Executive Order Could Change Health Care Benefits Landscape
On October 12, President Trump issued an executive order entitled, “Promoting Healthcare Choice and Competition Across the United States,” aimed at letting small businesses join forces across state lines to buy lower cost, less regulated health plans with fewer benefits for employees. The order also encourages federal agencies to lengthen the coverage periods of short-term limited-duration plans and expand Health Reimbursement Arrangements (HRAs). The executive order doesn’t alter any of the Affordable Care Act’s (ACA’s) basic employer mandate or reporting provisions.
The same day, the Trump administration announced that it would no longer pay ACA subsidies, or “cost sharing reductions,” to private health insurers for coverage of low-income people. On October 17, Sen. Lamar Alexander (R-TN) and Sen. Patty Murray (D-WA) reached a tentative deal to restore the ACA subsidies. Also, $106 million would be revived for a federal program to help people enroll in insurance plans. In exchange, there would be more flexibility for states to offer more plans.
As of this writing, it’s uncertain whether the bipartisan bill will be passed by the Senate and House and signed into law by the President. But, whatever the outcome, smaller employers may have an opportunity to rethink their health benefits strategies after the dust settles.
3 Plan Categories
The executive order is a set of instructions to federal agencies to consider, by December 12 (and February 12 for the HRA topic), whether to issue new regulations consistent with current law and “supported by sound policy” that would change the playing field for three categories of health plans:
- Association health plans (AHPs)
- Short-term limited duration insurance (STLDI)
The three agencies involved – the Department of Labor, Department of the Treasury and Department of Health and Human Services – may or may not make decisions by their deadlines on whether to issue new regulations. If they do, several more months would likely elapse before these new regs are developed, proposed, commented on by the public (as required by law) and finalized. So, as employers wait for the specifics, they have time to consider their options.
As laid out in the executive order, President Trump’s direction to the Secretary of Labor with respect to AHPs is to “consider expanding the conditions that satisfy the commonality of interest requirements” and “consider ways to promote AHP formation on the basis of common geography or industry.”
In a recent report, the American Academy of Actuaries noted that, if AHPs aren’t required to satisfy the same coverage requirements as conventional health plans under the ACA, AHPs could draw employers with younger, healthier employees who wouldn’t be as sensitive to a loss of benefits under these leaner plans.
But that would leave employers with older and less healthy employees in conventional plans, exacerbating the upward trend in premiums. “AHPs could create adverse selection concerns if they operate under different rules,” the report states.
The Academy also cautioned that AHPs could “face increased solvency risk without clearly defined regulatory authority.” But, until the federal agencies issue their proposals in response to the executive order, one can’t assume that such regulatory authority won’t be required.
Regarding STLDI, the executive order noted that these bare-bones temporary plans didn’t come under the authority of the ACA. Therefore, they don’t carry minimum benefits requirements. As originally conceived, STLDI is intended to give people a way to fill a brief gap in coverage between regular health insurance plans.
In one of its final acts in the health care arena, the Obama administration shortened the maximum duration of STLDI coverage from 12 months to three by regulatory means. It did so under the belief that these plans could leave individuals who use them in the lurch if they incurred serious health claims. Those rules took effect on January 1, 2017.
President Trump’s executive order asks regulators to “consider allowing such insurance to cover longer periods, and be renewed by the consumer.” The objective of the order appears to be to widen the availability of STLDI as a low-cost alterative to ACA-compliant health plans. Even with a wider window for STLDI coverage, however, it’s not clear whether small employers would consider these plans as a low-cost alternative to traditional health plans.
The executive order’s request regarding HRAs directed agencies (with a 120-day deadline) to look for ways to “increase the usability of HRAs, expand employers’ ability to offer HRAs … and allow HRAs to be used in conjunction with non-group coverage.” That suggests an arrangement in which employers simply contribute pretax dollars to employee HRAs that employees in turn can use to pay for health coverage on their own. Such “standalone HRAs” generally aren’t an option today.
The American Benefits Council (ABC), a lobbying organization, praised the idea. “[We’re] a long-time supporter of giving employers more tools for their tool boxes, and this executive order directs the [federal] agencies to do just that,” stated ABC. At the same time, this organization and other lobbying groups are carefully watching whether any changes that ultimately come out of this process undermine consumer protections in the individual insurance market.
The ABC’s concern is that if, contrary to the Trump administration’s vision, health insurance for individual buyers becomes prohibitively costly because of adverse selection and other forces potentially unleashed by changes elsewhere in the system, those individuals will drop coverage entirely. This, in turn, would increase health care providers’ delivery of uncompensated care ― a cost that employers and their employees would ultimately bear.
Standalone HRAs, if they ultimately emerge from the regulation reset process initiated by the executive order, could facilitate a transition from today’s basic defined benefit model for health benefits to a defined contribution one. This would be similar to the shift from traditional pensions to 401(k) plans on the retirement side of the benefits universe.
Elimination of Subsidies, Senate Proposal
Eliminating subsidies would directly impact lower-income individuals, not employers. Nonetheless, doing so could also have a marked effect on the health insurance marketplace and, therefore, ultimately affect employers.
This is because many people have found individual coverage affordable only because they could buy a lower-cost policy supported by the subsidies. If such coverage became unavailable, the uninsured population would probably rise. In turn, there would likely be an increase in the delivery of “uncompensated care” – that is, emergency room services provided without any prospect of payment for those services. Hospitals would then almost certainly shift some of these expenses to insured patients and, thereby, employers’ health care benefits costs would also go up.
The Senate proposal would restore the subsidies for two years, effectively buying time for Congress to address its fundamental concerns with the ACA. The proposed legislation also received the backing of 10 governors, including both Democrats and Republicans, who penned a letter that stated in part: “As governors, we deal with the life impacts of actions taken in Washington, D.C. We have explored, designed, and implemented programs to help keep costs from spiraling out of control.” The letter went on to express concern that eliminating the subsidies would sabotage their efforts.
At this writing, the prospects for legislative efforts to restore the insurance subsidies are unclear ― particularly in light of President Trump’s original and ongoing desire to eliminate them.
As mentioned, for now, it’s hard to say what the ultimate impact of the President’s executive order will have on the insurance marketplace and employers – and what will happen with the bipartisan Senate bill. Stay in touch with your professional advisors to keep apprised of the latest developments so you can target cost-effective strategies for your organization.