President Trump signed an Executive Order in October 2017 aimed at changing the Affordable Care Act (“ACA”). The Order, titled “Promoting Healthcare Choice and Competition Across the United States”, does not take any specific action; instead, it instructs the Secretaries of the Labor, Health and Human Services, Treasury (the “Agencies”) to consider proposing regulations or revising existing guidance in three key areas: Association Health Plans (“AHPs”), Short Term Limited Duration Insurance (“STLDI”)and Health Reimbursement Arrangements (“HRAs”). In addition, the administration confirmed that it will potentially not make the cost sharing reduction payments (“CSRs”) to insurers under the ACA regulations.
The bottom line is that there is no immediate impact to employers from either the Executive Order or the cost sharing reduction payments decision. Nevertheless, both actions could have significant impacts down the road. The Executive Order and the potential pending implications of ending the CSRs for employers is discussed in more detail below.
Association Health Plans (“AHPs”)
Currently, AHPs are plans formed by associations of businesses in the same line of business that offer insurance coverage to association members as a single plan. Before the existence of the ACA, the idea was that the association, as one large purchaser, would be exempt from the small employer rating rules and mandates, thus providing more flexibility in design as well as greater pricing leverage than each of its members separately.
After the implementation of the ACA, AHPs became subject to each state’s small group rating and plan design mandates, unless the association was treated as the only plan sponsor. However, most AHPs were treated as a group of separate plans sponsored by each of the members. Those types of AHPs were largely disbanded in 2014 when the new rating rules for small groups under the ACA became effective because one of the key advantages of the AHP, being the exemption from the small group rating rules, had been taken away. Small employers (those with less than 50 employers, or 100 or less employees in some states like California) were the most impacted, as they were forced to purchase coverage under the small group market new regulations.
The Executive Order directs the Secretary of Labor, within 60 days of the notice, to consider revising existing rules to expand access to AHPs. An expansion of AHPs could result in additional insurance options for small employers. It may also potentially lead to the ability to purchase insurance across state lines.
Ending Cost-Sharing Reduction Payments (CSR’s)
In addition to the Executive Order, the Trump Administration has also said they will potentially end CSRs. The CSRs are paid to insurers in the individual market to help reduce the cost-sharing (i.e. plan deductibles, co-pays, etc.) for certain lower income individuals who qualify. Even without these payments, the ACA still requires that qualifying individuals receive plans with reduced cost sharing. Ending the cost sharing reduction payments simply means the government is not reimbursing the insurers for these CSRs. As a result, insurers will potentially recoup the additional costs through increased premiums.
While ending cost sharing reduction payments doesn’t directly impact employer plans, it could have an indirect impact. Employees who were purchasing individual policies (with or without CSRs) may find coverage from their employers more attractive, if available, due to the potential increase in the individual premiums to cover the loss of CSR payments.
In addition, individuals who see high increases in their individual premiums as a result may choose to go without insurance. This could increase emergency room visits and other uncompensated healthcare by providers. Thus potentially resulting in increased premiums for employers as healthcare providers increase prices to make up for their losses.
The Takeaway Conclusion
While the broader ACA repeal and replace efforts have stalled over the past months, the President still has the ability to influence overall healthcare policy. For the time being, the Executive Order does not immediately change any compliance obligations. Therefore, employers should continue with ACA compliance and wait and see. There is nothing else to do until the Secretaries propose regulation or revise guidance under the Executive Order.
Regarding the cost sharing reduction payments, while there is no immediate employer impact, ending those payments could result in lawsuits from the state Attorneys General. It may also force Congress into action to address the funding of CSRs as well as other aspects of the ACA.