HSA Update

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

Various HSA Provisions Were Approved by the House of Representatives, Now these Provisions Move to the Senate

Back during the week of June 11^th, I explained that Republicans and Democrats on the House Ways and Means Committee discussed ways Congress could modify the HSA rules to allow high-deductible health plans (HDHPs) to pay for certain medical expenses and services before the deductible is met (while also maintaining an HDHP planholder’s eligibility to contribute to an HSA). I further explained that more and more employees are now covered under HDHPs than ever before. Why? Because more and more employers are offering their employees HDHPs. Why? Due in large part to the ever-increasing cost of health care, which shows no signs of slowing down (maybe plateauing at some point, but trend is now around 6%+).
- Analysis: In my week of June 11^th update (which is attached above), I noted that employers are increasingly frustrated by the “eligibility rigidity” in the current HSA rules, which limits their ability to help high-medical-utilizers who just aren’t the best fit for HDHPs. In this case, employers want to design their HDHP to pay for specified chronic care services before the HDHP’s deductible is met, but employers CANNOT currently do this if they want to preserve these HDHP planholders’ eligibility to contribute to an HSA. Employers are also frustrated because the existing “eligibility rigidity” in the HSA rules prevents them from offering innovative value-based HDHP-plan designs and various cost-control programs like telehealth, direct-primary care services, and access to on-site and near-site clinics (while also allowing their employee-HDHP planholders to contribute to an HSA). Policy people like me are also critical of the HSA eligibility rules because the existing “rigidity” prevents an HDHP planholder from contributing to an HSA simply because the planholder is married to someone who also has a Health FSA. That makes no sense. In addition, people who become eligible for Medicare Part A should also be able to save money tax-free to pay for some of the out-of-pocket expenses associated with Medicare Part A. This is a no-brainer. The current HSA eligibility rules also prevent individuals covered under TRICARE – as well as those who receive medical benefits paid by the Department of Veterans Affairs (VA) or Indian Health Services – from contributing to an HSA. This should be changed.

Did the House of Representatives Make Meaningful Changes to the HSA Rules?

Mid-week last week, Republicans in the House – along with 46 House Democrats – approved a bill (H.R. 6199) that would change some (but not all) of the existing “eligibility rigidity” in the HSA rules I discussed above (and in my June 11^th update).
- Analysis: For example, while this particular bill (H.R. 6199) did not specifically allow an HDHP to pay for certain chronic care services before the deductible is met – or pay for telehealth services that provides more than “medical care” on a first-dollar basis – the legislation DOES allow an HDHP to pay for up to $250 for an individual and $500 for a family for the year (indexed to inflation) for “specified” medical services before the HDHP deductible is met. What type of “specified” medical services can be paid for before the HDHP’s deductible in met? Interestingly, the legislation does NOT “specify.” Instead, the legislation gives employers the discretion to determine what medical services they will allow their HDHP to pay for before the deductible is met. For example, an employer could say in its HDHP plan document that for a family HDHP, the HDHP will pay for $500 worth of telehealth services for the year. Or alternatively, the HDHP plan document could say that the HDHP will pay for up to $500 for specified chronic care services for the year. Or, the employer may say $250 for telehealth services and $250 for chronic care services can be paid for before the deductible is met. Again, it is totally up to the employer. While this change to the law (i.e., allowing limited payments for an open-ended set of medical services before the deductible is met) did NOT give employers exactly what they were asking for, this potential change FINALLY gives employers some flexibility in trying to help pay for certain medical services of high-medical-utilizers – and/or offering telehealth services as a cost-containment program – on a first-dollar basis. H.R. 6199 would also allow an employer to contract with a primary care provider to provide primary care services to HDHP planholders for a fixed fee. In this case, these HDHP planholders would remain eligible to contribute to an HSA. The fixed fee for the primary care services must be limited to $150 for single and $300 for family (or employee +1) coverage per month (indexed to inflation). So for example, the fixed fee payments cannot exceed $1,800 for an individual for the year ($3,600 for a family or employee +1). The primary care services CANNOT include services requiring anesthesia, the services CANNOT prescribe prescription drugs, and the services CANNOT include laboratory services not typically administered in the ambulatory primary care setting. This is another example where this legislation did NOT give employers exactly what they were asking for, BUT this potential change does provide some flexibility. Note, employers would have to report on an employee’s W-2 the cost of the primary care services paid for the year. Another change that should help employers contain costs is free access to an employer’s on-site clinic or access to near-site clinics (like a supermarket or pharmacy) without corrupting an HDHP planholders’ eligibility to contribute to an HSA. However, the ONLY services that can be performed while still maintaining HSA eligibility include: Physical exams, Immunizations, Drugs other than prescribed drugs, Drug testing, Hearing or vision screening, and Other services that do not rise to the level of “providing medical care.” This change is something that employers have been asking for for a while now. Lastly, this bill – H.R. 6911 – would also allow an HDHP planholder who is married to someone with a Health FSA to REMAIN eligible to contribute to an HAS.

Any Other Noteworthy HSA-Related Changes?

Yes. In another bill approved by the House – H.R. 6311, which garnered support from a dozen House Democrats – individuals eligible for Medicare Part A would be permitted to contribute to an HSA. Sadly, neither H.R. 6199 nor H.R. 6311 allowed individuals covered under TRICARE – as well as those who receive medical benefits paid by the Department of Veterans Affairs (VA) or Indian Health Services – to contribute to an HSA.
- Analysis: This H.R. 6311 would also allow any unspent amounts in a Health FSA to be carried forward each year, but the aggregate carry-forward amounts cannot exceed 3 times the Health FSA limit (which is currently $2,650). To me, this change is significant because this makes Health FSAs that much more like HSAs (and Health Reimbursement Arrangements (HRAs)). This bill would also increase the HSA contribution limit to equal the HSA out-of-pocket maximum limits (for 2018, these amounts are $3,450 for single and $6,900 for family coverage). Both spouses could make catch-up contributions to the same HSA, and HSAs would be permitted to reimburse on a tax-free basis medical expenses incurred 60 days prior to setting up the HSA. Consistent with a policy change I mentioned a couple months back, individual and small group market “bronze” and “catastrophic” plans would automatically qualify as HSA-qualified plans (meaning the planholder can set up and contribute to an HSA just by virtue of being covered under these types of individual and small market plans).

Any Non-HSA Provisions Included?

Yes. The bill that garnered support from 46 Democrats – H.R. 6199 – repeals the ACA’s prohibition against tax-free reimbursements from an FSA, HSA, and HRA for over-the-counter drugs without a prescription.
- Analysis: This bill – H.R. 6199 – also adds to the definition of “medical care” menstrual care products (which means the cost of these products can be reimbursed on a tax-free basis). In addition, amounts paid for certain fitness and exercise-related expenses can be reimbursed tax-free as “medical care.” The bill that only attracted a dozen Democrats – H.R. 6311 – delayed the excise tax on insurance companies imposed under the ACA by 2 additional years, and the bill would allow individuals in the “individual” market to purchase a “copper” plan. And yet a 3^rd bill that was approved last week – this bill was H.R. 184, which garnered support from 45 House Democrats – would repeal the ACA’s medical device tax indefinitely.

Will These Bills Pass the Senate?

It is unclear at this point. The Senate has bigger fish-to-fry with clearing a number of nominations for various District and Appeals Courts, as well as nominations for posts in the Trump Administration. Most importantly, however, the Senate will be focused on clearing the Supreme Court nominee, passing “appropriations” bills, and also trying to fund the government by the end of September.
- Analysis: As a result, it is unlikely that the Senate will act on any or all of these House-passed provisions before the mid-term elections. BUT, depending on the outcome of the mid-term elections, some or all of these provisions may find their way into an end-of-year legislative package during the lame-duck session. You can never-say-never in this town. Stay tuned.

HHS Update

HHS Issues Interim Final Rule to Restart the 2017 Risk Adjustment “Pay-Outs” and “Pay-Ins”

You remember my update from the beginning of the month (which is attached above) where I talked at length about HHS’s decision to suspend the 2017 risk adjustment payments to insurance carriers owed money under the program and amounts carriers are required to pay-into the program.
- Analysis: I explained why I did NOT view the suspension of the risk adjustment payments as “sabotage” (although this is how it was characterized at the time): For right or wrong, HHS’s lawyers felt that when you have 2 different court rulings – where 1 court gives you the “green-light,” but another court gives you the “red-light” – the Department MUST side with the court that gave the “red-light.” It was this decision that ultimately led to the public announcement of suspending the 2017 risk adjustment “pay-outs” and “pay-ins.” I further explained that most policy analysts out there felt that HHS could easily resolve this controversy by issuing an Interim Final Rule (IFR) to address the concerns raised by the court that gave the Department the “red-light” in the first place. Well, that is exactly what HHS did when it issued its IFR last week. As a result, the 2017 risk adjustment “pay-outs” and “pay-ins” are back on track (with a slight delay in payment and collections). There’s really nothing more to say on this, other than this whole fiasco was NOT “sabotage,” contrary to the rhetoric out there. HHS also just sent over to OMB proposed regulations that would clear the risk adjustment “pay-outs” and “pay-ins” for 2018. I am sure we will see these proposed regs soon, with final rules probably coming in the 4^th Quarter (if not sooner) so carriers have certainty as they start thinking about premium rates for 2020.

HHS Approves 1332 Waiver Requests for Wisconsin and Maine to Establish State-Based Reinsurance Programs

HHS just approved Wisconsin’s (WI’s) and Maine’s (ME’s) 1332 Waiver request, which would allow each of these respective States to establish a State-based reinsurance program.
- Analysis: In WI’s case, WI will create a reinsurance program that largely mirrors the ACA’s “transitional reinsurance” program, where insurance carriers will be reimbursed up to 50% of the health claim expenses incurred by high-medical-utilizers above a specified “attachment point” (e.g., above $50,000, capped at $250,000). In ME, the State will re-start its “invisible high risk pool,” where insurance carriers will be reimbursed 100% of the health claims in excess of a specified “attachment point” (e.g., $77,000) for high-risk enrollees who are identified in advance as enrollees with certain health conditions. WI projects that their reinsurance program will reduce premiums by 11% in 2019. ME projects a 9% reduction for 2019. These reductions come at an important time, considering the mid-term elections are less than 100 days away. Democrats will argue that these reductions are only mitigating the premium increases caused by Republicans (which I don’t disagree with). But, Republicans will counter that Democratic policies resulted in even greater premium increases since 2014 (which I also don’t disagree with). In my opinion, every State needs to establish their own State-based reinsurance program through a 1332 Waiver. You have heard me explain at length that such an approach is advisable because States can fund a significant portion of their reinsurance program with Federal “pass-through” funding (which in reality is spending for the premium subsidies, but converted into a different spending stream for high-medical-utilizers). New Jersey and Maryland still have pending their 1332 Waiver requests to establish their own State-based reinsurance programs. I anticipate those Waivers will be approved sooner rather than later. We will keep an eye out for them.

Association Health Plan Update

12 Attorneys General File a Lawsuit Claiming the Department of Labor’s Association Health Plan Regulations Are Invalid

In my update from the week of June 18^th – where I summarized the final AHP regulations – I included 2 posts on a possible legal challenge to the regulations. I am cutting and pasting those posts below because they capture my exact thoughts on the recent legal challenge that was filed by 12 Attorneys General (they include DC, California, Delaware, Kentucky, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania and Virginia). It may come as no surprise, but I do NOT believe this legal challenge will prevail in the end. Below I explain why (warning, the below discussion may get a little wonky):
- Analysis: ERISA defines “employer” as “any person acting directly as an employer…and includes a group or association of employers acting for an employer in such capacity.” Importantly, the term “a group or association of employers” is not further defined in ERISA’s statute. The Supreme Court tells us that in instances where a statutory term is ambiguous – and in cases where a particular statutory term has no corresponding statutory definition – the Federal Department that has the authority to enforce the statute in question has wide-latitude to interpret and further define the ambiguous statutory term, as long at the Department’s interpretation is reasonable. Remember King v. Burwell. In the case of the term “a group or association of employers,” the DOL has taken steps to define what it means to be “a group or association of employers” through various Advisory Opinions. Importantly, DOL Advisory Opinions serve as interpretive rules. The Supreme Court tells us that a Federal Department has the authority to modify its interpretive rules with a new interpretation that deviates from the Department’s previous interpretation. This all means that the DOL does indeed have the authority to issue a new interpretation of the term “a group or association of employers” that deviates from the Department’s definition of the term previously set forth in various DOL Advisory Opinions. Same analysis for allowing self-employed individuals with no employees to participate in an AHP. In short, the DOL currently has a regulation that does not allow self-employed individuals with no employees to participate in an ERISA-covered plan. This regulation, however, is an interpretive rule because ERISA’s statute does NOT define a “self-employed individual” let alone a “self-employed individuals with no employees.” Because the Supreme Court allows a Federal Department to modify its interpretive rules – even if the interpretation deviates from a previous interpretation – such an action is permissible. Also important is the fact that the DOL made both of these interpretive changes through first issuing proposed regulations, accepting public comments on the proposal, and finalizing the new interpretation in regulations, which are all a part of the notice-and-comment process required by the Administrative Procedures Act (APA).

Some More Commentary on the Legal Challenge

The Attorneys General argue that the final AHP regulations conflict with the ACA and the amendments the ACA made to the Public Health Service Act (PHSA). It is important to understand that ERISA (which is the law the governs AHPs as “group health plans”) is separate and distinct from the PHSA. And as a result, changes to ERISA and its interpretive rules cannot – and will not – conflict with the PHSA (and the ACA’s amendments to the PHSA).
- Analysis: In addition – and more importantly – HHS’s guidance that was issued in 2011 is evidence that even the previous Administration (one which was a critic of AHPs) viewed ERISA and the PHSA as 2 distinct laws. As I have explained in the past, the 2011 guidance requires that “non-bona-fide” groups sponsoring an AHP must comply with the PHSA (and the ACA’s “small group” and “individual” market reforms) depending on the size of the underlying “group” member (called the “look-through” rule). HOWEVER, the 2011 guidance provides an explicit exception to the “look-through” rule, explaining that if a “group” is considered “bona fide” for purposes of ERISA, the ACA’s market reforms (which live under the PHSA) do NOT apply if the employees of the “group” – in the aggregate – are 51 employees and above (i.e., a “large group” market plan). In other words, if a fully-insured AHP is sponsored by a “bona fide” group under ERISA, ERISA comes into play in a manner that does NOT conflict with the PHSA. Rather, ERISA works in conjunction with the PHSA for purposes of determining the size of the “group” (i.e., are the number of employees in the “group” 51 and above?), which then determines whether the PHSA’s rules applicable to the “small group” or “large group” market apply, and thus, (1) whether the ACA’s “small group” or “individual” market reforms apply or (2) whether the AHP is treated a “large group” plan and regulated as such.

How Will the Legal Challenge Affect the Effective Date of the AHP Regulations?

The 12 Attorneys General chose to file their legal claim in the DC District Court. A strong argument can be made that the DC District Court is a “friendly” Court to ACA supporters generally and the 12 Attorneys General specifically. As a result, while I personally believe this legal challenge should fail at the District Court level, there is a chance that the DC Court rules in favor of the Attorneys General.
- Analysis: A ruling in favor of the Attorneys General at the District Court level – should there be one – will no doubt be appealed by this Administration. BUT, a ruling in favor of the Attorneys General would mean that the AHP regulations will be put on hold until a Circuit Court of Appeals or the Supreme Court resolves the issue, which could drag out to June 2019. In other words, in the event the DC District Court rules in favor of the Attorneys General, organizations wanting to establish an AHP – and offer AHP health coverage to their members – may have to wait until at least June 2019 to begin offering their AHP health coverage. This does not mean, however, that organizations that want to establish an AHP should hit-the-pause-button on taking the necessary steps to get their AHP up-and-running. To the contrary. Organizations should continue moving forward as if the AHP regulations will become effective this coming August 20^th. That way, if the effective date of the regulations are put on hold for a period of time, organizations will be ready to flip-the-switch and immediately start offering their AHP health coverage once this legal challenge is dispensed with once and for all.