HHS Update

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

HHS Approves Maryland’s 1332 Waiver to Establish a State-Based Reinsurance Program

In a somewhat rapid-fire fashion, HHS approved Wisconsin’s, Maine’s, New Jersey’s, and now Maryland’s 1332 Waiver request to establish a State-based reinsurance program.
- Analysis: As I reported last week, NJ’s reinsurance program is projected to reduce premiums by 15% for 2019. MD’s program is projected to reduce premiums by a whopping 30%, essentially erasing the average proposed premium increase of 30%. I say “average” proposed premium increases because – as I reported back in May (see my attached update) – CareFirst asked for an 18.5% premium increase for their 138,000 HMO policyholders, while requesting a 91.4% increase for their 15,000 PPO policyholders. Kaiser asked for a 37.4% increase for its almost 74,000 policyholders. It is currently unclear how the 30% reduction will be built into the proposed premium increases. Regardless, MD’s State-based reinsurance program will make a material difference for consumers when they start looking for an “individual” market plan come Nov. 1^st. A large chunk of MD’s reinsurance program will be funded by a 2.5% tax on private insurance carriers and Medicaid managed-care plans. The remainder of the funding will come from Federal “passthrough” funding (i.e., the premium subsidy amounts that would be paid by the Federal government but for the existence of the reinsurance program). While WI’s and ME’s premium reductions were not as significant as NJ and MD, this should be a tell-tale sign to ALL other States that if they establish a State-based reinsurance program, they too would see premium reductions. And, by using a 1332 Waiver, States can leverage the Federal government’s spending that would have otherwise been made in the form of the premium subsidies to fund their reinsurance program. Although this is just moving money around, to me it is a “no-brainer”: ALL States should seek a 1332 Waiver to establish a State-based reinsurance program. Especially because Congress ain’t going to help (as you know, the Alexander-Murray “market stabilization” crashed-and-burned, and I don’t see Congress going back to it any time soon…actually never).

HHS Essentially Green-Lights “Silver Loading”

Even today, many ACA supporters will tell you that this Administration will likely outlaw the “silver loading” practice. When I have heard ACA supporters make this claim in the past, I have quickly responded that I do NOT believe that this Administration would go so far as to outlaw the practice. I obviously hedged a bit, because you never know in this town, but I was (and continue to be) pretty confident that it would never happen.
- Analysis: To me, HHS just confirmed that this Administration is NOT about to outlaw the “silver loading” practice (through a CMS Insurance Standards Bulletin that was released on August 3^rd). In that Bulletin, HHS encouraged insurance carriers offering “individual” market plans OUTSIDE of the Exchange to REFRAIN from adding the unfunded “cost-sharing subsidy” liabilities to OFF-Exchange plans. HHS made this recommendation recognizing that insurance carriers ARE going to continue to add the unfunded “cost-sharing subsidy” liabilities on to “silver” ON-Exchange plans (i.e., “silver-loading”). But, HHS does NOT want insurance carriers “silver-loading” on to OFF-Exchange plans. To be more specific, HHS actually encouraged States to allow their insurance carriers to REFRAIN from “silver-loading” on to OFF-Exchange plans. To me, it is important to inform you that HHS actually directed this CMS Bulletin at the States because, last year, while most of the States allowed their carriers to increase premiums for “silver” Exchange plans ONLY, there were a small number of States that required their carriers to spread the “silver loading” across ALL “individual” market plans, including both ON-Exchange and OFF-Exchange plans. Now, HHS is sending a clear message that the Department does NOT want these States to require “silver loading” on to OFF-Exchange plans. To me, this CMS Bulletin was not widely publicized (or maybe I just missed something). But I wanted to highlight it because I believe this CMS Bulletin is evidence that this Administration is NOT about to outlaw the “silver loading” practice any time soon. I will be sure to let you know if something changes.

ACA Update and Wellness Update

Senate Republicans Introduce Legislation to Codify the ACA’s “Guaranteed Issue” Provision

Senate Republicans introduced legislation that will only come into play if a court of law (i.e., the Supreme Court) rules that the ACA is unconstitutional. As we all know, there is still a lawsuit out there claiming that the ACA is unconstitutional, and also a Department of Justice brief, arguing that if just the “individual mandate” is found unconstitutional, so too should the ACA’s “guaranteed issue” provision and prohibition against “pre-existing” condition exclusions be found unconstitutional.
- Analysis: Most – including me – think that it is unlikely that a court of law will ever side with the plaintiffs in this most recent legal challenge. BUT, in the unlikely event that the plaintiffs prevail (i.e., at the Supreme Court level) a number of Senate Republicans are ready and willing to put back into the law the ACA’s “guaranteed issue” provision to ensure that insurance carriers CANNOT deny a person health coverage, regardless of their health status. Interestingly though, the legislation only brings back into the law the ACA’s “guaranteed issue” provision. The legislation does NOT bring back into the law the prohibition against “pre-existing” condition exclusions. I am not sure if this was an oversight. Or, if this was purposefully done to set up a scenario where a particular Senator (or group of Senators) can offer an amendment to the legislation on the Senate floor that would also codify the prohibition against “pre-existing” condition exclusions in HIPAA. Under this scenario, heightened attention will be given to this particular amendment, both on the Senate floor through “floor speeches” and debate, and also through the media. This heightened attention could be used to the Republicans’ advantage because it would allow them to publicly prove that while they want to repeal the ACA, they want to preserve the ACA’s “pre-existing” condition protections under BOTH the “guarantee issue” provision, as well as the prohibition against “pre-existing” condition exclusions. Which really leads me to say this: On the one hand, this legislation can be characterized as purely a “messaging” bill. That is, the cynical side of most us see right through this effort, which is intended to give Republicans a tangible piece of legislation that they can point to and say, “We DO want to protect people with a pre-existing condition, and we want them to have unfettered access to health insurance.” But at the end of the day, us cynics think that Republican Leadership will never bring this legislation to the Senate floor. HOWEVER, I believe there is another side of the coin here. Seeing the Republican Senators who have sponsored this legislation (e.g., Sen. Murkowski (R-AK), Sen. Grassley (R-IA), and Sen. Alexander (R-TN) just to name a few), I know for a fact that these Senators truly, truly support keeping “guaranteed issue” in the law in the unlikely event the ACA ever went away. These Senators also support keeping the prohibition against “pre-existing” condition exclusions around too. Which is why even though the “amendment strategy” I mentioned above is intended to create some “political theater,” I know that these Senators would be supportive of approving said amendment. In the end, it seems unlikely that Republican Leadership will bring this legislation to the Senate floor. But, formal introduction of this legislation is definitely noteworthy for the reasons I described above. I will be sure to let you know if this legislation starts to move.

This Legislation Also Codifies HIPAA “Wellness” Regulations, and Makes Other Wellness-Related Clarifications

In addition to codifying the ACA’s “guaranteed issue” provision, there is a pleasant surprise after you read through the first 6 pages of the 21 page legislation. And that pleasant surprise is legislative language that I believe is VERY helpful for “wellness” and “value-based insurance design” programs.
- Analysis: Specifically, the legislation would allow employers sponsoring a “group health plan” to offer premium discounts, rebates, or reductions in cost-sharing (i.e., co-pays and deductibles) if an employee adheres to “programs of health promotion and disease prevention.” Currently, the rules for defining what “programs of health promotion and disease prevention” mean can be found in HIPAA’s “wellness” regulations. But, the legislation goes on to codify these regulations (with some nuanced differences). Let me take a step back to say this: According to HIPAA, an employer CANNOT vary the premiums of a plan participant based on a “health factor” related to that particular participant. HOWEVER, there is an exception under the law for “programs of health promotion or disease prevention” provided by a group health plan (known as “health-contingent programs”). A health-contingent program requires a participant to satisfy a standard related to a “health factor” (e.g., a health condition, or medical history of a plan participant, or a participant’s health claims experience) to obtain a reward. Examples of a “reward” include a discount or rebate of a premium or contribution, or a waiver of all or part of the cost-sharing for specified medical services. There are two categories of health-contingent programs: (1) activity-only programs and (2) outcome-based programs. Under an activity-only program, a plan participant is required to perform or complete an activity related to a “health factor” in order to obtain a reward, but the program does not require the participant to attain or maintain a specific health outcome. An outcome-based program, on the other hand, requires a participant to attain a specific health outcome in order to obtain a reward. In many cases, an outcome-based program will have two tiers: (1) a measurement, test, or screening and (2) a program that targets individuals who do not meet an initial standard on account of the measurement, test, or screening who are then required to complete an activity before obtaining a reward. There is also something called a “participatory program” that provides a reward just for participating in the program. Importantly, whether a person gets the reward is NOT determined based on a “health factor.” One example of a “participatory program” is a program that provides a reward to employees who complete a “health risk assessment” regarding their current health status, without any further action with regard to health issues identified as part of the assessment. Other examples include a diagnostic testing program that provides a reward for participation and does not base any part of the reward on outcomes. A “participatory program” can also be a program that reimburses all or a part of the cost for membership in a fitness center, a program that encourages “preventive care” related to a health factor through the waiver of cost-sharing for certain medical services, and a program that provides a reward for attending a periodic health education seminar. Again, the above stated rules relating to “health-contingent programs” and “participatory programs” are fleshed out in HIPAA regulations, and this legislation would codify these rules in statute. Why is this important? Because adding these rules into the statute means that a future Administration cannot roll back these requirements through future regulations. It also signals to the health care industry that Congress is committed to promoting “wellness” and “value-based insurance design” programs – programs that employers rely on to lower their health care costs, improve health outcomes for their employees, and promote healthy behavior which translates into a positive level of work productivity. The legislation makes another change that I believe is significant. According to current law, a “reward” provided through “health-contingent” and “participatory” programs CANNOT exceed 30% of the cost of the “group health plan” providing the health coverage. The legislation would give HHS, Treasury, and the DOL the authority to issue regulations increasing this 30% up to 50%. In other words, Congress gives the Federal Departments the authority to increase the amount of premium discounts, rebates, and reductions in cost-sharing up to 50% of the total cost of the health coverage covering a particular participant (even the cost of “family” coverage). The “reward” may also take the form of “the absence of a surcharge,” meaning employers can impose a “stick” in cases where a participant fails to “participate” in a program or satisfy a requirement under a “health contingent” program. Last comment: As stated above, I believe it is unlikely that this legislation will brought to the Senate floor any time soon. However, because we now have legislative language relating to “wellness” and “value-based insurance design” programs, this language could show up in other pieces of the legislation that is moving through the legislative process.

Association Health Plan Update

The DOL Issues Guidance Explaining the Rules Applicable to AHPs

At the beginning of last week, the Department of Labor (DOL) issued a piece of guidance relating to “association health plans” (AHPs). The DOL explained that the reason for the guidance release was to respond to various questions the Department has received from outside stakeholders.
- Analysis: There was nothing in the guidance that was earth-shattering. Quite to the contrary. The majority of the guidance was full of information that we already knew, and information that I have been conveying to you for the past 8 months now. But I get it, it is easy for me to say that the guidance was a nothing-burger. Because – fortunately for me – I know the rules applicable to AHPs extremely well. BUT, there are a lot of people out there who do not geek out on ERISA law like I do. For example, many State regulators are not overly familiar with ERISA. So, for State regulators, this guidance was helpful. In addition, most – if not all – of the AHP critics out there do not understand ERISA law, and they do not understand all of the Federal laws that apply to a “group health plan” (which is what an AHP is…it’s a “group health plan”). That is why when I wrote my testimony for the House Education and the Workforce Subcommittee hearing on AHPs back on March 20^th, I attempted to clearly enumerate all of the requirements applicable to AHPs, both under Federal AND State law (see my written testimony attached). I do not say all of that to be critical of others who may not understand ERISA law. I recognize my own geekdom. Below, I walk through some of what the guidance said, and I include some commentary on what the guidance did not say.

- - The guidance confirms for stakeholders that an AHP is a “multiple employer welfare arrangement” (MEWA). This is an important confirmation because it means that States have the exclusive authority to impose any insurance law requirement on self-insured AHPs (i.e., self-insured MEWAs). In other words, States can regulate self-insured AHPs any which way they want. ERISA’s preemption powers currently do NOT apply to State MEWA laws. However, ERISA’s statute does give the DOL Secretary the authority to develop a “class exemption” or “individual exemptions” for self-insured MEWAs (i.e., self-insured AHPs), which could preempt the “non-solvency” requirements of State MEWA laws. I believe the reason the “class” or “individual” exemptions were not discussed in the DOL’s guidance is because the Department has yet to determine if it wants to develop any “exemptions” for self-insured AHPs. It is important to note that the authority to develop some sort of “exemption” has been in the law since 1983, but the DOL has never acted on it.

- - Sticking with this concept of a MEWA for a moment, the DOL guidance confirms that a fully-insured AHP is a fully-insured MEWA. This is also an important confirmation because unlike self-insured AHPs, a fully-insured AHP is ONLY subject to State laws that regulate reserve and contribution level requirements. In other words, fully-insured AHPs enjoy a level of ERISA preemption that self-insured AHPs do not. That is, if a State tries to regulate a fully-insured AHP through a law that does NOT regulate the AHP’s reserve and contribution levels, a strong argument can be made that the State regulation IS indeed preempted by ERISA, and thus, null-and-void. There was no mention of this issue in the DOL guidance, but I am not surprised because ERISA preemption challenges to State regulation primarily come from private organizations sponsoring an ERISA-covered plan, NOT the DOL.

- - The guidance also confirms that an AHP is a “group health plan” subject to ERISA’s “notice and disclosure” requirements (e.g., the requirement to send a plain language summary of the details of the plan to participants, in addition to the Summary of Benefits and Coverage (SBC) that came in through the ACA). As a “group health plan,” an AHP is also required to file a Form 5500 with the DOL and the IRS, and as a MEWA, the AHP must file a Form M-1 with the DOL. In addition, an AHP (i.e., a “group health plan”) is subject to ERISA’s fiduciary requirements, procedures for adjudicating health claims, COBRA, HIPAA, the ACA, and other laws like ADEA and Title VII. We will likely be seeing “subregulatory” guidance from the Treasury Department explaining how COBRA applies to AHPs, and the EEOC needs to issue “subregulatory” guidance telling us how ADEA and Title VII applies to AHPs. Stay tuned for this guidance, because right now, we do not know when we will see it.

- - Lastly, the DOL guidance reminds everyone that the Department has enforcement authority over MEWAs (i.e., AHPs). As I have explained in the past, this enforcement authority was strengthened through the ACA. The DOL also reminds everyone that the States have authority over MEWAs (i.e., AHPs) as well. In other words, the DOL and States have “joint authority” over AHPs. The DOL goes on to emphasize that nothing in the new final AHP regulations inhibits – or usurps – a State’s ability to regulate AHPs or the State’s insurance markets. But it is important to note that a “class exemption” or “individual exemptions” could be developed, which would exempt certain AHPs from the “non-solvency” requirements of State MEWA laws. (although we do not know if the DOL will ever develop these types of exemptions). In addition, while there could be ERISA preemption challenges ahead for certain State regulation of fully-insured AHPs, it is way too early to tell if and when any such ERISA preemption challenges may be advanced by private organizations.

State Responses to AHPs and ERISA Preemption

Following on the last point I made above, let me make this point: States like Connecticut, Pennsylvania, Massachusetts, and New York recently issued guidance indicating that these States will impose HHS’s “look through” rule on AHPs sponsored by “groups” that FAIL to meet the definition of a “bona fide group or association of employers” under ERISA (i.e., in cases where there is a “non-bona fide group,” these States will impose the ACA’s “small group” market rules on small employer AHP members (and the ACA’s “individual” market rules on independent contractors)).
- Analysis: Unfortunately, I cannot glean from the States’ respective guidance whether they will respect the exception to the “look through” rule that the Obama Administration included in the 2011 CMS Insurance Standards Bulletin creating the “look through” rule applicable to AHPs. According to this exception, if a fully-insured AHP is sponsored by a “group” that DOES meet the definition of a “bona fide group or association of employers” under ERISA (i.e., a “bona fide group”), then this AHP must be treated as a “large group” plan if ALL of the employees employed by the employer members of the “bona fide group” add up to 51 or more. In other words, according to the 2011 guidance, the employees of ALL of the employer members participating in the “bona fide group” of employers are aggregated for purposes of determining the SIZE of the “bona fide group” (which correspondingly determines whether the “bona fide group” is subject to the “small group” market or “large group” market rules). If these States decide to impose HHS’s “look through” rule on “non-bona fide groups” AND “bona fide groups” – where these States ignore the exception I described above – then I believe this action is ripe for an ERISA preemption challenge. Why? Because this State regulation is NOT regulating the fully-insured AHP’s reserve or contribution levels. Instead, this State regulation is regulating the AHP “plan,” which is a no-no under ERISA’s preemption provision. Even if one or all of these States indicate that they are indeed following the exception to the “look through” rule, but they further say that they are NOT treating a “group” as being “bona fide” because the “group” fails to meet the State’s definition of what it means to be a “bona fide group,” then I once again feel that there is an ERISA preemption problem here. What I mean is this: Even if a State has its own definition of what it means to be a “bona fide group,” if this definition conflicts with ERISA’s definition of a “bona fide group,” then – in my opinion – the State’s definition should be preempted by ERISA because the State’s regulation (here, its definition of a “bona fide group”) is regulating the AHP “plan.” Currently, it is unclear how this issue is going to be resolved.