After the Senate failed to pass any bill that would repeal and replace the Affordable Care Act (“ACA”) over the summer, and with the reconciliation period having ended at the end of September, Republicans in the legislature have all but abandoned their attempts to end the ACA. However, after campaigning on a promise to repeal the law, in recent weeks President Donald Trump and his administration have acted in a variety of different ways to debilitate the ACA.
One of the biggest blows to the ACA comes in the form of an executive order dated October 12, 2017, that would change the individual market dramatically if agencies acted upon it. This order calls for executive agencies to facilitate the purchase of insurance across state lines and lower costs for healthcare. To accomplish this, the Department of Health and Human Services (“HHS”), the Department of Labor, the Secretary of the Treasury, and the Federal Trade Commission must propose regulations or revise guidance to achieve three main goals:
- Expand access to association health plans to small businesses;
- Extend short-term, limited-duration insurance from three months to twelve months; and
- Expand the ability of employers to use health reimbursement accounts to shift coverage of their employees to the individual market.
The order calls for these departments to make these changes between a range of 60 and 180 days, but the earliest any rules or regulations would go into effect would be early 2018.
Association health plans are health plans that small businesses of the same professional, trade, or interest group may offer to members. For example, a group of florists could form a florists’ association and purchase a health plan together. Prior to the ACA, these associations chose which states’ insurance rules to follow for their nationwide plans. The plans they offered, therefore, typically provided fewer benefits than most plans and often skirted state rules in which the businesses were based.
The ACA changed these rules. Under the law, these plans, when sold to individuals and small employers, must meet the same essential health benefits (“EHBs”) and rating requirements that other individual and small group plans must meet.
However, the ACA also created an exemption for those plans sold under an Employee Retirement Income Security Act (“ERISA”) bona fide group or association of employers. If there are 51 or more employees in the participating association, the federal government treats these bona fide groups as a large group health plan and exempts them from meeting the ACA’s EHB requirements. They are also subject to different premium rating requirements; ERISA bona fide associations can base premiums on the health of the group, something that the ACA does not allow for individual and small group plans. As a result, although these association health plans offer fewer benefits, they are less expensive, attracting younger, healthier individuals.
The October 12th executive order directs the Secretary of Labor, by December 11, 2017, to consider allowing more employers to form association health plans by expanding the conditions that satisfy the commonality of interest requirements. For example, the order instructs the Department of Labor to expand its interpretation of the definition of an “employer” under ERISA. It also directs the Secretary of Labor to consider other ways to form association health plan formation based on common geography or industry.
Essentially, the administration is signaling for the Labor Department to make it easier for small businesses, and potentially individuals, to purchase health insurance through these association health plans. The Labor Department could alter the rules and regulations so the states could no longer impose state regulation over the plans. The administration could instead impose federal oversight over them, similar to large employer policies. This may be easier to do if the Labor Department expands small employers’ ability to offer group coverage over state lines, something that the Trump administration has promised since beginning his presidential campaign.
Though health policy experts cannot analyze all the impacts of the executive order until the administration acts upon it, it is likely that agencies will consider association health plans as large employers under ERISA. As a result, the ACA’s EHB requirements may no longer extend to these expanded association health plans. If individuals, such as those who are self-employed, were allowed to buy into these association health plans, many health policy experts, such as Timothy Jost writing for the Health Affairs Blog, believe that the ACA’s individual marketplaces would likely become less attractive to insurers. These experts also suggest that this expansion would cause healthier, younger people to leave the ACA’s marketplace plans and would instead sign up for these cheaper plans with fewer benefits, causing the beginning of what insurers call a “death spiral” in the individual market.
Kentucky experienced this exact consequence after the state enacted requirements for community rating and standardized benefits in the health insurance individual market by 1994. Association health plans were exempted from these requirements, and as a result, insurers fled the non-association health plan markets. According to a report from the Robert Wood Johnson Foundation and the Urban Institute, only two insurers of 23 continued to sell new individual policies outside of the association health plan market.
The executive order also changes the availability of short-term, limited duration insurance policies. Short-term, limited duration policies offer limited benefits and are intended to act as temporary insurance to those between jobs or to young adults who are no longer eligible for their parents’ health plans. These policies are not subject to the ACA’s regulations, such as protections against pre-existing condition discrimination. Historically, these policies could last no longer than twelve months, but under the Obama administration, short-term insurance could not last longer than three months. Additionally, under the ACA, the government does not consider short-term plans to be “insurance” and thus consumers with these plans are subject to the individual mandate penalty.
The Trump administration’s order directs the Secretaries of the Treasury, Labor, and Health and Human Services (“HHS”), by December 11, 2017, to consider extending these policies to cover a longer period of time. Experts, such as Timothy Jost, worry that the administration would revert to the old policy and allow these plans to cover 364 days. The executive order also permits consumers to renew the policies, making these plans more permanent. Additionally, because the HHS has discretion “to expand the availability” of these plans, the agency may adopt a new policy that would consider these short-term plans as insurance for the purpose of the individual mandate.
Because these plans have lower rates — even if they provide fewer benefits — they are likely to attract healthy, younger individuals from the ACA’s individual marketplace plans. This could spark a death spiral in the ACA’s exchanges.
The executive order also calls for the expansion of the use and flexibility of health reimbursement accounts. These accounts are employer-funded, tax-advantaged health benefit plans that reimburse employees for out-of-pocket medical expenses and premiums. With these accounts, employers can deposit pre-tax dollars that employees can use for their health expenses. In 2013, the IRS prevented employers from funding employees’ health insurance premiums with these pre-tax dollars because it did not want employers to drop coverage. The 21st Century Cures Act, signed into law last December, allowed employers with fewer than 50 employees to make health reimbursement account contributions to pay for premiums on the individual market.
The new order by the Trump administration directs the Secretaries of the Treasury, Labor, and HHS, within 120 days, to expand the flexibility and use of these accounts, and suggests including individuals working for small businesses. The Secretaries must also expand employers’ ability to offer health reimbursement accounts to their employees, and allow consumers to use them in conjunction with non-group coverage. The executive order could also expand the exemption of the 21st Century Cures Act to all employers.
By expanding the availability of these plans, the Trump administration is adding another obstacle to the ACA’s exchanges. Though an increase in the use of health reimbursement accounts could give employers more flexibility in covering employees, should the federal government permit account holders to use these pre-tax dollars on premiums, consumers may refrain from purchasing comprehensive health insurance plans. Furthermore, alongside the expansion of association health plans and short-term, limited duration plans, the expansion of health reimbursement accounts serves to further weaken the individual marketplace plans.