Short-Term Health Plan Update
Short-Term Health Plan Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- The fight over short-term health plans and association health plans (AHPs) continue to rage on. With respect to short-term health plans, Senate Democrats just forced a vote on a resolution calling for Congress to rescind the short-term health plan regulations. The resolution failed, but not before it got 50 votes, with Sen. Collins (R-ME) voting with all 49 Democrats. With respect to AHPs, the District of Columbia (DC) appears to be rescinding its prior policy of following HHS’s 2011 guidance setting forth the “look through” rule for fully-insured AHPs, which previously allowed fully-insured AHPs sponsored by a “bona fide group or association of employers” to be treated as a “large group” plan.
- Analysis: Sticking with short-term health plans, as I have told you in prior updates, I am not a big fan of short-term health plans. I don’t like that these plans offer limited coverage. Personally, I believe people need to have access to more comprehensive coverage. However, I have also told you that I am a big fan of “choice,” and I view the availability of short-term health plans as another health care “option” for consumers who are currently struggling the “unsubsidized” individual market (or those consumers who have simply given up on the “unsubsidized” individual market and who are currently uninsured). So in summary, I am conflicted on short-term health plans. I don’t like the coverage, but I do like the “choice.” Having said all of that, the short-term health plan final regulations are here to stay because Senate Democrats’ efforts to get rid of them fell short by 1 vote. Yes, there is a legal challenge pending against the final regulations, but I believe there is very little – if any – chance that the legal challenge will be successful. Which leaves it all up to the States. It is important to remember that unlike AHPs – where ERISA preemption could prevent some State regulation of fully-insured AHPs – there is NO preemption of State regulation of short-term health plans. This means that a State can regulate short-term health plans any which way the State wants to. And, a number of States have come out with specific regulation of short-term health plans, where these States have either banned short-term health plans altogether, or the State has limited the duration to, for example, 3 months. Although additional States are free to ban – or further limit – short-term health plans, at this point, there are waaayy more States that are allowing short-term health plans to last up to 364 days, with the 2 additional years of “renewal” of short-term health plans, which is called for under the final regulations. This fact is driving Democrats and ACA supporters NUTS, which is why they are trying to kill the final regulations through an act of Congress or through the courts (because they cannot stop other States from abiding by the final short-term health plan regulations). Last comment: You may be asking, if the Senate Democrats knew that their vote on short-term health plans was going to fail, why did they even go through this futile exercise? Answer: “Messaging.” As I – and others have reported – Democrats want to turn up the volume on the issue of “pre-existing conditions,” and portray Republicans as wanting to get rid of the ACA’s “pre-existing condition” protections. Scheduling a debate on the Senate floor is one way to turn up the volume of the issue, get press coverage of the Democrats’ political charges against Republicans, and get Republicans to take a tough vote that Democrats will no doubt use against them in the upcoming campaign. BUT, it’s not like Republicans haven’t done the same thing. Remember, the 50 or 60+ times House and/or Senate Republicans voted to “repeal” the ACA prior to the 2016 elections? That was all about “messaging,” which interestingly enough, kind of worked for Republicans, at least from an election stand-point. Democrats are hoping the same “magic” will help them in the upcoming mid-terms. But, recent polling seems to indicate that Democrats already have the wind-at-their-backs, and they don’t really need any “magic” to at least win back the House. It’s going to be an interesting 26 days between now and Nov. 6th.
Association Health Plan Update
DC Forces Small Employers and Independent Contractors to Stay In the “Small Group” and “Individual” Markets: No “Large Group” Market For You
- To put a finer point on my comments from 2 weeks ago, States that are hostile to AHPs are doing one of the following things: (1) They are refusing to respect the “bona fide” exception set forth in HHS’s 2011 guidance which allows a fully-insured AHP sponsored by a “bona fide group” to be treated as a “large group” plan OR (2) They are respecting this “bona fide” exception, but they are refusing to follow the final AHP regulations.
- Analysis: In the case of DC, DC seems to be rescinding an Insurance Bulletin they issued back in 2014, which specifically said that DC was following HHS’s 2011 guidance, and in particular, the “bona fide” exception which would allow “bona fide groups” to sponsor a fully-insured “large group” AHP (see DC’s 2014 Bulletin here). Why is this important? Because DC has pending guidance that would impose the “look through” rule on ANY fully-insured AHP being offered in DC. In other words, DC is NO LONGER respecting the “bona fide” exception in HHS’s 2011 guidance (which again is a reversal from their 2014 guidance), meaning that employers with 50 or fewer employees will now be forced to stay in DC’s “small group” market, and self-employed individuals with no employees will be forced to stay in the “individual” market. It is important to note that – at least in my opinion – DC is allowed to rescind its 2014 Bulletin. As I have explained in relation the DOL’s final AHP regulations, a Federal Department is always permitted to change their “interpretive guidance,” even if the modification is inconsistent with the Department’s prior to interpretation of the law. This same concept should apply at the State level too. So, it seems to me that DC is generally free to change its interpretation of the law, and in this case, NO longer respect the “bona fide” exception to HHS’s “look through.” BUT, the problem I see with DC changing its interpretation of the law – and imposing the “look through” rule on BOTH “non-bona-fide groups” AND “bona fide groups” – is that this policy position could very well be preempted by ERISA. You have heard me talk a number of times now about ERISA preemption and State regulation that regulates “the plan” versus State regulation that regulates “the insurance contract.” Specifically, if a State regulation (or policy position) impacts how the plan sponsor is supposed to “administer” the plan, the regulation/policy position is typically preempted by ERISA. A strong argument can be made that imposing the “look through” rule with NO “bona fide” exception is a type of regulation/policy that is telling the plan sponsor how it should “administer” the plan (i.e., the plan sponsor has to “administer” the plan as a “small group” plan as opposed to a “large group” plan). Setting aside this ERISA preemption issue for a moment, a question of fairness has to crop up in your mind. What I mean is this: If small employers have a choice between (1) a higher-costing, inflexible “small group” market plan and (2) a lower-costing “large group” plan that is just as comprehensive, is it fair to force small employers to take the higher-costing, inflexible “small group” market plan? That is just ridiculous. But that is obviously what DC is trying to do. And for what? To protect DC’s “small group” market? Or more to the point, to protect DC’s SHOP Exchange? In my opinion, giving small employers “choice” – and giving them the freedom to choose something other than a higher-costing, inflexible “small group” market plan – outweighs any policy consideration for protecting the DC SHOP Exchange. I know this may sound over-the-top – and I try very hard to never be an over-the-top kind of guy – but DC’s decision here borders on “authoritarian.” I truly believe that if DC’s actions here – mandating that the only place a small employer can go for health insurance is the DC SHOP Exchange – borders on the mother-of-all government mandates. Same for forcing independent contractors to ONLY get insurance through DC’s “individual” market Exchange. And I don’t just say all of this because I am a proponent of AHPs. I just can’t see how others can think that taking away “choice” – especially if the “choice” produces savings for the small employer or individual – is acceptable or sound policy.
- Kaiser recently revealed that the cost of a family health plan is now close to $20,000 – $19,616 to be exact. Kaiser also indicated how much employers continue to cost-shift onto their employees, with the amount of the average deductible doubling since 2008. Premiums also went up 55% since 2008, even though during the past 5 to 7 years, premiums for employer plans have only gone up by 3% to 4%. For 2018, premiums went up by 5%.
- Analysis: As I have argued in prior updates, the modest premium increases for employer plans are due to employers masking what the “real” cost of the premium increase is for each year. Employers are able to mask the “real” cost increase by increasing deductibles and co-pays for their employee-participants. In other words, the main reason why premium increases for employer plans have been relatively low each year (especially relative to the “individual” and “small group” markets) is because employers keep those increases artificially low by dialing up the cost of the health plan that an employee is responsible for. In my opinion, masking the “real” cost of the employer plan is not the most responsible way of providing health benefits to employees. BUT, the alternative is a 7% to 10% premium increase, which would cause employees to scream, thus setting up uncomfortable employer/employee relations. Something employers definitely want to avoid. BUT, it appears that the continued cost-shift onto employees is finally catching up with employers. That is, employers appear to finally be realizing that employees are at a breaking-point, and employers are realizing that they cannot continue to cost-shift onto their employees. Otherwise, there is going to be an employee revolt. Or worse, a large percentage of their healthy employees will opt-out of coverage, leaving sicker employees, which will – in turn – increase the employer’s overall cost of offering health benefits. Employers do not want increased costs. BUT, employers also do not want to discontinue their coverage. As I have emphasized time-and-time again, the main reason employers offer health benefits in the first place is to “attract and retain” talented workers. If an employer cannot afford to offer health benefits any more, this will have – at least in my opinion – a profound effect on employee recruitment. Keep in mind, employers also offer health benefits because they want their employees to be healthy and productive. But if employees are not obtaining health coverage – because their employer dropped coverage and the costs in the “individual” market continue to be sky-high – then employers will likely experience an up-tick in absenteeism, which will adversely impact the employer’s overall productivity. All of these are bad results. So what are employers trying to do about it? Well, it appears that some employers are actually reducing the deductibles for their health plans. Maybe that explains the 5% premium increase this year, as opposed the to 3% to 4% increase over the past few years. Or maybe employers just are “eating” the additional cost of providing health benefits so they can somehow protect employees from the ever-increasing cost of health care. Another possibility is that employers are using some of their tax savings from Tax Reform and “giving back” at least something to their employees (here, relief from exposure to high out-of-pocket spending). Regardless of how employers are doing it, some of them are indeed doing it, and moving away from HDHPs (because the employer wants to reduce an employee’s out-of-pocket exposure). This may all be fine-and-good. BUT, these recent efforts to help employees cope with out-of-pocket spending is NOT solving the over-arching problem of the ever-increasing cost of health care. Sadly, no one really has a good answer on how to slow the growth of health care, short of price controls. Maybe the move toward “value-based care” helps stem the need to institute price controls. But come 2030, I am not sure we are going to have a choice.
The “HRA Regulations” Should Be Out Soon: How Will Employer Plans Be Impacted?
- On that cheery note, let’s also talk about the future of the employer-sponsored health system in the wake of the issuance of the so-called “HRA regulations.” As you know, as part of the Oct. 2017 “health care” Executive Order, the Departments of Treasury, DOL, and HHS have been working on regulations that would, among other things, allow an employer to give their employees a tax-free contribution to purchase an “individual” market plan. Proposed regulations that would allow this practice (i.e., the “HRA regulations”) could very well be issued in the next 2 weeks.
- Analysis: The forthcoming proposed “HRA regulations” will likely do 3 things: (1) The regs will allow an employer of any size to give an employee a tax-free contribution to purchase an “individual” market plan, (2) The regs will allow tax-free HRA dollars to be used to purchase an “excepted benefit” (e.g., dental, vision, disability) and even – possibly – a short-term health plan, and (3) The regs will once again allow “stand-alone” HRAs that can be used to pay for “medical expenses” on a tax-free basis. On #3, this is just bringing back a practice that was allowed pre-ACA, but for a crazy reason (at least in my opinion), the previous Administration prohibited an employee from using an HRA to pay for “medical expenses” on a tax-free basis. On #2, prior to the ACA, tax-free HRA dollars could also be used to purchase “excepted benefits.” So, these changes are generally NOT controversial. And, they are changes that will be welcomed by the employer community. On #1 above – allowing an employer of any size to give an employee a tax-free contribution to purchase an “individual” market plan – how is this going to sit with the employer community? Is the employer community going to oppose this because they may fear that allowing this type of practice may “unravel” the employer-sponsored health system? My answer: NO. Actually, the employer community – definitely small employers, but also large employers – are generally favorable toward this policy change. Why? Large employers are generally supportive of this change because most of them know that they are NOT going to discontinue their employer plan and opt to give their employees money to purchase an “individual” market plan. Soooo, these employers shrug off this policy change as having zero impact on them. Other large employers actually like this policy change because for some of them – for example, those large employers in low-income, high-churn workforce industries – they may actually want to get out of the “health care sponsorship” game, and instead, simply serve as the “financier” of their employees’ health coverage. In this latter case, these large employers will still point to this tax-free contribution amount as an “employee benefit.” They will say, “Hey, I know I am not offering you an actual employer plan, but I am going to give you money so you can buy a health plan that best fits your needs. And, you should come work for me because my contribution of $10,000 is bigger than the my competitor down the street’s contribution of only $5,000.” Will this type of behavior be the beginning of the end for the employer-sponsored system? My answer: NO. I actually think that this policy change gives employers more “choice” when it comes to helping their employees obtain health care coverage. As stated above, in cases where the employer is simply giving their employees a tax-free contribution to purchase an “individual” market plan, this employer continues to be the “financier” of the health coverage. That is an extremely important fact to wrap your head around because as we all know, the cost of health care has to be subsidized in some form – either the government has to subsidize health care or an employer has to subsidize health care through compensation. Keeping employer dollars “in the game” holds down government spending (even though the government is foregoing a lot of tax revenue due to the tax preference for employer plans). Why do other employers want to keep the employer-sponsored system alive? As I have told you, employers offer health coverage to attract and retain talent. And, most employers know that employees are likely going to want a health plan that is better than an “individual” market plan. And therefore, to attract and retain these employees – especially talented workers – employers are going to offer better coverage than what you can get in the “individual” market. Again, evidence that employers are not going to discontinue their employer plan even if this HRA reg is issued. Last comment: A strong argument can be made that allowing an employer of any size to give an employee a tax-free contribution to purchase an “individual” market plan will actually help the “individual” market (and the risk pool). How? Well, you will likely have more and more people coming into the “individual” market, and it is also likely that some of these people are going to be healthier (and thus “good health risks”), which could help balance out the current “unbalanced” individual market. This policy change will by no means save the “individual” market. But, this policy change should have a beneficial impact. Stay tuned for release of the regs.