+1 800.648.4807

Employer Update

Employer Update

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

Surprise Medical Bills:  Legislation Introduced In Congress

  • My post last week was apparently well-timed because as I was hitting send on my email update, reports were coming out that a group of Senators introduced legislation, the primary purpose of which is to address the “surprise medical bill” problem. In response to some of my comments last week, someone asked me: Why should Congress amend ERISA as a way to solve this surprise medical bill problem?
    • Analysis: My response: Because ERISA is the only Federal law that regulates self-insured employer plans. And, you have to amend ERISA if you want to somehow regulate ERISA-covered self-insured plans. For example, the Public Health Service Act (PHSA) generally does NOT regulate self-insured employer plans.  Rather, the PHSA is limited to insurance carriers and in some cases health care providers. The only way provisions of the PHSA can reach a self-insured employer plan is if the PHSA provisions are incorporated by reference into ERISA. This was done under the ACA, where – for example – the ACA’s “group health plan” requirements (e.g., the prohibition against annual and lifetime limits, the pre-existing condition prohibition, and the prohibition against cost-sharing for certain preventive services, among others) were first included in the PHSA, and then incorporated by reference into ERISA, thereby making these requirements apply to self-insured plans. Interestingly, the legislation that was introduced by this group of Senators amends the PHSA, and not ERISA. BUT, the legislation amends a section of the PHSA that was added to the law through the ACA, which is incorporated by reference into ERISA along with all of the other ACA “group health plan” requirements. As a result, this particular piece of legislation amends ERISA by operation of law, although ERISA is not specifically amended.


What does the legislation do?

      • “Emergency” Out-of-Network Expense Incurred at Out-of-Network Provider: In the case of an “emergency,” if an out-of-network expense is incurred at an out-of-network provider, a patient is only required to pay what the employer plan pays a provider for in-network charges for the same medical service. In other words, a the patient is ONLY charged the cost for in-network services. Which means, the provider is prohibited from “balance billing” the patient. That is obviously a BIG deal because – if the legislation was enacted – we would have a blanket prohibition against “balance billing” at the Federal level. Something that I believe is a GOOD thing.
        • BUT, even though Congress would be prohibiting “balance billing,” the legislation does not leave the health care provider high-and-dry. That is because the legislation requires the employer plan to pay at least a portion of the “balance bill.” Specifically, the employer plan would STILL be required to pay the health care provider the greater of (1) the median in-network amount negotiated by health plans and insurance carriers in the geographic locale of the provider or (2) 125% of the average allowed amount in the same geographic area for the same medical service that was provided.
      • “Non-Emergency” Out-of-Network Expense Incurred at Out-of-Network Provider: After an emergency room visit at an out-of-network provider, once a patient stabilizes, the patient must be informed that they may be charged a higher rate than amounts they would be charged at an in-network provider. The patient must then be given the option to transfer to an in-network provider.
      • “Non-Emergency” Out-of-Network Expense Incurred at In-Network Provider: In the case where (1) a patient makes an emergency room visit at an in-network hospital, but (2) the patient incurs a “non-emergency” expense when treated by an out-of-network provider (e.g., an anesthesiologist or other specialist), the patient can ONLY be charged the in-network amount for the “non-emergency” service. Again, the patient is protected from any “balance billing,” which – as stated above – is a pretty big deal because there would be a general prohibition against “balance billing” (because the prohibition is a Federal requirement).
        • But again, the legislation does not leave the health care provider high-and-dry. The employer plan is STILL required to pay the provider the greater of (1) the median in-network amount negotiated by health plans and insurance carriers in the geographic locale of the provider or (2) 125% of the average allowed amount in the same geographic area for the same medical service that was provided. I commend this group of Senators (Sen. Cassidy (R-LA), Sen. Bennet (D-CO), Sen. Grassley (R-IA), Sen. Carper (D-DE), Sen. Young (R-IN), and Sen. McCaskill (D-MO)) for taking the lead on this important issue. BUT, with the mid-term elections coming up – and the legislative priorities that Congress still needs to get done with only a limited number of legislative days – any consideration of this legislation will NOT happen until next year.  But, the introduction of the legislation now allows members of Congress to talk about the surprise medical bill issue on the campaign trail, and it also allows stakeholders on both sides of this issue to engage in what I hope is a constructive conversation on the best ways (1) to stop to surprise medical bills, while also (2) making sure that health plans and health care providers are treated fairly.


Should Congress Regulate the Employer Plan or the Health Care Provider?

  • Picking up off of my last comment above, arguments have been made that this whole surprise medical bill problem is NOT necessarily an employer plan problem, rather, it is a health care provider problem. This raises a reasonable question:  Does Congress really need to regulate employer plans (which are the “payers” of the health care consumed by their employees) or should Congress regulate the health care providers (who provide the medical care and then charge for their services).
    • Analysis: This is a very important question to ask for a number of reasons: First, currently, employer plans do NOT pay the “balance bill” on behalf of their employees. Some employer plans choose to VOLUNTARILY pay the “balance bill” for their employees. But importantly, employer plans are NOT mandated to do so. The above described legislation, however, would – for the first time – require employer plans to pay the “balance bill” in cases where their employees covered under their health plan incurs an out-of-network expense that produces the surprise medical bill. In my opinion, this a really BIG deal because never before have employers been regulated in this way, and forced to pay health care providers that the employer effectively has no affiliation with, or instances where the employer specifically chose NOT to affiliate with a particular provider (i.e., maybe the employer opted against including the provider in their network, yet the employer is still required to pay this purposefully excluded out-of-network provider?). Note, there really is no difference – at least in my mind – as to whether the employer plan is fully-insured or self-insured.  In the self-insured plan context, the employer is truly the “payer” of the health care consumed by their employees. And in the case of the legislation discussed above, it would be the employer that would be required to pay the “balance bill” (again, for the first time). In the case of a fully-insured employer plan, yes, the insurance carrier would be the one “paying” for the health care consumed – and also – a portion of the “balance bill.” BUT, the money for the “balance bill” will – at-the-end-of-the-day – come out of the pockets of the employer and employees in the form of higher premiums (i.e., the carrier will simply pass-through the cost of the “balance bill”). Here is another thing to think about:  If we force employers to pay the “balance bill,” aren’t we just encouraging health care providers to rack up out-of-network bills? Because the providers know that the bill is going to get paid regardless of whether the provider is in-network or out-of-network (here the providers know there is essentially no risk of uncompensated care even if they know they are out-of-network)? In addition, isn’t mandating the employer to pay the “balance bill” encouraging bad behavior…behavior we already frown upon and are actually trying to change through Federal and State laws (namely, preventing surprise medical bills for thousands upon thousands of dollars)?


There Is a Reasonable Fairness Question Here

  • In my humble opinion, it does not make a lot of sense to regulate the employer plan and force it to pay the “balance bill.” It strikes me that we would be moving back to something akin to fee-for-service where providers know they are going to get paid based on the “volume” of health care services they provide, so they will just rack up out-of-pocket charges. Okay, maybe that is not the best analogy, but I think you feel me here: I believe providers are going to see this as guaranteed money (even though it is not the entire “balance bill”), and you can bet-your-bottom-dollar that providers will take advantage.
    • Analysis: You may agree with me, and you may think that it is unfair to force the employer plan to pay the “balance bill.” But you may also be asking: Who is going to pay? Should the health care provider get the short-end-of-the-stick? Or stated differently, is it fair to the provider if they have to accept payment for a medical service that is less than what they initially charged? My answer: Look, I don’t want to disadvantage the providers here, but it is important to recognize that the provider is STILL getting paid. That is, the provider is still getting the same amount of money the employer would pay if the provider was in-network. Is that so bad? Are providers really getting screwed if they get the full in-network payment, but do not get the full out-of-network charge? I will let you answer that. Last question: Isn’t forcing employers to pay the “balance bill” the antithesis of “reference-based pricing”? Reference-based pricing is becoming a common practice in both the fully-insured and self-insured plan context, but mostly in the self-insured world. Here, the employer tells its employees that it will pay up to $X for a particular medical service performed at Provider Y. And if the employee wants to go to Provider A instead, which charges $B, the employee is on the hook for the difference between $X and $B. Let’s say Provider A is out-of-network.  Under this surprise bill legislation, is the employer – that adopted the reference-based pricing strategy – on the hook for the difference between $X and $B, instead of the employee? It is unclear. Last comment: Again, I am NOT trying to be anti-health care provider here. BUT again, it doesn’t seem to make sense – nor is it fair – to force the employer plan to pay even a portion of the “balance bill.” The provider is the one that came up with the charge in the first place (typically a HUGE bill).  So it would seem logical that the provider should take a hair-cut on this HUGE bill, and simply get paid at the in-network rate, don’t you think? It’s not as if the in-network rate is pennies on the dollar.  It is a pretty healthy amount, even though it is negotiated to something lower than the out-of-network charge. This is going to be an interesting debate over the next year.  Stay tuned.


Association Health Plan Update

The AHP Battle-Lines:  Hostile States and Friendly States

  • Unfortunately, the battle-lines are being drawn when it comes to “association health plans” (AHPs). To date, 6 States have publicly indicated that they do NOT intend to follow the new final AHP regulations (CA, CT, MA, NY, OR, and PA). On the other side of the coin is 7 States that have indicated that they WILL welcome AHPs in their State, and that they WILL extend to these arrangements the flexibility called for under the Federal rules (IA, IL, LA, MI, NE, NH, and WI).
    • Analysis: Importantly, these 7 “friendly” AHP States have indicated that they (1) will respect the “bona fide group” exception to the 2011 “look through” rule (and treat a fully-insured AHP sponsored by a “bona fide” group as a “large group” plan) AND (2) these States will follow the modified definition of a “bona fide group” as set forth under the final AHP regulations (i.e., industry-specific groups can offer AHP coverage nationwide, “unrelated” employers can offer AHP coverage within a State, and self-employed individuals with no employees can participate in a fully-insured or self-insured AHP). With respect to the 6 States that have publicly indicated that they do NOT intend to follow the final AHP regulations (i.e., “anti-AHP States”), it is important to emphasize that the final regulations have the force of law.  And, the law-is-the-law until a Federal judge tells us that it is NOT the law. So here is a reasonable question to ask: At what point are States permitted to blatantly ignore law?  Answer: NEVER. But that is apparently what these anti-AHP States are doing. They are blatantly saying NO to the law (here the final AHP regulations). During the early days of the ACA, we saw some Red States try to resist ACA implementation (by refusing to comply with the regulations issued by the previous Administration). Although it took some arm-twisting, the Red States fell in line and complied with the ACA and the implementing regulations. Why? Because the law-is-the-law, and you cannot blatantly ignore the law. This reminds me a little bit of Idaho.  Remember when Idaho was flirting with the idea of offering non-compliant ACA plans? Remember what happened? HHS said that if you blatantly ignore the law (here the ACA’s insurance reforms), the Department will enforce the law and penalize those insurance carriers selling non-compliant ACA plans. Idaho stood down, and their State continues to offer ACA compliant plans today. The bottom-line is this:  It is okay to dislike the underlying policy of a particular law. BUT, when the law-is-the-law, you cannot blatantly ignore the law. It doesn’t matter if you are a Red State or a Blue State. Now, these anti-AHP States will respond to my comments above by saying: Chris, the DOL has consistently told us that the final AHP regulations do NOTHING to inhibit – or usurp – a State’s ability regulate AHPs. And, we are simply regulating AHPs consistent with our authority to regulate these arrangements. My response: I totally agree that the final AHP regulations do NOTHING to modify the way States can regulate AHPs. But what you (States) overlook is that the final AHP regulations represent one small aspect of ERISA law, and ERISA – being a broad Federal law – has a number of other provisions that exist outside of the final AHP regulations – namely ERISA’s preemption provisions – that prohibit States from impermissibly regulating an ERISA-covered plan.


Are States Overlooking ERISA’s Preemption Provisions?

  • You have heard me talk about ERISA preemption. And you have heard me explain that States have the ability to regulate “the insurance contract” that is obtained by a fully-insured AHP (and this type of regulation is NOT preempted). BUT, I have also explained that States do NOT have the ability to regulate “the plan.” Soooo, when determining whether a State law is indeed preempted or not, the quintessential question always is: Does the State law regulate (1) “the insurance contract” or does the State law regulate (2) “the plan.” This is often times a difficult question to answer.
    • Analysis: We know that a State law requiring the fully-insured health plan to cover certain benefits and services (i.e., a benefit mandate law) is a State law regulating “the insurance contract,” and thus, this law is NOT preempted. Same with a State law governing how premium rates should be developed in a particular insurance market. BUT, if a State law impacts how the plan sponsor (1) must administer the health plan or (2) who may be eligible to participate in the health plan, 9 times out of 10, this State law will be preempted by ERISA (because it will be found to regulate “the plan”). As I have explained to you, HHS’s “look through” rule requires an insurance carrier underwriting an AHP to look through the AHP to the underlying size of the employer member, and if the employer employs 50 or fewer employees, the carrier MUST impose the ACA’s “small group” market reforms (if the AHP member is an individual, the ACA’s “individual” market rules apply). BUT – as I have also explained – there is a very important exception to the “look through” rule: If the fully-insured AHP is sponsored by a “bona fide group or association of employers” as defined under ERISA, then all of the employees in the “bona fide group” are aggregated together for purposes of determining whether the AHP should be subject to the “small group” or “large group” market rules. What happens if a State codified the “look through” rule in State law without including the “bona fide group” exception? Does this State-based “look through” law regulate (1) “the insurance contract” or does the law regulate (2) “the plan”? What if a State does not have a State-based “look through” law, rather, the State simply relies on HHS’s 2011 “look through” rule, BUT the State ignores the “bona fide group” exception.  Does this State’s policy position regulate (1) “the insurance contract” or does this policy position regulate (2) “the plan”? In my opinion, a State-based “look through” law with no “bona fide group” exception – as well as a State’s policy position to ignore the “bona fide group” exception under HHS’s 2011 guidance – crosses the line from the regulation of “the insurance contract” to the regulation of “the plan.” Why would this be considered the regulation of “the plan”?  First, the fully-insured AHP is an ERISA-covered “plan.”  Second, the State is telling the plan sponsor of the AHP (here, a “bona fide group” of employers) how it should “administer” the plan. In other words, the State law is telling the plan sponsor to administer the fully-insured AHP like a “small group” plan and NOT a “large group” plan. It is this type of regulation of “plan administration” that ERISA preempts. My analysis above does NOT change if the State-based “look through” law was on the books prior to the release of the final AHP regulations. You may ask: Then why was this State-based “look through” law never preempted before?  Answer:  Because no one ever challenged this State law in court.  Maybe that changes now that the final AHP regulations are here, and now that States are putting up road-blocks for fully-insured AHPs. Last comment: One State law that I think is clearly preempted by ERISA is a State law preventing self-employed individuals with no employees from participating in an AHP (here, the State law is forcing these self-employed individuals to remain in the “individual” market). Why do I bring this up? Because the Governor of California just signed a law prohibiting self-employed individuals with no employees to leave the “individual” market and participate in an AHP. Pennsylvania – while not having a specific law on the books – is also saying that self-employed individuals with no employees cannot leave the “individual market.”  In both cases, I believe that the CA law and the PA regulation impacts who can be “eligible” to participate in an ERISA-covered plan (here, the AHP), and therefore, this crosses the line into being considered a regulation of “the plan,” which is preempted by ERISA. I am happy to be proven wrong.


States Should Be Careful What They Wish For:  Self-Insured AHPs Could Get an “Exemption”

  • It is important to point out that my ERISA preemption discussion above ONLY applies to fully-insured AHPs. Why? Because unlike fully-insured AHPs, ERISA gives States 100% authority to regulate self-insured AHPs. Specifically, ERISA was amended in 1983 to give States the exclusive authority to regulate self-insured AHPs, which means, a State CAN pass a law that regulates “the plan” (and the State law applicable to the self-insured AHP would NOT be preempted). BUT, the 1983 amendment to ERISA gave States less authority to regulate fully-insured AHPs.
    • Analysis: What do I mean when I say: “States have less authority to regulate fully-insured AHPs”? Answer: While the 1983 amendment to ERISA gave States 100% authority to regulate self-insured AHPs, the 1983 amendment only gave States the ability to regulate the “reserve and contribution levels” for fully-insured AHPs. As a result, State regulation of fully-insured AHPs is more limited than State regulation of self-insured AHPs, which leaves the door open to an ERISA preemption challenge against, for example, a State-based “look through” law or regulatory position. BUT, let’s say I am wrong. Let’s say that a State-based “look through” law or regulatory position is NOT preempted by ERISA (because a court of law finds that the a State-based “look through” law or regulatory position regulates “the insurance contract”). Well, that would mean that the 6 anti-AHP States noted above can continue to give the final AHP regulations the Heisman. And more States could follow their lead and put up road-blocks to fully-insured AHPs, which would further disrupt the policy goal of allowing more AHPs to be established for small employers and self-employed individuals with no employees. This is where States have to be careful what they wish for, at least in my opinion. Why? It is no secret that the current Administration wants more AHPs to be established so small employers and self-employed individuals with no employees can get the same type of health coverage large employers offer to their employees. If the current Administration continues to see this policy goal being disrupted by the States, the DOL may have no other choice than to bring-the-hammer-down on the States. What I mean is this: One thing that the 1983 amendment to ERISA gave to self-insured AHPs – that was NOT correspondingly given to fully-insured AHPs – is that the DOL has the authority to develop an “exemption” so self-insured AHPs can be exempt from the “non-solvency” requirements of State MEWA laws.  If the DOL were to develop this type of “exemption,” the “non-solvency” requirements of State MEWA laws would be preempted, and the States would have NO recourse against their laws – at least their “non-solvency” requirements – being rendered null-and-void. We all know that States – even a number of Red States – are not huge fans of self-insured AHPs. The disdain for self-insured AHPs is driven by the unfortunate history of fraud and insolvencies in the self-insured AHP context. I continue to argue that we have learned from history, and we have robust State and Federal regulations in place to prevent – or at least mitigate – any future fraud and insolvencies.  But, I recognize that there are others who still fear the fraud and insolvencies, despite the beefed up regulation at the State and Federal level. Despite these concerns, however, the DOL may say, “Hey States, if you are NOT going to let fully-insured AHPs flourish in your State, then we (the DOL) will allow self-insured AHPs to flourish in your State through our preempting your “non-solvency” requirements of your MEWA law.” Here is another thing to think about:  The DOL developed “staggered” effective dates for the establishment and operation of AHPs (i.e., fully-insured AHPs can start Sept. 1, 2018, existing self-insured AHPs can expand on Jan. 1, 2019, and new self-insured AHPs can be created April 1, 2019). Is it not possible that the DOL staggered these dates so more fully-insured AHPs could be established in ALL States, which would result in less pressure being put on the DOL to develop an “exemption” for self-insured AHPs?  Could it be that the DOL was trying to protect the States from their worst nightmare, which is preemption of their “non-solvency” requirements of their State MEWA laws, which would allow more self-insured AHPs to pop up? States should consider these questions as they decide whether or not to say no to fully-insured AHPs. Just sayin.’