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New rule-making could expand association health plans and allow HRAs to pay plan premiums
President Donald Trump signed
an executive order on Oct. 12 directing the Departments of Labor, Health and Human Services and the Treasury to review regulations issued under the Affordable Care Act (ACA) and to explore ways to:
Another Order Ends Cost-Sharing Reduction Payments
Also on Oct. 12, the president announced he would end payments to insurers for subsidizing low-income market participants, saying the payments are illegal because Congress hasn’t appropriated the money. These so-called
cost-sharing reduction (CSR) payments, sometimes called "extra savings," are distinct from the premium tax credits that also subsidize policies purchased through an exchange.
Lower-income eligible individuals—those earning up to 250 percent of federal poverty level (FPL)—purchasing silver plans on a Marketplace exchange can qualify for lower co-pays, co-insurance, and deductibles. CSR payments are meant to reimburse insurers for reducing these out-of-pocket costs for qualifying individuals. "Because the uncertainty of whether the CSR payments would continue, most insurers built the CSR cost into their 2018 public exchange premiums for the silver plans," said Tracy Watts, a senior partner in HR consultancy Mercer's Washington, D.C., office.
Individuals with household incomes between 100 percent and 400 percent of the FPL also qualify for premium tax credits to offset the cost of individual coverage through a Marketplace exchange. Premium tax credits are not affected by Trump's executive order, and the order does not affect the
penalties that large employers are subject to when a full-time employee is not offered ACA-compliant coverage and receives a premium tax credit.
Shortly after the executive order was issued, a bipartisan agreement was brokered on the Senate Health, Education, Labor and Pensions Committee by Sens. Lamar Alexander, R-Tenn., and Patty Murray, D-Wash. The agreement, if passed by Congress and signed by the president, would restore CSR payments to insurance companies for two years and gives states more flexibility from ACA regulations.
The executive orders make no changes to the employer mandate or ACA information reporting obligations. Employers with 50 or more full-time equivalent employees should continue preparations for 2017 ACA annual reporting,
due in early 2018.
Rule Revisions Will Take Time
Opponents of the ACA praised the new flexibility in health coverage, especially for plans offered in the individual and
small group market (generally, the insurance market for employers with up to 50 employees), while ACA supporters raised concerns about higher costs for those who remain in individual and small group plans.
The executive order "is likely to have little effect on mid- to large-size employer-sponsored health benefits," said Chatrane Birbal, senior advisor, government relations, at the Society for Human Resource Management. "Small employers may receive expanded ability to offer insurance to their employees through association health plans or have the ability to offer money through an HRA that employees can use to purchase health services."
"For most large employers and their employees, the executive order will result in no change in health coverage," agreed Steve Wojcik, vice president of public policy at the National Business Group on Health, an association of large employers. As for smaller employers and some large employers, "the proposed changes may make it easier for employers to afford coverage and to help their employees pay for coverage if they buy it on their own."
Few Immediate Changes
The executive order largely does not make changes itself. "Rather, it directs agencies to issue new regulations or guidance," Birbal said. Proposed regulations will follow the standard public notice and comment process, which requires publication in the
Federal Register followed by a public comment period. This notice and comment period could take months, she noted.
[SHRM members-only toolkit:
Managing Health Care Costs]
Association Health Plans
to a White House press release, the executive order directs the Secretary of Labor to consider expanding access to association health plans (AHPs) so that employers can form groups across state lines that share coverage in a common plan.
"A broader interpretation of the Employee Retirement Income Security Act (ERISA) could potentially allow employers in the same line of business anywhere in the country to join together to offer health care coverage to their employees," according to the White House. "It could potentially allow employers to form AHPs through existing organizations, or create new ones for the express purpose of offering group insurance."
Employers participating in an AHP would not be able to exclude any employee from joining the plan and cannot develop premiums based on health conditions.
"The direction the order takes is to liberalize the rules to build large insurance pools of small employers. Spreading the risk across large numbers of participants in an insurance pool is thought to bring insurance premium stability," said Perry Braun, executive director at Benefit Advisors Network (BAN), a Cleveland-based consortium of health and welfare benefit brokers. "It will be interesting to see what new entrants enter the market to aggregate small businesses to build the large pool of clients."
While the executive order instructs the Secretary of Labor to consider proposing regulations or changing guidance to allow more employers to form AHPs, "it isn't clear yet what these changes will be or how they will intersect with other federal and state regulations," said Beth Halpern, health law partner at Hogan Lovells in Washington, D.C. "These changes could be attractive to small employers with relatively healthy employees, and who would not need the full range of benefits offered by the ACA's exchange plans."
However, "a concern related to AHPs is that they will undercut or destabilize the individual markets," by offering less comprehensive benefits than individual or small group plans, said Arthur Tacchino, principal and chief innovation officer with SyncStream Solutions, a compliance technology firm in Baton Rouge, La. If AHPs attract healthier people who are comfortable with a skimpier plan, "it could lead to higher premiums for individual market and small-group plans," he explained.
If the federal government allows insurance sold nationwide through an association of small employers, "the AHP would have to comply with far fewer standards" than current small-group market plans, according to a
statement by the Commonwealth Fund, a nonprofit foundation that supports expanding health care coverage to low-income and uninsured Americans. Currently, for example, small-group market plans must provide
coverage that includes 10 essential health benefits, while nationwide association health plans would not be bound to do so.
Health Reimbursement Arrangements
The order directs the departments of the Treasury, Labor, and Health and Human Services to consider changes to employer-funded HRAs.
HRAs are employer-funded accounts that reimburse employees for health care expenses, including deductibles and co-payments. Unlike with health savings accounts, HRA funds remain with an employer when a participant is no longer employed at the organization.
The rule revisions could potentially allow workers to use HRA funds to pay premiums on health plans purchased in the individual market. Currently, only small businesses with fewer than 50 full-time employees can provide
stand-alone HRAs that may be used for this purpose, as long as certain conditions are met.
"Many employers were upset when the Obama administration shut down the ability for employers to just provide money on a pretax basis for employees to purchase their own health insurance on the open market—a trend that many saw as the wave of the future," said Brian Pinheiro, chair of the employee benefits group at law firm Ballard Spahr in Philadelphia.
"There was a fear that employers may simply offer a basic HRA instead of comprehensive health care coverage," Tacchino explained. "They would then contribute a certain dollar amount, allow the employer to make its pretax contribution to an HRA rather than sponsor a health care plan, and then let the employee use these funds to purchase health care on the open market."
The revised rules "may have significant implications on the expansion and use of health reimbursement arrangements," said Harrison Stone, general counsel at ConnectYourCare, a Baltimore-based provider of services for account-based health plans. Although the executive order is only the first step in enhancing HRAs, "it shows that the administration recognizes the value that HRAs can bring to the individual health care consumer, as well as the employer."
Looking at the possible effects of allowing HRAs to be used to pay premiums on individual market plans, "it will depend on the regulations issued by the Secretaries of the Treasury, Labor and Health, but these changes would work in the opposite direction of the AHP proposals by encouraging employers to help pay for their employees' coverage outside a group plan instead of offering a plan themselves," said Halpern.
This could be an appealing option for employers with less-healthy employees who have higher health care costs, she noted, "but would exacerbate divisions in the insurance marketplace by putting more of the higher-cost patients in the individual market and, therefore, potentially driving up premiums in that market."
HRAs for Plan Premiums: A Potential Game-Changer?
A March 2017 survey by Mercer, an HR consultancy, asked employers if they would
consider using an HRA to help employees buy nongroup coverage if employer contributions for premium payments were tax free. Among the findings:
Smaller employers were the most likely to say they would consider this option for all employees—23 percent of those with fewer than 500 employees, compared to 10 percent of those with 5,000 or more.
But a majority of employers of all sizes said they might consider replacing their group plan with a stand-alone HRA if they were allowed to contribute enough so that employees could obtain coverage of comparable value, and if the individual market offered coverage that employees would want at prices they could afford.
Eventually, "the proposal to enhance HRAs may cause certain employers to reconsider offering major medical coverage," said Shams Talib, executive vice president of Fidelity's Benefits Consulting Group in Boston. "The prospect of offering a tax-advantaged HRA that does not garner penalties—plus the potential availability of lower-cost individual coverage options—may cause some employers to consider providing employees cash to purchase medical coverage on their own," he noted, especially employers with fewer than 200 employees.
Short-Term Limited-Duration Insurance
"Short-term coverage policies could become an attractive option for healthy individuals who would traditionally elect COBRA on losing eligibility for group coverage," Talib said. "The availability of less-expensive short-term coverage options could shrink employers' COBRA populations over time."
Related SHRM Resources:
Health Care Reform Resources for Employers
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