Health Policy Change Update
Health Policy Change Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- While many – including me – thought that Majority Leader McConnell and the President would endeavor to make good on their “promise” to Sen. Collins (R-ME) to include (1) the Alexander-Murray “market stabilization” package and (2) Sen. Collins’s Federal reinsurance proposal in an end-of-year legislative package, that did NOT happen.
- Analysis: In truth, I was surprised because – while nothing is certain in this town – I did feel that it was more-likely-than-not that we would see these 2 proposals get through. My thinking went like this: I was skeptical that House Republicans – who generally oppose funding the “cost-sharing” subsidies and a Federal reinsurance program (calling them “bailouts”) – would be willing to throw-down and shut down the government over these proposals. From Republican Leadership’s perspective, preventing a government shut-down trumps (no pun intended) opposition to Alexander-Murray and a Federal reinsurance program. And, because Majority Leader McConnell – and by extension the President – promised Sen. Collins that a vote on these 2 proposals would indeed happen, I felt that Leader McConnell and the President would put the screws to House Republicans and force them to set-aside their opposition and vote YES so the government could remain funded for a period of time. BUT, an intervening issue arose that failed to make it on most analyst’s radar, including mine. That issue was: “Federal funding for abortion services.” Here’s the issue: House conservatives argued that without the proper “legislative language,” the cost-sharing subsidy payments could be used to fund abortion services. And this – they contended – amounted to Federal funds being used for abortion services, which is a NO-NO from their perspective. Importantly, Speaker of the House Paul Ryan and most if not all of the House Republican Conference – not just the House conservatives – agreed with this argument, and they demanded that the appropriate “legislative language” (called the “Hyde language”) be included in any proposal to fund the cost-sharing subsidies. As you would expect, Congressional Democrats opposed including the Hyde language in the cost-sharing funding proposal, so there was a stalemate, leading to a possible government shut-down. To break the stalemate, Sen. Collins decided to pull her insistence on including Alexander-Murray (which included the cost-sharing subsidy funding) – along with her Federal reinsurance bill – in the end-of-year legislative package. In a public statement, Sen. Collins said that she was willing to “table” these 2 market stabilization proposals until an “omnibus” spending bill is considered in January 2018, thereby paving the way for enactment of a short-term spending bill – enacted on Dec. 22nd – to keep the government funded until January 19th.
- Interestingly – but not surprisingly – Congress is poised to pass yet another short-term funding extension by January 19th, kicking-the-can into February, and paving the way for a larger “omnibus” spending bill to be considered mid- to late-February. So, for those waiting for Alexander-Murray (with the cost-sharing subsidy funding) and Sen. Collins’ Federal reinsurance legislation, you will have at least another month. Also, if the controversy over the inclusion of the Hyde language (i.e., the language intended to prevent the cost-sharing subsidy funds to be used for abortion services) cannot be resolved, supporters of Alexander-Murray will have to wait even longer.
- Analysis: Honestly, I am not sure whether and if the controversy over the Hyde language will be resolved…ever. I actually would NOT be surprised if the concern over the cost-sharing subsidies and abortion funding is ultimately the reason – or the excuse – NOT to fund the cost-sharing subsidies. What I mean is this:
- For Republicans, instead of opposing the cost-sharing subsidies because they are a “bailout” – which they are not (my words) – Republicans can pivot and focus their energy on arguing that the “real” reason they oppose funding the cost-sharing subsidies is because of the concern over funding abortion services. From an ideological perspective, many may disagree with this argument, but I believe it will be very, very difficult for Speaker Ryan – and even President Trump – to agree to funding the cost-sharing subsidies if this “abortion issue” is NOT resolved.
- For Democrats…well, the Democrats are finally realizing what I have been saying since August of last year (see “CBO Update” in the attached update from August, and also my update from Oct. 9th). And that is: President Trump’s decision to cancel the cost-sharing subsidy payments has effectively increased the premium subsidy amounts for 2018. The increased premium subsidies have paved the way for consumers to purchase free “bronze” plan coverage, or “gold” plan coverage for the same amount of money they spent last year for a “silver” plan. And, this phenomenon occurred WITHOUT most if not all off-Exchange planholders seeing their premiums increase. Soooo, IF Congressional Democrats agree to fund the cost-sharing subsidies for 2019 and 2020, Democrats will effectively REDUCE the current premium subsidy amounts for those years, arguably disadvantaging current Exchange planholders. In other words, if Congress actually funds the cost-sharing subsidies in the Jan. 19th spending, this act will likely cause disruption for current Exchange planholders in 2019 and 2020. As a result, there is a growing question over whether funding the cost-sharing subsidies – and creating this disruption for consumers – is actually worth it. So in the end, opposition to the Hyde language could be the reason why Democrats refuse to fund the cost-sharing subsidies, although the “real” reason for refusing the fund the cost-sharing subsidies is because Democrats do NOT want to take premium subsidy money away from current Exchange planholders. Last comment: At this point, I think there is a 50/50 chance that the cost-sharing subsidies are NOT funded by Congress…ever. And, I am leaning more toward a 60/40 chance of NO funding based on my above comments. But, I have been wrong before, so we will have to see how things shake out. Stay tuned.
- As I have mentioned in prior updates, “reinsurance” has been shown to reduce premiums. And depending on the amount of funding for a reinsurance-type program, the premium reductions could be substantial. For example, when the Congressional Budget Office (CBO) analyzed the ACA “reconciliation” repeal-replace bills this past summer, CBO found that the Federal reinsurance-type funding included in the underlying bill would reduce premiums by 15% to 20%. Also, HHS and the State of Alaska have informed us that Alaska’s reinsurance program – which came in through a 1332 Waiver – would reduce premiums by 20%. So, if Congress wants to reduce premiums, a reinsurance program is the way to do it.
- Analysis: As a result, I could very well see Republicans and Democrats agreeing to fund some type of Federal reinsurance program. An agreement may come through the February omnibus spending bill. Or, an agreement to fund a reinsurance-type program may be included in a separate ACA “market stabilization” legislative package (that doesn’t include cost-sharing funding, but includes Section 1332 changes, and possibly changes to ACA’s insurance market reforms and the Exchange market’s regulatory environment). More on this “market stabilization” package later. With respect to funding for a Federal reinsurance-type program, the big questions are: (1) How much money will be used to fund a Federal reinsurance program?; (2) What type of reinsurance programs can States establish?; and (3) How will States be able to access the Federal funding? Question #1 and #3 are areas where there may be disagreement between Republicans and Democrats, but question #2 is generally already resolved (considering Sen. Collins’ bill – which is co-sponsored by Sen. Nelson (D-FL) and shares bi-partisan support – allows States to set up a program like the ACA’s “transitional” reinsurance program or an “individual high risk pool”). With respect to question #1, obviously the more-money-the-better. For example, the Republican ACA “repeal-replace” bills would have pumped close to $150 billion into the individual market (resulting in about a 20% premium reduction), while Sen. Collins’ Federal reinsurance proposal – which pumps in $10 billion over 2 years – will likely only reduce premiums by 4% (according to Avalere Health). So, if Congress wants a reduction in premiums closer to say 10% – to, for example, blunt the premium increase resulting from repeal of the “individual mandate” (as projected by CBO) – Republicans and Democrats are going to have to agree to a funding amount much higher than $10 billion, but lower than say $100 billion. With respect to question #3 (i.e., How will States be able to access the Federal funding), while I believe there is an easy answer here, this answer needs to be fleshed out further. For example, is there simply 1 big pot of money, and funds are distributed based on the size of a State’s individual market? Should the reinsurance funds be run through a Section 1332 Waiver in the form of “pass-through” funding, somewhat similar to how Alaska’s reinsurance program is currently being funded? More work on this question is needed. Last comment: With respect to a separate ACA “market stabilization” legislative package, my thinking is this: At this point, it does NOT appear that we will see another ACA “repeal-replace” exercise in 2018. Yes, there may be continued talk about a Graham-Cassidy-type of approach to the ACA (i.e., block grants of ACA spending sent directly to States), but it is more likely that Republicans will take time to “assess” the results of the 2018 “open enrollment” period – along with the stability of the various individual markets around the country – and determine what policy changes should be made to further strengthen the individual market. As stated, reducing premiums is top-of-the-list, especially in an election year. Which is why I foresee an agreement on some type of Federal reinsurance program. But I believe Republicans will also seek Section 1332 changes. It is likely that Republicans will also continue to push on things like expanding the premium rating age bands from 3-to-1 to 5-to-1, codifying pre-verification for “special enrollment periods,” changes to the Medical Loss Ratio (MLR) rules, and even changes to HSAs could ride along. I am not saying it’s gonna happen, but don’t be surprised if and when Republicans move in this direction.
- As you may know, there has been a long-drawn out battle over reauthorizing the CHIP program. Actually, reauthorizing CHIP itself has NOT been the problem. The problem has centered around how to “pay for” CHIP reauthorization. Having said that, I – like many – believe that we will see a 2-year, but probably 5-year, reauthorization of CHIP in the February omnibus spending bill. Who knows, maybe we will see CHIP reauthorization in the January 19th spending bill (considering CBO just reduced the cost of CHIP Reauthorization). We will also likely see Medicare-related changes like the so-called “Medicare Extenders” – and possibly the CHRONIC Care package – in the January or February spending bills.
- Analysis: What about some of the ACA’s taxes? I am glad you asked. The week before Christmas, the Ways and Means Committee introduced of series of bills targeting various ACA taxes. In particular, legislation to impose yet another moratorium on the excise tax on insurance companies (i.e., the “HIT tax”). Also, a delay of the medical device excise tax. As you may know, among all of the ACA taxes that have been talked about on Capitol Hill, these 2 taxes have been talked about the most. As a result, I could very well see the HIT tax moratorium and medical device tax delay in the February omnibus bill. But for how long? When it comes to the HIT tax, the legislation that was recently introduced called for a moratorium for 2019, meaning the HIT tax would NOT be imposed for the 2019 calendar year. The legislation also did something fairly creative for 2018. While the HIT tax will still be imposed for 2018, the legislation required insurance carriers to send a “rebate” check to policyholders equal to 2% of premiums. Carriers are required to notify policyholders in Sept. 2018 (right before the mid-term elections), and send the actual checks in the 1st Quarter of 2019. The insurance carrier community has argued that this “rebate” idea is overly complex and administratively burdensome. Therefore, it is unclear whether the “rebate” idea sees the light-of-day. Instead, we may merely see a moratorium for 2019 and 2020. Med device tax will likely be delayed for 2 years. What about the Cadillac Tax? The employer and labor community desperately want a 2-year delay. Democrats appear supportive of a 2-year delay, but at this point, it appears that Republicans are only open to a 1-delay. For example, as part of the Ways and Means tax bills I mentioned above, one of the pieces of legislation called for a 1-year delay of the Cadillac Tax. It is currently unclear whether leading with a 1-year delay is a Republican negotiating tactic, where Republicans may agree to a 2-year delay of the Cadillac Tax, but only if they get something in return. What might the Republicans want in return? Well again, the recently introduced Ways and Means tax bills – and in particular the legislation with the 1-year Cadillac Tax delay – included a proposal calling for “retroactive relief” from the employer mandate penalty tax. Specifically, the legislation called for NO employer mandate penalties for 2015, 2016, 2017, and 2018. So, we may see Republicans “ask” for some sort of retroactive relief from the employer mandate penalties – maybe just 2015 and 2016 – in exchange for a 2-year delay of the Cadillac Tax. This would certainly be a win-win for both the employer AND labor community, so there is speculation that Democrats may agree to such a “trade.” After all, Democrats are already on record supporting changes to the employer mandate. BUT, an argument can be made that Democratic support is limited to things like changing the definition of a “full-time” employee to 40 hours a week (instead of 30 hours) or increasing the 50 “full-time equivalent employee” threshold to something higher (like 100). Relieving employers of penalties – it is believed – may be a bridge-too-far. We will just have to wait and see how things shake out. Stay tuned.
Association Health Plan Update
- Last Thursday, the Department of Labor (DOL) released proposed regulations relating to “association health plans” (AHPs). The proposed regulations were met with support from the small business community and national organizations with self-employed members. ACA supporters and other industry stakeholders, however, were quick to articulate their opposition to the proposed changes, arguing that consumers will be disadvantaged because AHPs will offer less comprehensive coverage, and also contending that the individual and small group markets will worsen now that small businesses and self-employed individuals have another option for their health coverage.
- Analysis: Attached above, please take a look at my Oct. 9th update (scroll down to “Executive Order” Update), and also my Sept. 25th update (scroll down to the 2nd post). I point you to these updates because they explain the consumer protections under the ACA, ERISA, and HIPAA all of which will apply to both fully-insured and self-insured AHPs. I also comment on the “market segmentation” argument. In future updates, I will re-visit these issues, but in the interest of not making today’s update too crazy long, I want to limit my comments to what the regulations say, and also discuss how the regs impact a State’s ability to regulate insurance and whether we might see legal challenges to the proposed changes.
What Did the Proposed Regulations Say?
“Related” Employers: The proposed regulations would allow employers in the same industry or profession (i.e., “related” employers”) to form an AHP, and offer “large group” fully-insured or self-insured AHP health coverage to these “related” employers, regardless of their geographic location. For example, a national trade association with employer members in the same industry or profession could establish an AHP and provide AHP health coverage to all of the trade association’s employer members regardless of the State in which the employer members are located. In particular, the national widget association could set up an AHP and offer AHP health coverage to a widget-maker in Florida, a widget-maker in California, and a widget-maker in Maine. Franchisee employers tied to the same parent company could also set up an AHP and offer AHP health coverage to the Franchisees’ employees regardless of where the Franchisee employer is located.
“Unrelated” Employers: The proposed regulations would also allow employers in different industries and professions (i.e., “unrelated” employers) to form an AHP, but only if these “unrelated” employers are located in the same State or Metropolitan area (that spans a tri-State area). For example, a local Chamber of Commerce with employer members in different industries and professions could establish an AHP and offer “large group” fully-insured or self-insured AHP health coverage to all of the Chamber’s “unrelated” employer members located in a particular State or Metropolitan area. This means that a bakery and a dry-cleaner located in the same city, county, or State could, for example, join their local Chamber’s AHP.
Self-Employed Individuals With No Employees: For the first time, self-employed individuals with no employees could participate in an AHP. In this case, according to the proposed changes, sole proprietors in the same industry/profession and located in different States around the country could participate in an AHP established by other “related” employer members. For example, sole proprietors who are members of a national trade association could participate in an AHP established by the trade association alongside the association’s employer members. Sole proprietors in the same industry/profession could also establish an AHP solely for “related” sole proprietor members. For example, it appears that Uber drivers – who are sole proprietors – could establish an AHP in which Uber drivers all across the country could receive fully-insured or self-insured AHP health coverage. In addition, according to the proposed rules, sole proprietors in different industries and professions (i.e., “unrelated” sole proprietors) could join, for example, a local Chamber of Commerce AHP, provided the sole proprietors are located in the same State or Metropolitan area as the local Chamber’s employer members.
Sole Purpose of Offering Health Insurance: An AHP could be established by employer members and/or sole proprietors even if there (1) is no pre-existing organization and (2) the AHP is established for the sole purpose of offering health coverage. For example, Franchisees could establish a brand new AHP solely for the purpose of offering “large group” fully-insured or self-insured AHP health coverage to Franchisee members’ employees. Same is true for Uber drivers. That is, Uber drivers could establish from scratch an AHP for the sole purpose of offering “large group” fully-insured or self-insured AHP health coverage to Uber drivers.
Organizational Structure and “Control” Test: The “group” forming the AHP MUST have a formal organizational structure. For example, the “group” of employer members (be it Franchisees or a national trade association) – as well as sole proprietors (setting up their own AHP) – MUST take on a legal structure with a governing body (like a Board), and they MUST hire a lawyer to draft by-laws, a plan document for the AHP health coverage, and a Trust if necessary. In addition, and importantly, the employer – or sole proprietor – members of the “group” MUST “control” the AHPs functions and activities, including developing the health plan’s design, amending the plan, making eligibility determinations, etc. This “control” standard is satisfied if the employer – or sole proprietor – members have the authority to control the AHP directly, or the power to nominate, elect, and/or remove the members of the Board or Trustees.
Nondiscrimination Protections: First, an editorial comment: I think adding these nondiscrimination rules is good policy. While some may argue that these rules are constraining, I believe they are necessary to mitigate if not eliminate any concerns of adverse selection and market segmentation.
Under the proposed nondiscrimination protections, a “group” of employers and/or sole proprietors CANNOT refuse other employers and/or sole proprietors from participating in an AHP on account of the health status or health condition of an employee(s), former employee(s), or individual. In addition, similar to the rule applicable to a “single employer” sponsoring a “group health plan,” the premiums for the “large group” fully-insured or self-insured AHP health coverage CANNOT vary based on a particular participant’s health status or health condition. And, eligibility for benefits CANNOT be based on a particular participant’s health status or health condition. Importantly, the proposed rules provide that premiums CANNOT vary by different employer and/or sole proprietor members because of the health status or health claims relating to that employer and/or sole proprietor. In other words, if Employer A has an employee with cancer while Employer B has a bunch of healthy employees, Employer A’s premium CANNOT be any higher than Employer B’s premiums (on account of the employee with cancer). Note, certain groups of employees can be treated differently than other groups of employees if there is a bona-fide employment-based reason like: full-time vs. part-time employees, union vs. non-union, employees located in different geographic locations, different occupations, date of hire, and length of service. BUT, don’t let this exception confuse the general rules which say: (1) AHPs CANNOT restrict membership based on anyone’s health status/health condition, (2) Premiums and eligibility for benefits CANNOT vary based on a particular person’s health status/health condition, and (3) Different employer/sole proprietor members CANNOT be charged different premiums based on the health status/health condition of their employees/the individual sole proprietor.
Do the Proposed Regulations Impact a State’s Ability to Regulate Insurance?
In my opinion, NO. I believe that the proposed regulations walk the fine line between (1) respecting State authority to regulate insurance and (2) wanting to expand the ability to form AHPs. With respect to a fully-insured AHP, this is arguably the right outcome. After all, when it comes to fully-insured plans, the Feds can’t tell the States how to regulate their markets other than to develop a Federal “floor.” When it comes to self-insured AHPs, you have ERISA preemption, but self-insured AHPs will be considered MEWAs (“multiple employer welfare arrangements”). As I have mentioned previously, ERISA gives States the authority to regulate self-insured MEWAs through State MEWA laws. Most if not all States have MEWA laws, some more onerous than others. Interestingly, the proposed regulations stay away from ERISA preemption and State MEWA laws, and instead, the DOL asks for comments on whether the DOL should issue a class exemption that would preempt the non-solvency requirements of all State MEWA laws. We will talk more about this “class exemption” in future updates. What does this all mean? I view the proposed AHP regulations as serving as a Federal “floor.” And as I discussed in my update before the Christmas holiday, if you have a Federal “floor,” there is no prohibition against States developing more onerous rules. This means that if a State wanted to, the State could enact rules to restrict the formation of AHPs. For example, I believe a State could say that fully-insured AHPs must still be treated as “small group” plans, thereby subject to the ACA’s small group market reforms. In addition, a State could impose their own State benefit mandates on a self-insured AHP – or the State could require that self-insured AHPs adhere to the adjusted community rating rules – through their State MEWA laws.
Will the Proposed Regulations Face Legal Challenges?
A lot news articles you will read will quote people suggesting that the proposed regulations are ripe for legal challenge. I disagree. Yes, there is nothing to stop someone from filing suit. But, I believe they would lose. And I believe any good lawyer would explain to any person or organization who wants to file a legal challenge that they would lose. Why do I think this? The “commonality of interest” test – which is the test that the proposed regulations modify – is NOT a creature of the statute. Rather, the “commonality of interest” test was born – and further developed – through DOL Advisory Opinions. In other words, the law in this area was solely created by Interpretive Guidance, NOT by ERISA itself. And, there is NO prohibition against a Federal Department changing its interpretation of the law. So long as the Federal Department is not re-writing the statute, the Federal Department can make any changes to its own interpretation that it wants. That is what is going on here. Same thing when it comes to allowing self-employed individuals with no employees to participate in an AHP. Currently, a DOL regulation prohibits self-employed individuals with no employees (and their spouses) from participating in an ERISA-covered plan. BUT, this DOL reg did NOT codify the statute. Rather, this DOL regulation is an interpretation of the statute developed by the DOL and memorialized in administrative guidance. Which means, the DOL can change its own interpretation of the statute, and thus, change the regulation, provided the change in the regulation goes through the normal rulemaking process (e.g., proposed regs, which the public can comment on, prior to finalizing the change). Again, that is what is going on here.