“Individual” and “Small Group” Market Update/Association Health Plan Update
“Individual” and “Small Group” Market Update/Association Health Plan Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- The LA Times is out with a news story chronicling all of the public comments submitted by “health care organizations” in response to (1) allowing short-term health plans to last for up to 364 days and (2) allowing small employers and independent contractors to participate in an Association Health Plan (AHP). The news article leads with the following statement: “More than 95% of health groups that have commented on President Trump’s effort to weaken Obama-era health rules criticized or outright opposed the proposals.”
- Analysis: I find this statement interesting for the following reason: This may be hard for ACA supporters to understand, but the current Administration is NOT “weakening Obama-era health rules.” Why? Because the Administration CAN’T. What?!? Yes, the Administration’s hands are tied. Why? Because the statute constrains HHS’s ability to change any of the ACA’s minimum insurance standards through administrative means.That’s right, HHS CANNOT change things like the “essential health benefits” (EHBs), or the prohibition against developing premiums based on health status, or the ability to vary premiums by age (more than a 3-to-1 ratio), or the prohibition against denying people coverage if they have a pre-existing condition, or the prohibition against annual and lifetime limits, and even the premium subsidy levels. States are prevented from “weakening” the ACA too. We saw Idaho try, where Idaho tried to reduce the number of EHBs that can be covered. Idaho also tried to allow certain annual and lifetime limits, and the State allowed premiums to vary by age by a 5-to-1 ratio. We know what happened. HHS gave Idaho the Heisman, telling the State that their proposal violated the ACA’s minimum insurance standards, and the Department informed the carriers operating in Idaho that HHS would impose penalties on them if they sold non-ACA-compliant plans. Make no mistake, this frustrates the heck out of ACA opponents. And, it frustrates a lot of people in the current Administration. BUT, the law-is-the-law. Plain-and-simple. So I say it again: The current Administration is NOT “weakening” the ACA (because the Administration CANNOT “weaken” the ACA). Then what is the Administration doing? In my opinion, because the Administration CANNOT change any of the ACA’s minimum insurance standards (only an act of Congress can), the Administration is coming up with “alternatives” to the ACA. What “alternatives”? (1) Short-term health plans lasting up to 364 day and (2) AHPs. Look, I have no illusions that the existence of short-term health plans and AHPs will negatively impact the ACA’s reformed insurance markets, and I have said as much in prior updates (although I do not think the negative impact is as pronounced as critics are asserting). But in my opinion, “adverse impacts on the insurance markets” are MUCH DIFFERENT than “weakening Obama-era health rules.” Some may say this is a subtle distinction, or not a distinction at all. I obviously disagree.
Health Groups Want the Administration to Scrap These “Alternatives” (no news story)
- Health groups do NOT want these “alternatives” to be finalized. Rather, they want the current Administration to scrap these proposals. But, to me, this is like preventing people from being offered a better situation because other people want to keep them locked into a crappy situation that is NOT improving.
- Analysis: What I mean is this: It is well-accepted by BOTH ACA supporters and ACA opponents that the status quo is NOT working. More pointedly, the markets are NOT working. As someone who participated in developing portions of the ACA (of which I still have a personal attachment), I WISH the markets would have evolved into functional markets. But sadly – for a myriad of reasons which we do not need to get into today – that did NOT happen. And, the current political environment in Congress will NOT allow any helpful fixes to the ACA (i.e., NO statutory changes to make the ACA work better will be coming any time soon). BTW, I wish this was NOT case too. But, the reality is-what-it-is. Soooo, let me connect some dots here: (1) If the current Administration cannot change the ACA’s minimum insurance standards (only an act of Congress can), and (2) Congress is not about to pass any legislation improving the ACA, the only OTHER option available to help people is (3) to develop “alternatives” to the ACA. Why? Because as stated, the status quo is NOT working, and people in the “un-subsidized” individual market and employers in the “small group” market are hurting and they need additional “choices” for their health care. And based on this, I will repeat what I said above: Calls for scrapping these “alternatives” is like preventing people from being offered a better “alternative” because other people out there want to keep them to locked into dysfunctional situation where individuals and employers are hurting. It’s almost like cities trying to prevent Uber from coming in and providing better “ride-services” in favor of preserving a crappy taxi system that is not reliable, or clean, and a system does not act in the best interest of the end-user. Maybe that is not the best analogy, but I think you get what I am trying to say. Now here is where ACA supporters are probably yelling at me. They are likely saying Chris, short-term health plans are actually worse than the status quo because short-term planholders are getting crappy coverage. I do NOT disagree with this statement. I too am NOT a fan of short-term health plans because I do NOT believe that these plans provide enough coverage for the planholder. BUT, I am okay with short-term health plans being available because I think people deserve “choice.” And my desire for people having “choice” – and not being locked into a crappy situation – outweighs my concern about the level of coverage short-term health plans will provide. When it comes to AHPs – and the critics’ argument that AHPs will offer crappy coverage – I have whole-heartedly DISAGREED. And, I continue to strenuously disagree. You have heard me articulate the reasons why. For a refresher, see my written testimony on AHPs (attached). From my perspective, AHPs not only provide additional “choice” – which I think every person deserves – I believe AHPs WILL offer comprehensive coverage, and they WILL make a lot of people’s lives better. I do NOT accept the argument that AHPs are bad because AHPs will not be required to cover all of the EHBs. And that’s because – as I have explained in prior updates – I believe most AHPs will offer a number of plan designs, some which do not cover, for example, maternity or mental health services, but other plan designs will be offered that WILL cover these benefits (see my first attached update, “Association Health Plan Update”). In my opinion, the actuaries will be able to prevent adverse selection between these plan designs because they can “rate” all of the plan participants as one, single risk pool, even in cases where the actuaries are able to “experience rate” different employer groups participating the AHP.
- Again, I agree with health care organizations when they say these “alternatives” will adversely impact the existing ACA’s reformed markets, and that this in turn, could hurt people because premiums will go up for them. I know it may seem like I don’t care (which is incorrect), but I just can’t see any other way around the fact that the ACA is not working for a lot of people. And these “alternatives” (i.e., short-term health plans and AHPs) will help a lot of those people who are stuck in a bad situation. I think you know me well enough to understand that I want Congress to improve the ACA through legislation (which would arguably negate the need for these “alternatives”). But that ain’t gonna happen any time soon.
- Analysis: So how will these “alternatives” impact the existing ACA markets? CBO recently weighed in. In short, CBO projects that 4 million people will be enrolled in an AHP by 2023, 400,000 of whom did NOT previously have health insurance. CBO also said that premiums in the small group and individual market will increase by 2% to 3% by 2023, although CBO did not provide us with a break-out of the premium increases in each market on account of AHPs versus the premium increases attributable to short-term health plans. Rather, CBO lumped these 2 “alternatives” together, so this 2% to 3% statistic takes into account BOTH short-term health plans and also AHPs. Which to me is not helpful. With respect to AHPs, Avalere Health recently estimated that AHPs would increase premiums by .5% in the small group market and 3.5% in the individual market. AHIP just came out with a statistic saying that they think AHPs will increase premiums in the individual market by 2.7% to 4% in 2019. Just focusing on AHPs for a moment, I ask this: Is a .5% increase in the small group market significant or meaningless? My response: Not meaningless, but certainly negligible. And to me, if millions of small business employees are going to be helped by AHPs – and provided comprehensive coverage that is lower costing than their existing plan (or coverage for the first time) – I will accept a .5% increase any-day-of-the-week. Now, when it comes to AHPs and their impact on the individual market, a 3% to 4% increase is definitely more than negligible. But, I would argue it is not significant. So, I ask another question: Is it worth it to help hundreds of thousands – if not over a million – independent contractors by giving them access to AHP coverage if premiums in the individual market are going to increase by 3% to 4%? My response: I think so, YES. Why? Because the 3% to 4% increase will NOT be felt by the roughly 9 million people who are enrolled in a “subsidized” Exchange plan (because the premium subsidy absorbs the premium increase). But yes, a 3% to 4% increase will not be cool for the roughly 5 to 6 million people in the “un-subsidized” individual market. So, I am conflicted on this. But, I am still supportive of AHPs because I believe AHPs are a much-needed “alternative” for independent contractors who are struggling to afford coverage in the “un-subsidized” individual market. Last comment: I am obviously shouting in the wind here, but I continue to believe that AHP health coverage is going to be attractive to a less healthy person, just like AHP coverage will be attractive to young and healthy consumers. As a result, I do not accept the continued belief that AHPs are “going to siphon off younger, healthier people and negatively impact the broader individual market.” Yes, I could see more young and healthy individuals being attracted to AHPs than less healthy individuals. BUT, actuaries tell me that you need a handful of healthy individuals to offset just 1 less healthy individual from a risk perspective. I could very well see a similar ratio of healthy and less healthy individuals exiting the individual market for an AHP. So from a risk perspective, the existing individual market will benefit from the number of less healthy people who will exit the market. And while the individual market will be hurt by the number of healthy people exiting, the flight of these 2 cohorts should more-or-less cancel each other out, thus limiting the overall impact on the existing individual market. Even if I am wrong here – after all, some smart economists disagree with me – does a 3% to 4% increase in individual market premiums justify scrapping the idea of AHPs? Especially when the status quo is NOT working? And especially when there is NO prospect for improvement to the status quo? I continue to be torn because I do not want to see anyone being disadvantaged, but I also know that something has got to change.
“Single-Player” Update/State Activity Update
- A couple of weeks back, I highlighted California’s efforts to enact “price controls” on medical services and procedures performed by providers in the State (see the attached update). I explained that California’s proposal would create an Advisory Board that would develop prices for these medical services and procedures using Medicare prices as a baseline, and the Board would assign a percentage load on to the Medicare prices, which would serve as the price that all providers in the State must charge consumers.
- Analysis: In my previous update, I noted that I do NOT believe that any State – or the Federal government – will ever enact a true single-payer system. However, I explained that States – and possibly even the Federal government – could enact “shades” of single-payer, which would include things like a “public option” in the individual market, Medicare buy-in for 55-year-olds and/or for employers, and also things like “price controls.” When it comes to “price controls,” I argued that there is merit to trying to provide more uniformity in prices for the same medical procedures and services. Either through (1) “price controls” or (2) price “transparency” measures that cut through the confidentiality clauses in carrier-provider contracts. Interestingly, a recent study showed that not only do prices for certain medical services and procedures vary provider-to-provider, but in some cases, prices vary by insurance carriers contracting with the same provider. Specifically, the study concluded that insurance carriers pay different prices for the same medical procedure at the same hospital. The economists conducting the study assumed that the differences in prices for the same medical procedures varied based on the “negotiating clout” of the respective carrier. For example, it was assumed that a large carrier – directing a heck-of-a-lot lives to the hospital – was able to negotiate better overall prices compared to smaller carriers with fewer lives (i.e., the prices for these smaller carriers were found to be higher, again, at the same hospital). I don’t know about you, but that just seems crazy to me. Maybe it shows my naivete when it comes to hospital-to-carrier contracting practices, but when you see stuff like this, I am all for trying to provide uniformity in prices through – dare I say it – “price controls.” But only if we CANNOT get there through value-based care strategies and price “transparency” measures first. Last comment: A couple of weeks back – when I was talking about California’s “price control” proposal – I told you a story about conversations I often have on ways to lower health care costs. Often times at table-talk discussions, someone will say, “The reason why premiums and out-of-pocket costs are so high is because the price of health care is so high.” Another person will say, “Well, how do we lower the cost of health care?” Then, there is a deer-in-head-lights moment where no one knows how to respond. Often times I say, “Value-based care is arguably one way to reduce the cost of health care.” But I also say, “Price controls could arguably do it too.” I then ask the following question: Are we really at a point where the only 2 pathways to lowering health care costs is (1) Value-Based Care or (2) Price Controls? They are 2 vastly different strategies for sure. When it comes to “price controls,” it appears that the California Legislature has decided that “price controls” are NOT a pathway they want to take (because California’s “price control” proposal failed to even gain approval at the Legislative Committee level, meaning that this “shade” of single-payer is dead, at least for now). I will keep monitoring California’s efforts to enact some form of single-payer, as there will certainly be a lot of discussion about single-payer in the Golden State as their Gubernatorial races – as well as their Congressional races – heat up. Stay tuned.
Employer Update/State Activity Update
2 Wins for Self-Insured Employers: Michigan’s Health Claims Tax Repealed and Louisiana’s Tax on Self-Insured Employers to Fund Reinsurance Fails (no news story)
- It’s been over a year now, but previously, I explained that the State of Michigan (MI) currently imposes a 1% Health Claims Tax on the health claims incurred under both fully-insured and self-insured plans. In the case of a self-insured plan, the MI Health Claims Tax is payable by the self-insured plan’s third-party administrator (TPA). More recently, I told you about efforts in Louisiana to enact a reinsurance program funded partially through a per member/per member tax on people covered under a self-insured plan (see the attached update).
- Analysis: Good news for self-insured employers. The Michigan Legislature just repealed its Health Claims Tax, and replaced the Tax with an insurance carrier-only assessment. The MI Tax will officially be repealed if and when CMS approves the new funding stream (in Michigan’s upcoming Medicaid waiver request), which Governor Snyder’s office indicates will be submitted soon. Self-insured employers should also be pleased because Louisiana’s efforts to fund their reinsurance program through a per member/per member tax on people covered under a self-insured plan was recently defeated in the Louisiana Senate. Arguments have been made that the failure to enact this legislation is NOT evidence that Louisiana does not want a reinsurance program. Legislation creating a reinsurance program in Louisiana will likely be considered once again. That legislation probably won’t call for a per member/per member tax on self-insured plans though.
Individual Market Update/State Activity Update
- Speaking of State reinsurance programs – as I have noted in the past – due to the failure to enact an ACA “market stabilization” package at the Federal level, more States are seeking to create their own reinsurance programs through an ACA Section 1332 Waiver.
- Analysis: Alaska, Oregon, and Minnesota already created a State-based reinsurance program through a 1332 Waiver. Wisconsin’s 1332 Waiver (for a reinsurance program) is currently pending, and the Maryland Legislature is trying to approve a 1332 Waiver request for a reinsurance program (although the Maryland legislation has recently stalled). As stated above, Louisiana is obviously trying establish a State-based reinsurance program, and other States like Iowa and Oklahoma are jumping on the 1332 Waiver band-wagon (to create a reinsurance program). When it comes to a State-based “individual mandate,” I told you that New Jersey recently enacted its own individual mandate penalty tax (mirroring the Federal penalty tax). Vermont has also agreed to an individual mandate, although the Governor has yet to sign the measure, and there is really no detail on how the mandate will work (e.g., will it be a penalty tax like the Federal mandate?). Maryland is trying to enact an individual mandate-type provision, but efforts in Maryland have hit a snag. These State actions – should they all become law – are all in an effort to help stabilize the respective States’ individual markets. Other efforts to protect a State’s individual market are intended to limit the current Administration’s “alternatives” to the ACA. In particular, short-term health plans. For example, New Jersey has enacted legislation requiring short-term health plans to only last 3 months, which will negate what the Administration is trying to do by allowing short-term health plans to last up to 364 days. California has an outright prohibition against the sale of short-term health plans. When it comes to AHPs, there hasn’t been a lot of action here. BUT, as I mentioned to you previously, New Jersey – through the enactment of its State-based individual mandate penalty tax – said that AHP coverage can be offered in the State, BUT, if the AHP coverage does NOT comply with the “small group” market rules, the AHP planholder would be subject to a penalty tax (i.e., AHP coverage would NOT be considered “minimum essential coverage” for purposes of New Jersey’s mandate unless the coverage complies with, among other things, the “essential health benefits” requirement and New Jersey’s community rating rules). Sticking with AHPs for a moment, we will have to wait and see whether States will try to enact what I call “re-characterization” laws, which would be an attempt to say that fully-insured “large group” AHPs MUST be treated as a “small group” plans if offered within the State. States could also enact State MEWA laws, prohibiting self-insured AHPs from operating in the State, or States could require self-insured AHPs to comply with the State’s “small group” market coverage and rating rules. A bunch of States already have similar MEWA laws in place, but there is no prohibition against other States doing the same thing. As I have told you, when it comes to these “re-characterization” laws, I believe they could be pre-empted by ERISA. BUT, we would have to wait for a legal challenge against a “re-characterization” law to know for sure. State MEWA laws cannot be pre-empted by ERISA, but the DOL could pursue a “class exemption” that would exempt self-insured AHPs from the “non-solvency” requirements of State MEWA laws. We will have to wait and see if the DOL pulls the trigger on pursuing a “class exemption.” That is all a long way of saying this: States is where ALL of the action is (and will be in the future). With the repeated failures at the Federal level, States are finally realizing that it is up to them to enact policies that could help further stabilize their individual markets. Other States are taking it upon themselves to thwart Federal efforts to provide consumers with an “alternative” to the ACA out of fear that these “alternatives” will adversely affect their individual and/or small group markets. But as discussed above – at least in my opinion – efforts to eliminate the “alternatives” to the ACA are efforts to lock people into markets that are simply NOT working. Just sayin.