On October 12, the White House issued an executive order directing the Departments of Health and Human Services (HHS), Treasury and Labor to consider promulgating new rules – or reinterpret existing ones – to affect the small group and individual insurance markets with the stated goal of expanding consumer choices. Since its release, quite a bit of information (and some misinformation) has come out about the order’s potential impact on the markets.
In addition, over the weekend, the administration emphasized its desire for Congress to eliminate the individual and employer mandate provisions of the Affordable Care Act (ACA), suggesting such changes will likely be included in the bipartisan legislation now working its way through the Senate. If enacted later this year, and in conjunction with the changes the agencies are reviewing under the executive order, we could be on a clear path to allow employers to offer money to workers to buy cheaper coverage in the individual market.
Depending on how the agencies move forward with the executive order, and what Congress does with the mandates, I think there is potential for significant impact on the individual, small group, and perhaps even the larger group insurance markets. But let’s start with the basics.
What is an executive order? On its own, an executive order does not change existing laws or regulations. It is essentially a formal, but broad set of instructions from the president that directs federal agencies to create, rescind, reinterpret, or modify certain regulations under existing law. In this case, the president directed HHS, Treasury, and Labor to revisit several existing regulations under the ACA, including regulations that govern employer plans.
From my perspective, special attention should likely be paid to two provisions included in the executive order. First, the directive to consider – within 60 days – existing regulations regarding the formation of association health plans (AHPs) for small employers. Second, the directive to consider – within 120 days – existing guidance that currently limits the use of health reimbursement arrangements (HRAs) by employers to allow their employees to purchase coverage in the individual market.
AHPs: There is a very long legislative and regulatory history around the formation of AHPs. The general idea has been whether and how to allow small employers with common interests (e.g., “associations” of trades or industries) to band together, pool their employees, and form an employer plan. This could give small employers leverage in the market when negotiating rates with health plans, and could allow them to operate like a large employer that enjoys the ability to offer uniform arrangements under federal law and are not subject to state-by-state benefit mandates.
In order to assess the market impact, we will need to watch how the regulators rule on some of the following key questions:
- How broadly will an “association” be defined, and will an association be treated as all other employer plans that offer benefits?
- What is the size of the employers that can join? Is it limited to smaller employers with 50 employees, or open to larger employers with say 500 employees?
- Would AHPs be fully insured entities – potentially working with traditional health insurers to manage risk – or would they be self-insured arrangements where they are responsible for managing the premiums that must be collected and the payments that cover the cost of care?
- If self-insured, how do the agencies set forth the fiduciary and solvency requirements for these plans?
The solvency requirements for self-insured AHPs, which the executive order hints at, might be the most important question here. Self-insuring means the association, rather than an insurance company, is responsible for paying medical claims. Self-insured organizations similar to AHPs ran into financial problems in the early 2000s. Multiple employer welfare arrangements (MEWAs) allowed employers with two or more employees, or self-insured people, to self-insure. However, unlike insurance companies, MEWA enrollees had no protections if the organization was unable to pay its medical claims. As a result, several large MEWAs left behind millions in unpaid claims and thousands of people without health coverage. It will be critical to watch how the past pitfalls of MEWAs will influence agency action around this provision.
HRAs: In 2002, the Treasury Department authorized the issuance of HRAs. An HRA is a notional account, which means it isn’t funded up front with actual dollars. Rather, it works more like an IOU from the employer as an unfunded arrangement designed to reimburse employees for medical expenses including health care premiums. Similar to health savings accounts (HSAs), unused HRA dollars roll over at the end of the year. Unlike HSAs, HRA funds belong to the employer, not the employee. But importantly, these accounts were generally treated as employer-sponsored plans that were compliant with the ACA insurance market reforms and the employer and individual mandates if they were integrated with the employer group health plan.
So, is there an issue? In 2013, the Treasury Department issued a notice explaining whether the reimbursement funds in these accounts could be used by employees to purchase coverage on the individual market. In sum, the answer was no. Generally, the agencies ruled that the “stand-alone” HRAs (other than ones limited to reimbursement of “excepted benefits”) could not be maintained for active employees as they would violate the ACA insurance market reform rules such as the requirement not to impose annual or lifetime limits. In other words, there was no way to “define” the contribution that would need to be placed in the accounts to satisfy the market reforms and the employer and individual mandate standards for coverage.
Like the AHP provision of the executive order, there are key questions about HRAs that likely need to be answered to determine how the use of HRAs could be expanded under the legal constraints imposed by the ACA. Such questions include:
- Will the HRA still be treated as an employer plan under the ACA?
- Will the definition of an “excepted benefit” be expanded to ease the limits on HRAs and thus eliminate the need to satisfy the insurance reform mandates?
- If treated as an excepted benefit, how will revisions be made to satisfy the ACA’s individual and employer mandates in order to meet the minimum essential coverage and affordability standards?
- Will individuals be able to purchase coverage on the public exchanges or only on the private/non-exchange individual market?
In a nutshell, I believe the resolution of these issues could have tremendous impact on the insurance markets. This could be a major step toward a “defined” contribution approach – an employer puts money into an account to reimburse an employee for premiums and medical claims for coverage in the individual market. What will be critical to watch in the upcoming guidance is how this type of reimbursement account affects the insurance market if these type of arrangements do not need to meet the insurance market reforms, the employer mandate (offering coverage to certain employees that is affordable and of minimum value), and the minimum essential coverage standard to satisfy the individual mandate.
If Congress steps in and repeals the individual and employer mandates through legislation, it could clear the way for HRAs to be used by employers to offer money to employees that could be used to buy coverage in the individual market that would not necessarily have to meet the affordability or minimum essential coverage standards.
What happens next? Until we have more guidance from the administration, it is unclear how AHPs or HRAs will operate, or what impact they might have on the small group and individual markets. My take on this executive order is that while it has the potential to impact the small group and individual markets, there are still far too many unanswered questions at this point to know for certain what the impact will be. What is certain at this point, is this executive order is contributing to an uncertain environment for health plans. As we continue toward the end of 2017 – and into the 60- and 120-day periods for the agencies – it will be important to keep watch on agency actions that are in response to this executive order and how quickly it will impact the 2018 markets.