ACA “Repair” and “Cost-Sharing” Subsidy Update
ACA “Repair” and “Cost-Sharing” Subsidy Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- Last Tuesday, Sens. Alexander (R-TN) and Murray (D-WA) announced their bi-partisan agreement on a “market stabilization” package. Also last Tuesday, President Trump made some positive comments on the agreement, signaling overall support for the idea of a “short-term” fix. But, as the week went on, the President made some additional comments suggesting that the “deal” didn’t go far enough. Speaker Ryan also explained that the “deal” – as currently drafted – could not get through the House. So as of today – we all sit – trying to figure out whether there is a pathway to 60 votes in the Senate and 218 votes in the House.
- Analysis: Before speculating on whether the bi-partisan “market stabilization” package will ever get enacted, let’s first talk about what’s in the package. Let’s start with the cost-sharing subsidy payments: As you have heard me say – from my perspective – Congressional Republicans have always been supportive of funding for the cost-sharing subsidies. They just did not vocalize this support. Rather, they bided their time waiting for the right legislative vehicle on which to attach the funding. The first real opportunity was including the funding on the ACA “repeal and replace” bills. BUT, the Senate Parliamentarian bounced the funding from the ACA repeal-replace “reconciliation” bill (because the Parliamentarian relied on CBO’s assumption that the cost-sharing subsidies already had an “appropriation,” and therefore, a “reconciliation” bill provision could NOT replicate current law). The next opportunity was the government spending/debt ceiling bill in September. BUT, President Trump cut a deal with Sen. Schumer (D-NY) and Cong. Pelosi (D-CA) on a short-term extension. Absent from this “deal” was funding for the cost-sharing subsidies. Fast-forward to today, the hallmark provision of the Alexander-Murray bill – at least for Democrats and some Republicans – is 2-year funding of the cost-sharing subsidies. But – as discussed more fully below – funding for the cost-sharing subsidies won’t be coming any time soon. You gotta wait until at least December. One interesting – and complex – provision included in the Alexander-Murray bill is this: There is language (1) requiring those insurance carriers that already “loaded” their “silver” Exchange plans with the unfunded cost-sharing subsidy liabilities (2) to “rebate” the cost-sharing payments back to consumers (or the Federal government). What?!? As I explained in last week’s update (see attached), States like California are requiring their carriers to add any unfunded cost-sharing subsidy liabilities to their “silver” Exchange plans ONLY. CBO assumes all States will require their carriers to engage in this “silver loading” practice (as I also stated last week, because CBO does extensive outreach to States to gauge their response to a change in Federal policy, the fact that CBO assumes all States will require “silver loading” is very informative). Sooo, if all States are going the “silver loading” route, Sens. Alexander and Murray needed to somehow account for the fact that these carriers would be getting a double payment (in the form of additional premiums that were built into the “silver” Exchange plans AND the actual cost-sharing payments that would be made once the Alexander-Murray bill is enacted into law). To be sure, this double payment phenomenon was not Sens. Alexander’s and Murray’s fault. It’s a function of Congress and the Administration failing to provide any sense of certainty when it came to the cost-sharing subsidy payments. That is, insurance carriers had no other choice but to account for the threat that the cost-sharing subsidies may not be paid. And the way the carriers accounted for these unfunded liabilities was to increase the premiums for the “silver” Exchange plans (because the “silver” Exchange plans are the only plans eligible for the cost-sharing subsidies in the first place). But now, if the cost-sharing payments are ultimately paid for 2018, it is believed that the carriers cannot go back and change their 2018 premium rates, especially if the Alexander-Murray bill is NOT enacted into law until December.
- Surprisingly, the Alexander-Murray bill amends 2 of the 4 “guardrails” in ACA Section 1332. But whether you are a proponent or opponent of modifying the 1332 “guardrails,” don’t get too excited. Why? Because – in my opinion – the proposed modifications are minor. Even opponents of changing the 1332 “guardrails” think that the modifications are minor.
- Analysis: In truth, most analysts believe the Democrats more or less got what they wanted. For example, NO changes were made to the “guardrail” that says health coverage must be “at least as comprehensive as” the Federal EHBs (i.e., the “Federal EHB guardrail”). For Republicans, however – who are proponents of State flexibility – the fact that the “Federal EHB guardrail” was NOT changed may very well be a deal-breaker. The other “guardrail” – which says a Waiver cannot increase the uninsured rate – was also NOT changed. But to both sides, no changes to the “no uninsured guardrail” is no big deal. Then what changes were made to the 1332 “guardrails”? The first change is a no-brainer, and it is actually a change that shares bi-partisan support. In other words, the following change is NOT a “win” for one party over another (which is the way it should be!!). In short, the bill would allow a 1332 Waiver to achieve budget-neutrality over the 6-year life of the Waiver, as opposed to being budget-neutral on a year-by-year basis. This change makes total sense because from a budgeting perspective, it is virtually impossible to balance your savings and spending on a year-by-year basis. Both Republicans and Democrats know this, and they collectively felt that this should have been the rule all along. The second change is the most noteworthy change. In short, instead of the “affordability guardrail” saying that the Waiver must provide protections against excessive out-of-pocket spending that “are at least affordable as” the ACA’s cost-sharing protections, the bill says the Waiver must provide cost-sharing protections “that are of comparable affordability, including for low-income individuals with serious health needs, and other vulnerable populations.” Huh?!? That’s right. This suggested change is NOT much different from the existing statute. In my opinion, HHS drafted this language because HHS General Counsel determined that the Department could come up with an interpretation that provides more flexibility than the existing “guardrail.” And therefore, this flexibility would allow HHS to approve the 1332 Waiver submitted by Iowa (under the Iowa Waiver, the cost-sharing subsidies are eliminated for consumers between 200% and 250% of Federal Poverty Level (FPL), and replaced for consumers between 100% and 200% of FPL). BUT – news flash – Iowa withdrew its 1332 Waiver request this afternoon. So query whether Iowa’s withdrawal of their Waiver makes the modification to the “affordability guardrail” moot? If Iowa’s actions renders this modification moot, will the fact that the Iowa 1332 Waiver is NO longer in play erode overall Republican support for the Alexander-Murray bill? Are there other changes? Additional 1332 Waiver changes include but are not limited to: Allowing a State Governor to apply for a Waiver, shortening the time period for review to 90 days, allowing “emergency reviews” of 45 days, allowing expedited review for copy-cat Waivers, allowing shared savings between 1115 Medicaid and 1332 Waivers, and rescinding the Obama Administration’s constraining 1332 guidance. The Alexander-Murray bill also allows individuals of ANY age to purchase an ACA-defined “catastrophic” plan (people are calling these “copper plans”). And there is additional funding for Exchange enrollment marketing and outreach efforts, which is a “win” for Democrats.
- So, the BIG question now is whether the Alexander-Murray “market stabilization” package can get enacted into law? I think most people here in DC agree on this: Between now and December, the Alexander-Murray bill will undergo changes, culminating in the inclusion of some or all of the “market stabilization” proposals in the end-of-year spending/omnibus/everyone-get-on-the-bus legislative package.
- Analysis: In the Senate, there are currently 24 co-sponsors of the Alexander-Murray bill. That essentially means that the Senate has 60 votes to pass the “market stabilization” package. As you know, I – along with others – have always predicted that a bi-partisan “market stabilization” bill would get through the Senate. The bigger question is can such a bill get through the House? And, an always changing question is whether or not President Trump would sign a “market stabilization” bill into law. As I understand things, Congressional Republicans and the White House are going to wait and watch the upcoming “open enrollment” period to see how things plays out. They – like me – are NOT seeing the markets go hay-wire even in the face of all of the uncertainty that Republicans created. What I mean is, for political reasons, the announcement to cancel the cost-sharing subsidies was met with claims that the decision will destabilize the markets. Look, I get it. If you claim “doom and gloom” – and you spin that there will be a “crisis” – you can get Congress to act. But, the fact that carriers are “silver loading” – and the fact that, at least of today, no insurance carrier that committed to the Exchanges for 2018 has dropped out – these facts do NOT paint a picture of “doom and gloom.” So, Republicans – for right or wrong – are standing by. The other 2 dynamics impacting ultimate enactment are these: First, the legislative calendar. And Second, the need to essentially force House Republicans to vote for “market stabilization” provisions. What I mean on this 2nd dynamic is this: House Republicans are NOT going to vote for a stand-alone bill that funds the cost-sharing subsidies, especially if the bill does NOT contain substantive reforms to the ACA (e.g., modifications to the “Federal EHB guardrail”). So, to get the votes, any and all “market stabilization” proposals will have to be tucked into a must-pass bill like, for example, legislation to keep the government funded (which could include, for example, funding “for a wall”). House Republicans are NOT going to vote down funding “for a wall” because “market stabilization” provisions are included in the same bill. With respect to the 1st dynamic, again, it’s not like Alexander-Murray is going to pass the House as a stand-alone bill. So, stakeholders will have to wait for a must-pass legislative vehicle. That must-pass vehicle won’t present itself until December.
Executive Order Update
Another Post on the Executive Order and “Association Health Plans” (no news story)
- As I have explained ad nauseum, in 2011, the Obama Administration issued guidance that essentially prohibited small employers from forming a fully-insured “large group” health plan. This meant that the ACA’s “small group” market reforms applied to fully-insured AHP employer members with 50 or fewer employees. One exception to the 2011 guidance: If the “group” of employers forming a fully-insured AHP is considered a “bona fide group or association of employers” as defined under ERISA, the fully-insured AHP could still be treated as a “large group” plan, meaning the ACA’s “small group” market reforms would NOT apply. The 2011 guidance does not apply to self-insured AHPs. However, ERISA’s definition of a “bona fide group or association of employers” is important because if a “group” of employers forming the self-insured AHP fails to meet this definition, ERISA’s preemption of State benefit mandates would NOT apply.
- Analysis: To be considered a “bona fide group or association of employers” as defined under ERISA, the “group” must meet (1) the “commonality of interest” test and (2) the “control” test. The control test is straight-forward, requiring the employer members to have a say over the plan design and operation. The “commonality of interest” test, on the other hand, is a facts and circumstances test which is not always easy to satisfy. According to existing Department of Labor (DOL) guidance, a group of employers would NOT be considered “bona fide” UNLESS (1) the employer members are “related” (i.e., the employers are in the same industry) and (2) the employer members operate in the same geographic location (e.g., in the same State or multiple States located in the same tri-State area). Also, a group of employers would NOT be considered “bona fide” if self-employed individuals with no employees are a part of the group. Does the Executive Order direct HHS to undo the 2011 guidance? No. Instead, the Executive Order directs the DOL to consider proposing regulations to expand on what it means to be a “bona fide group or association of employers” as defined under ERISA. What are the Trump Administration’s intentions? One of the main goals of the Trump Administration is to allow small employers to form a fully-insured “large group” plan or a self-insured plan. This way, the fully-insured or self-insured plan would NOT be subject to the ACA’s “small group” market reforms (i.e., the “essential health benefits” (EHB) and “actuarial value” (AV) requirements, along with the adjusted community rating rules and the single-risk pool requirement, would NOT apply). BUT, as stated in my prior updates, these fully-insured and self-insured AHPs WOULD STILL be subject to the ACA’s “group health plan” requirements, HIPAA, and ERISA. The Administration also wants to give small employers maximum flexibility to take advantage of ERISA’s preemption protections where State benefit mandates would NOT apply. To accomplish these goals, the Executive Order signals that the DOL might modify the “commonality of interest” test under ERISA’s “bona fide group or association of employers” definition. How could the DOL modify the “commonality of interest” test? First, the DOL could allow “unrelated” small employers (i.e., employers in different industries) domiciled in a particular State to band together to form a fully-insured AHP or a self-insured AHP. This could allow, for example, local Chambers of Commerce who are made up of multiple “unrelated” employers – but employers who share the same goal of promoting pro-business activities – to form a fully-insured AHP or a self-insured AHP. In this case, the health coverage would be offered to those employees living within the four-corners of the State. The fully-insured coverage must comply with the State’s benefit mandates. And, the self-insured AHP must comply with the State’s MEWA statute (assuming the State permits self-insured MEWAs, which not all States currently permit). Second, the DOL could allow small employers in the same industry who are also members of a national organization to form a fully-insured AHP or self-insured AHP. This could allow, for example, national trade association-type organizations to offer health coverage to participating employer members regardless of their geographic location. The fully-insured coverage would be “sitused” in a particular State, and the benefit mandates applicable in the situs State would apply to the health coverage offered in the various States around the country. In the case of a self-insured AHP, while the coverage would be free from the States’ benefit mandates, the AHP would be subject to the various States’ MEWA statutes. The prospect that a self-insured AHP would have to satisfy each State MEWA statute in each of the States in which the AHP coverage is offered may be problematic. Last comment: As stated above, currently, if a “group” of employers includes self-employed individuals with no employees, the group would NOT be considered a “bona group or association of employers” as defined under ERISA. As a result, this group of employers (and self-employed individuals with no employees) would NOT be permitted to form a fully-insured “large group” plan. If this group of employers chose to form a self-insured plan, the AHP coverage would be subject to State benefit mandates (i.e., ERISA’s preemption protections would NOT apply). The DOL could modify existing regulations to allow self-employed individuals with no employees to participate in a “group health plan.” If such a modification is made, this would allow self-employed individuals with no employees to participate in a fully-insured “large group” AHP. In addition, self-employed individuals with no employees could participate in a self-insured AHP, and the AHP coverage would continue to enjoy ERISA’s preemption protections.
- I feel kind of vindicated by this announcement. You obviously know my thoughts on the continued suggestion that President Trump is NOT going to enforce the mandate. I have pushed back HARD on this suggestion, reminding everyone that the Trump IRS is enforcing the individual mandate penalty tax the SAME WAY the Obama IRS was enforcing the penalty tax. Unfortunately for me, no one listened. I hope – that now – people get it. Make no mistake, the enforcement of the penalty tax has its short-comings. But if people have problems with how the penalty tax is enforced, look no further than the statute.
- Analysis: Let’s re-visit the history here: Much of the controversy over whether the Trump Administration would enforce the individual mandate penalty tax began on January 21st when President Trump issued an Executive Order, essentially telling the Federal Departments to ease up on implementing and/or enforcing the ACA wherever possible. But as I – and others – have explained, the January 21st Executive Order was all about “messaging.” There was never any “there-there.” But – in my opinion – opponents of the Trump Administration were able to spin the messaging in the Executive Order, and manufacture a narrative that President Trump was, among other things, NOT going to enforce the penalty tax. And unfortunately for the American public, they were barraged with headlines with this assertion. And unfortunately for the insurance carriers, much of the American public believed the news stories they read. Which then led to the carriers sounding the alarm that the penalty tax was NOT going to be enforced, which then led the carriers to explain that they had no other choice but to increase their premiums to defend against the risk of people not purchasing a health plan. Another announcement back in February added more fuel to the assertion that President Trump was NOT going to enforce the mandate. Specifically, the Trump IRS said that the agency was NOT going to reject “silent” tax returns (i.e., tax returns where (1) the taxpayer did NOT check-the-box indicating that they obtained health coverage and (2) the taxpayer did NOT pay the penalty tax), which was a policy initially developed by the Obama Administration. It is important to emphasize that the February announcement was in NO way political. It was more of a “process” thing. That is, while there was interest in implementing the policy of rejecting “silent” returns back in February, the IRS could NOT get its systems in place to implement this new way of processing tax returns. But now, it appears that the IRS has resolved this “process” problem, and the agency intends to reject “silent” returns during the upcoming 2016 tax filing season. I heard that this new process will go “live” in mid-December. Now, when it comes to enforcing the penalty tax, here is something that I said back in August (see the attached update from August, and scroll down to the last post): For political reasons, the ACA drafters purposefully limited the IRS’s ability to enforce the penalty tax. For example, the IRS cannot garnish wages, cannot impose liens on property, and cannot seek criminal charges against those people who fail to pay the penalty tax. The ONLY mechanism through which the IRS can enforce the mandate is by sending a letter to a non-paying taxpayer, informing them that the IRS’s records show that (1) they did not obtain insurance, and therefore, (2) they likely owe the IRS a penalty tax. Importantly, the IRS inquiry ends there. So, for example, if a non-paying taxpayer chooses NOT to respond to the letter, NOTHING happens after that. Some people have asked me whether the IRS can reduce a non-paying taxpayer’s tax refund (if they have one) to collect the penalty tax. As I understand it, the IRS does NOT believe the agency has the authority to unilaterally reduce a non-paying taxpayer’s tax refund. As a result, the IRS has NOT been engaging in the practice of reducing a non-paying taxpayer’s tax refund for collection purposes. Instead, the IRS merely sends the non-paying taxpayer a letter, as noted above.