by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- You woke up this morning to a plethora of news articles reporting that HHS has informed Idaho that the State CANNOT go through with its plan to allow insurance carriers to sell non-ACA-compliant plans. Let’s take a closer look at why HHS came to this conclusion, and the implications of HHS’s decision.
- Analysis: Let’s start with WHY HHS came to this conclusion. As I explained in my last update (see attached), the statute is clear that if a State fails to enforce the ACA’s insurance market reforms, HHS is supposed to “step-in-the-shoes” of the State and enforce these requirements on the State’s behalf. Well, that was HHS’s top-line statement to Idaho when the Department said: “If a state fails to substantially enforce the law, [CMS] has the responsibility to enforce these provisions on behalf of the state.” BOOM. HHS did say: “This [conclusion] is certainly not our preference…,” but the damage is done for those who had such high-hopes that the Idaho experiment could move forward. Let’s move to the implications of HHS’s decision. First, this shows that the Trump HHS is going to enforce the ACA. After all, HHS has the responsibility to do so considering the ACA is still on the books. Treasury too. But we know Treasury has been faithfully executing the statute because Treasury has been enforcing the “individual mandate” the past 4 years (despite claims to the contrary). As I have told you, Treasury is also enforcing the “employer mandate” penalty (although I do believe there is a legal issue that prevents the IRS from assessing penalties, at least for 2015 (more on this later)). So in total, despite the President’s comments – and Congressional Republicans’ burning desire to repeal the ACA – because the ACA is the law of the land, the Federal Departments are obligated to enforce the ACA’s requirements. And we were reminded of that with HHS’s latest decision on Idaho. But here is another important thing that HHS said: “Notwithstanding our concerns [that your proposal violates the ACA], we believe that, with certain modifications, these state-based plans could be legally offered under the PHSA exception for short-term, limited duration plans.” Huh?!? To me, HHS is saying: “Although we just gave you the Heisman on your non-ACA-compliant plans proposal, Blue Cross of Idaho (and other Idaho carriers) can start selling short-term health plans that will be allowed to last for up for 364 days, once our recently issued proposed short-term health plan regulations are finalized.” In other words, HHS is signaling to Idaho that the State can convert the non-ACA-compliant plans they wanted to offer into short-term health plans, and these short-term health plans will NOT be subject to the ACA’s insurance market reforms (which means, these plans can be readily sold without triggering the $100 per day/per violation penalty that would otherwise be triggered if these plans were considered “major medical plans” under the PHSA). Some may argue that – with this statement – HHS just told States how to get around the ACA (pssstt, hey States, you should allow your carriers to offer short-term health plans once those plans are expanded through our recently issued regulations). We will have to see how many States heed HHS’s call here. Did HHS say anything else? The Department did say that it looks forward to working with Idaho on the State’s 1115 Medicaid and ACA Section 1332 Waivers. Through these Waivers, Idaho could once again try to sell non-ACA-compliant plans by waiving portions of the ACA. But – in my opinion – the non-ACA-compliant plans that Idaho has proposed would fail to satisfy Section 1332’s current “guardrails.” So, even through a 1332 Waiver, I believe that these particular State-based plans are still a NO-GO.
HERE IS SOMETHING I WROTE EARLIER IN THE WEEK FOR TODAY’s UPDATE, WHICH IS MOOT NOW, BUT IT IS A POINT I STILL WANTED TO MAKE WHICH IS: THE ACA’S “RISK ADJUSTMENT” PROGRAM IS PROBLEMATIC
- The last time we talked, I explained how I thought Idaho could indeed allow Blue Cross of Idaho to offer non-ACA-compliant plans (see the attached update). In my opinion, it all comes down to HHS. Will HHS enforce the law and impose penalties on insurance carriers selling non-ACA-compliant plans? If HHS chooses NOT to impose penalties, I do not think a court of law can compel HHS to penalize Blue Cross of Idaho, and I am also not sure a court law can stop Idaho from allowing Blue Cross of Idaho to sell their “Freedom Blue plans.” But here is what I think can stop Idaho from doing what it is trying to do: The ACA’s “Risk Adjustment” Program.
- Analysis: The ACA risk adjustment program is the only program out the 3 Rs that is permanent. But, like the other the 3 Rs, risk adjustment has seen its share of controversy. For example, the way the program’s formula is structured, the program actually serves as an incentive for insurance carriers to cover high-risk individuals (and avoid covering healthy individuals). What the?!? In short, the way the risk adjustment formula currently works, insurance carriers that cover healthy individuals have to give millions of dollars to those carriers covering high-risk individuals. This has led to a couple of perverse results: A number of insurance carriers learned pretty quickly that if they insure certain high-risk individuals and then better manage these individual’s high risks (so they don’t rack up huge medical claims), the carrier can artificially inflate the amount of money they would receive under the risk adjustment program. Carriers cannot look me straight in the eye and tell me that they are NOT “gaming the system” (because they know they are). In other cases, carriers that attracted a healthy population of consumers were actually run out of business because they were required to give a significant percentage of their premium revenue to other carriers. For those carriers with healthy populations that held on, they then engaged in “defensive pricing” where they arbitrarily built into their premiums the risk adjustment “charges” they could potentially pay under the program. Even the carriers who figured out how to get money out of the risk adjustment program engaged in “defensive pricing,” which simply increases premiums for consumers. Not a good result. I say all of that to say that this: I think the risk adjustment program is responsible for a lot of the ills the individual market has experienced over the past 4 years. BUT, because the program is so complicated, HHS is not able to fix the program any time soon. And, those insurance carriers who figured out how to get money out of the program are lobbying HHS to keep the risk adjustment formula as is. Their main argument is this: If the risk adjustment program is changed where we end up losing some of the risk adjustment payments we have come to expect, we will leave the individual market, and therefore, there will be no carriers who will stick around to insure all of the high-risk individuals. In other words: “Hey HHS (and Congress), you need us to insure high-risk people in the individual market. And if you mess with the payment streams we now have built into our business model…see you later.” It is a powerful point, which is why HHS and Congress ain’t gonna be changing the risk adjustment program any time soon, at least in my opinion. So what does all of this have do with Idaho?? Well, you heard me explain that Idaho expects their non-ACA-compliant plans AND ACA-compliant plans to be a part of the same risk pool. And, despite the insurance carrier community’s claims that a single risk pool CANNOT work if you have health plans that offer different benefits to different consumers, Blue Cross of Idaho seems to be saying that it can indeed include non-ACA-compliant plans AND ACA-compliant plans in the same risk pool. Maybe Blue Cross of Idaho can (where many other carriers across the country cannot). After all, Blue Cross of Idaho has like 80% of the market-share in Idaho’s individual market, which should make it easier for them to include different plans in the same risk pool. BUT, because Blue Cross of Idaho does not have 100% of the market, the ACA’s risk adjustment program – if it continues to apply to Idaho’s individual market – is going to require Blue Cross of Idaho to give millions upon millions of dollars they will generate from insuring healthier people (who will gravitate to the lower-costing non-ACA-compliant plans) to those Idaho carriers who have a small market-share, but who will likely insure high-risk people because these carriers will only be offering ACA-compliant plans. Is Blue Cross of Idaho ready and willing to give millions upon millions of their profits to the other Idaho carriers?? If so, then maybe this Idaho experiment works. But, unless Blue Cross of Idaho wants to be an altruistic, share-the-wealth company, it is going to be difficult for the carrier to swallow handing out so much money to its competitors. Now, let’s say the risk adjustment program does NOT apply to Idaho’s proposed individual insurance market (which it might not because the Insurance Bulletin announcing the Idaho proposal appears to be silent on this). In this case, actuaries have said that Idaho would end up creating 2 different risk pools – 1 with the unhealthy lives (enrolled in ACA-compliant plans) and 1 with healthy lives (enrolled in non-ACA-compliant plans). Even if risk adjustment did indeed apply to Idaho’s market, the actuaries still say that it would be extremely difficult to effectively “risk-adjust” between ACA-compliant and non-ACA-compliant plans because of the large differences in the benefits covered and the premium rating factors between these 2 plans. So in the end, although HHS could sink Idaho on its own if the Department decides to enforce the law, Idaho is likely sunk because of the ACA’s risk adjustment.
Short-term Health Plan Update
- Soooo, HHS’s letter to Idaho just turned up the volume on the significance of the recently released short-term health plan regulations. In addition (and something we will talk about below), the White House just told Congress that it wants to codify a new requirement that would make short-term health plans “guaranteed renewable,” meaning these short-term health plans can be renewed without any (or with limited) under-writing after each 12 month period.
- Analysis: There is not a lot of complexity to these regulations. They simply say that short-term health plans can be available for up to 12 month, instead of 3 months. As you know, the Obama Administration issued their own regulations limiting short-term health plans to 3 months, which the Trump Administration’s regulation effectively over-turns. It’s as simple as that. Then why are short-term health plans so intriguing? I mean, they provide a limited level of health coverage for a short period of time. Why is everyone so fixated on these things? The key here is that short-term health plans are NOT considered “major medical plans.” That is extremely important for this reason: It means that these plans are NOT subject to the ACA’s insurance market reforms and coverage requirements. In other words, the ACA’s pre-existing condition protections do NOT apply. The “essential health benefits” and “actuarial value” requirements do NOT apply. The adjusted community premium rating rules, the single risk pool requirement, the prohibition on imposing annual and lifetime limits – YUP – they all do NOT apply. As you know, opponents of the ACA have been desperately trying to find ways around the ACA’s requirements. And as you also know, each time they have tried to get around the ACA, they have run into a brick wall. The Idaho experiment is a perfect case-in-point. Idaho tried to allow insurance carriers to sell non-ACA-compliant plans. And, HHS said NO-CAN-DO. ACA opponents in Congress have also tried to allow the sale of non-ACA-compliant plans through proposed modifications to ACA Section 1332, which would have gotten rid of the “guardrails” that currently prevent States from selling non-ACA-compliant plans like the ones included in Idaho’s proposal. The Senate Parliamentarian said NO-CAN-DO to this change. Also, Sen. Cruz (R-TX) offered an amendment to the ACA “repeal-replace” bill that would have allowed the sale of both ACA-compliant and non-ACA-compliant plans. The insurance carriers said ARE-YOU-KIDDING-ME. But, I do want to give credit where credit is due. ACA opponents are NOT giving up. And, it appears that ACA opponents have identified their problem. And that is, they have been trying to get a “major medical plan” to offer coverage that does NOT meet the ACA’s insurance and coverage standards. They now know that this CANNOT be done. So they are now saying to themselves: Let’s find a plan that is NOT considered a “major medical plan” under Federal law, and let’s try to promote that plan and allow it to be broadly offered in the market as an alternative to ACA-compliant plans (especially for those individuals in the un-subsidized individual market). And viola, you have an increased focus on short-term health plans because (1) they are NOT considered a “major medical plan” and (2) they can be promoted and offered as an alternative to ACA-compliant plans to a population who is desperately in need of other alternative health care options (because this population cannot afford an ACA-compliant plan in the un-subsidized market).
- The recently issued short-term health plan regulations do something that is noteworthy: The regs ask for comments on whether short-term health plans should be “guaranteed renewable” after the 12 months are up. If short-term health plans are indeed “guaranteed renewable,” policyholders could stay on the short-term health plan longer than just 12 months. I know what you are about to say: Chris, if short-term health plans can be “renewable,” they really aren’t short-term health plans, right?!? BINGO. They technically would NOT be short-term health plans.
- Analysis: But what if ACA opponents could make short-term health plans renewable? Well, they would be allowing a plan that is NOT otherwise subject to the ACA’s requirements – because the plan is NOT considered a “major medical plan” – to continue to be available to an individual for multiple years. Here, a policyholder would NOT have to be under-written every 12 months to stay on their short-term health plan. Instead, they would only be under-written once, and then stay on their short-term health plan for however long the law would allow. In essence, allowing short-term health plans to be “guaranteed renewable” would almost make these plans like ACA plans in that policyholders would be protected from future under-writing if they happened to get sick in the middle of the year. Yet, these plans would still be considered something other than a “major medical plan,” which – as stated – means these plans do NOT have meet the ACA’s other insurance and coverage requirements. A HUGE win for ACA opponents. Even though HHS asked for comments on whether short-term health plans should be “guaranteed renewable,” it is unclear whether HHS – through regulations – has the authority to make short-term health plans renewable. It appears that Administration officials do NOT think HHS has the authority to make these plans renewable, evidenced by the fact that the White House wants legislation passed that would make sure that short-term health plans are “guaranteed renewable.” Note, Sen. Barrasso (R-WY) just introduced legislation that would make short-term health plans “guaranteed renewable” (although House Democrats just introduced legislation that would bring short-term health plans back to 3-months and no renewability). Soooo, for what was more-or-less a regulation with very limited complexity, the issues that short-term health plans present are not without controversy, and certainly not without intrigue. What I find so fascinating is that ACA opponents continue to push on various aspects of the law to see if they can find a way to punch through the shroud of the ACA. As stated above, HHS just told States that they should start selling short-term health plans if they want to get around ACA, which I think ups-the-ante on whether Congress or HHS will make short-term health plans “guaranteed renewable.” Importantly, States like Missouri are trying to expand short-term health plans. States like Iowa are giving a green-light to non-ACA-compliant plans that are NOT considered a “major medical plan” under Federal law (i.e., Iowa just passed legislation that would allow not only self-employed farmers, but any non-farmer in Iowa who pays a “membership fee,” to enroll in the Iowa’s Farm Bureau health plan, which wait for it…is NOT considered a “major medical plan” under Federal law, and thus, is NOT subject to the ACA’s requirements). Florida is also trying to broaden the ability to get coverage under a “health ministry” plan (another plan that is wait for it…NOT considered a “major medical plan” under Federal law, and thus, NOT subject to the ACA). So again, the key to getting around the ACA is (1) finding a plan that is NOT considered a “major medical plan” and then (2) expanding eligibility for coverage under the plan, and also (3) building in protections that would allow people to stay covered under these non-“major medical plans” without that ACA’s requirements, like prohibitions against under-writing and imposing certain limits. Even though Idaho failed, this ain’t over…
Market Stabilization Update
- Okay, so we have been talking about “market stabilization” ever since September of last year, yet we are STILL waiting for something to happen.
- Analysis: So where are we now with “market stabilization”? To me, it has been somewhat up-and-down over the past 6 months, but ironically, what was called for back in September 2017 is what both Republicans and Democrats are coalescing around, and that is: (1) 2-year funding for the cost-sharing subsidies, (3) multiple-year funding for a reinsurance or a hybrid high-risk pool program (e.g., 2- or 3-years), and (3) modest changes to ACA section 1332.
Section 1332 Changes: Not much has changed from September 2017. The idea is to make 1332 Waivers budget-neutral over the life of the Waiver, allow Governors to submit a Waiver application without Legislature approval, and change the language for the “cost-sharing guardrail” that – in my opinion – simply makes the language really ambiguous so States can “creatively” interpret the statute and, for example, re-distribute the premium and cost-sharing subsidies to different populations based on age and/or income.
Federal Funds for Reinsurance or an “Invisible High-Risk Pool”: Interestingly, the White House just came out against reinsurance. House conservatives also do not seem to support funding for reinsurance/an invisible high-risk pool. I am scratching my head on why there is resistance here. After all, Republicans were about to spend $150 billion in reinsurance-like funding through the ACA “repeal and replace” bills. And, the Congressional Budget Office (CBO) has said that Federal funding for reinsurance results in material premium reductions. Congressional Republicans are looking at Nov. 6th, and they are saying: “Hey, premium increases for 2019 will be finalized around the September time frame, and we don’t want to spend the entire month of October (when voters actually start paying attention) beating back the Democrats’ talking point that we ‘sabotaged’ the markets. Remember that Rose Garden ceremony, and the fact that we failed to repeal and replace Obamacare?” So to me, Federal funding for reinsurance/an invisible high-risk pool should be a no-brainer politically. Conservatives will disagree with me, and argue that Federal funding for reinsurance is simply a “bail-out.” My response: Even if it is a “bail-out,” it is a necessary evil to try to hold onto the majority in the House. It’s just that plain-and-simple. But in the end, I think this resistance is merely a negotiating tactic, because – at least right now – Republicans don’t want to seem like they are “agreeable” to Federal funds (for reinsurance/an invisible high-risk pool) until they actually agree to it. The art of the deal?!? Stay tuned.
Funding for the cost-sharing subsidies: Funding for the cost-sharing subsidies remains the most interesting issue when we talk about “market stabilization.” You know where I have been on this issue. From a “coverage” perspective, I do NOT think the cost-sharing subsidies should be funded. If the cost-sharing subsidies are funded, the premium subsidies will be reduced, and therefore, for 2019, consumers will no longer have the ability to purchase free “bronze” plan or no-additional-cost “gold” plans. BUT, I agree that when it comes to “reducing costs to the taxpayer,” funding the cost-sharing subsidies produces a positive result. That is, if you fund the cost-sharing subsidies, you eliminate the “silver-loading” practice that led to the increase in the premium subsidies, thereby reducing the premium subsidies, which in turn reduces government spending (i.e., savings for the taxpayer). Here is how I see this issue finally being resolved: While CBO has continually “scored” the cost-sharing subsidies as NOT costing any money (thus by funding the cost-sharing subsidies, there is no “savings” to the government, nor is there any “cost” to the government), CBO has been directed by the Congressional Budget Committees to modify how the agency treats the cost-sharing subsidy payments. Going forward, CBO will assume that funding – or not funding – the cost-sharing subsidies WILL have a budgetary impact. The result: CBO will say that funding the cost-sharing subsidies will “cost” the government (i.e., it increases spending), but CBO will also say funding the cost-sharing subsidies will reduce the spending on the premium subsidies, thus producing “savings” (i.e., no “silver-loading” = savings to the government). CBO will then isolate the “delta” between (1) the money going out the door in the form of cost-sharing subsidies and (2) the money NOT going out the door in the form of premium subsidy spending, and viola, CBO will actually find overall savings for the government (to the tune of around $30 billion). Guess what the proposed Federal funding for reinsurance/an invisible high-risk pool is?? $30 billion over 3 years. Last comment: An issue that continues to plague cost-sharing subsidy funding is protections against using the funds to pay for abortion services. As you may recall, back in December, most analysts – including me – thought cost-sharing subsidy funding was going to make it into the end-of-year spending bill. BUT, concerns over whether the cost-sharing subsidies can be used to fund abortion services surfaced in the 11th hour, essentially killing the prospects of enacting said funding (see my attached update, the 1st and 2nd posts). Well, this issue has yet to be resolved. As I understand it, the idea now is to include funding for the cost-sharing subsidies on the Labor-HHS “appropriations” bill, because any funds that flow through the Labor-HHS “appropriations” bill already have abortion-protection language (called “the Hyde language”) included in this particular bill. I know this is inside-baseball-stuff – and to be honest, as someone who was not an “appropriations” staffer, I am still trying to wrap my head around how this would work – BUT, if this can indeed work, Congressional staff will make sure that the cost-sharing subsidy funding language gets into the Labor-HHS “appropriations” bill. BUT, if running the cost-sharing subsidies through the Labor-HHS “appropriations” bill CANNOT be done, then I believe funding for the cost-sharing subsidies will NOT happen. Why? Because this issue is a deal-breaker for Speaker Ryan and the White House. Stay tuned.
What Else Might Go Along With ACA “Market Stabilization” Provisions? (no news story)
- The employer community is pushing hard to get changes to the Health Savings Account (HSA) rules into the forthcoming “omnibus” spending bill. Also, retroactive relief for the employer mandate penalties. The White House also wants to include in the “omni” a provision that would increase the HSA contribution limits (to equal the HSA’s out-of-pocket maximum limits). Another HSA issue just popped up when the IRS revised most of the Tax Code’s limits due to the Tax Reform legislation (which put into effect something called “chained CPI” as the index rate, which is a slower growing index rate than CPI). In short, because of chained CPI, the HSA contribution limits for 2018 (which were announced at the end of 2017) were REDUCED by $50, causing much confusion and consternation among employers, brokers, and HSA-providers who will likely have to change all of their systems and “employee communications” on what the correct contribution limits are for 2018.
- Analysis: Let’s start with the recent reduction to the HSA limits. At this point, I am not really sure how this plays out. The employer community has asked Treasury to delay the reduction for at least 2018. But, I cannot see how Treasury can single-out one aspect of the Tax Code and say “ummm, that chained CPI thing doesn’t apply here,” when almost all other provisions in the Tax Code were impacted by the new chained CPI index rate. Maybe there is a way, but I am just not sure. Could Congress deal with this issue in the upcoming “omnibus” legislation? Maybe. But, with all of the other priorities out there, I am not sure if this gets slipped in? We will have to wait and see. Regarding the HSA contribution limit increases to equal the HSA’s out-of-pocket maximum limits, this has been a Republican priority for years, and one that was most recently included in the Republican ACA “repeal-replace” bill. Ain’t gonna happen. What could happen is the HSA changes called for by Cong. Kelly (R-PA) and Cong. Blumenauer (D-OR). In short, the proposed changes would allow a high-deductible health plan (HDHP) to pay for certain medical services before the deductible is met and still preserve the HDHP-plan-holder’s eligibility to contribute to an HSA. Such medical services would include first-dollar payments for certain chronic care services, and also for on-site or retail clinic services (which would include, among other things, primary care services, hearing and vision screening, drug testing, and other services). HSA dollars could also be used to pay for physical fitness-related expenses, and an HDHP-plan-holder can still be eligible to contribute to an HSA even if their spouse is enrolled in a health plan that also has an FSA. The Kelly-Blumenauer bill also has 3 House Democrats as sponsors, so it is reasonable to argue that these HSA changes do have bi-partisan support. In my opinion, whether these HSA provisions make it into the “omni” comes down to this: (1) How much these changes will cost, (2) Whether Republicans will make this a priority, and (3) Even though the bill is a bi-partisan, whether Democrats are willing to agree to these changes (as possibly a “trade” for getting cost-sharing subsidy or reinsurance funding). Lastly, employers are still holding out hope that Republicans will “ask” for – and Democrats will agree to – retroactive relief from the employer mandate penalties. As I have explained in the past, because the ACA Exchanges failed to “notify” employers that their employees were “certified” to receive a premium subsidy for 2015, the IRS should be barred from assessing the penalties for 2015 (because this “notification/certification” is a pre-condition to assessing the penalties). Currently, the IRS is taking the position that HHS shifted the responsibility to “certify” to employers that their employees received a subsidy to the agency in a July 2013 regulation. However, the statutory language of Code section 4980H, ACA section 1411, and even the language in the final employer mandate regulations appear to confirm that HHS does NOT have the authority to shift the “certification” responsibility to the IRS. If Congress enacts retroactive relief, well then, this legal problem goes away, at least for 2015 and maybe 2017 (if retroactive relief spans 2015, 2016, and 2017). Stay tuned on this as well.