONLY talking about 1-½ years where these 2 proposals are effective, although CBO does say there will be a residual effect in 2023 because some people may continue to hold on to their Exchange plan even without the increased subsidy amounts. Regardless, that is a TON of money to spend over a mere 1-½ to 2-½ years.
- Analysis: I must say, even the most hardened ACA supporter has to be questioning whether they are getting a bang-for-their-buck with these 2 proposals. What I mean is, if you are ONLY getting a 1.3 million coverage gain, and if you are ONLY increasing the number of lives in the “individual” market by 1.4 million people, is it really worth it to spend $34.2 billion? Look, I think it is FANTASTIC that the increased premium subsidy amounts will provide SIGNIFICANT savings to a portion of people who would now be purchasing a subsidized Exchange plan. BUT, this savings is in the form of government spending. There are NO savings from lowering health care costs. It is well-accepted that the underlying unit cost of health care is the true driver of how much health insurance coverage costs. Unfortunately, these 2 proposals do NOTHING to reduce the unit cost of health care. Instead, these proposals merely MASK the true cost of an “individual” market plan. And – at least in my opinion – if all you are doing is MASKING the true cost of an “individual” market plan, there is NO incentive for insurance carriers and providers to take steps to lower the underlying cost of health care. Last comment: I do NOT like being this blunt, but to me, these 2 proposals are simply throwing money at the problem. Good thing they are ONLY temporary, right!?!.
Will these Temporary Proposals Be Made Permanent?
- Okay, so notwithstanding the fact that these 2 proposals do NOTHING to reduce the underlying cost of health care, will these 2 proposals reduce premiums in the “individual” market? Stated differently, even though the premium subsidies will continue to mask the true cost of an Exchange plan, will the addition of 1.4 million new lives to the “individual” market risk pool have a positive impact on premiums, thereby resulting in a reduction in premiums??
- Analysis: In my opinion, this is a very important question ask. Why? Because if premiums do indeed go down because more lives are entering the “individual” market, this will bolster the argument that (1) increasing the premium subsidies and (2) eliminating the income limit for subsidy eligibility should be made permanent. The cool thing is that we will know whether these 2 proposals will have a substantive impact on premiums sooner rather than later. How? Well, insurance carriers will be releasing their proposed 2022 premium rates some time this Summer, with those rates being finalized in the Fall. When these 2022 premium rates are released – and ultimately finalized – we will know for sure whether (1) increasing the subsidies and (2) eliminating the income limit for subsidy eligibility will have a positive effect on premiums. Unfortunately, I am NOT in a position (because I am not an actuary) to guess whether 2022 premiums will go down due to these 2 proposals. For example, maybe the actuaries think that higher-medical utilizers are going to enter the “individual” market with these new incentives. If this happens, then the “individual” market risk pool will get WORSE, and premiums will likely GO UP notwithstanding the additional live entering the “individual” market risk pool. On the other side of the coin, maybe the actuaries believe that younger/healthier lives will be entering the “individual” market with these new incentives. In this case, the “individual” market risk pool will get BETTER, and premiums will likely GO DOWN. BUT, by how much will premiums go down? 2%? 5%? 10+%? If premiums only go down by say 2%, it is reasonable to ask: Was it worth it to spend $34.2 billion dollars on this temporary experiment? If, however, premiums go down by say 7% to 10%, then I think it is reasonable to suggest that spending all of this money may have been worth it. BUT, is it also reasonable to say that over the long-term, should Congress really consider making this temporary experiment permanent? The bottom-line is this: There is 100% certainty that we will see a 2nd “reconciliation” bill in the 4th Quarter of 2021. AND, while we do NOT exactly know whether this 2nd “reconciliation” bill will be limited to health care, I believe with 100% certainty that we will see health care provisions in this 2nd “reconciliation” bill (even if this 2nd bill includes non-health care provisions like infrastructure and climate change, where health care, infrastructure, and climate change are all bundled together in one, big “reconciliation” bill). Will these health care provisions include making the increased subsidies and expanded eligibility permanent? Answer: PROBABLY, irrespective of whether the 2022 premiums go down, but especially if the 2022 premiums go down. Stay tuned…