There were several significant health policy developments at the Federal level this month, including a Presidential Executive Order, the announcement that the administration will no longer fund Cost Sharing Reductions (CSRs) and the release of the bipartisan effort to stabilize health insurance markets known as the Alexander-Murray bill. In follow-up to our post on these developments earlier this month, below, we share further updates and details regarding these developments, and share our analysis of their potential impacts.
As a reminder, as an Executive Order, it does not implement changes itself, but directs Federal agencies to explore targeted policy changes including:
Expanding access to Association Health Plans (AHPs), through which small employers may purchase large group plans or self-insure in the large group market rather than purchasing small group plans that are subject to greater regulation under Affordable Care Act (ACA). Members of associations must currently have a commonality of interest that extends beyond health coverage in order for the association to be considered “bona fide” and allowed to offer an AHP. The Executive Order directs the Secretary of Labor to consider proposing regulations or guidance to expand AHPs by expanding the basis on which such a group may be considered “bona fide” association that may offer an AHP. The Executive Order envisions common geography or common industry being grounds for permissible commonality of interest, to the extent such change is consistent with existing law.
Impact of the proposed change: By increasing access to AHPs, this proposed change could result in more small groups offering coverage in the less-regulated large group market. As outlined below, that would impact not just those employees with employer-sponsored insurance that transitions to coverage through AHPs, but also the small group market more broadly.
Expanding the coverage period for Short-Term Limited-Duration Insurance (STLDI), through which individuals may enroll in coverage that is not subject to ACA regulation. Currently, coverage through STLDIs is limited to less than three months. Via the order, the Secretaries of Treasury, Labor and Health & Human Services are directed to considerproposing regulations or guidance to allow STLDIs to cover individuals for longer periods and to renew coverage, to the extent such change is consistent with existing law.
Impact of the proposed change: Similar to AHPs, the expansion of STLDIs could result in more individuals purchasing coverage outside of the fully-regulated individual market and, as outlined in greater detail below, could undermine the viability of the individual insurance market.
Expanding the use of Health Reimbursement Arrangements (HRAs), which are employer-funded (non-taxable) accounts that can be used for health care purposes. Generally, today, HRAs must be coupled with ACA-compliant group health insurance plans. The 21st Century Cures Act, however, allows small employers to offer “Qualified Small Employer HRAs” which can be used to fund premiums for individual market health plans as long as the small employer does not offer a group health plan to any of its employees. Via the order, the Secretaries of Treasury, Labor and Health & Human Services are directed to consider proposing regulations or guidance generally increase the “usability” of HRAs, expand employers’ ability to offer HRAs to employees, and allow HRA funds to more generally be used in conjunction with individual market coverage, to the extent changes are consistent with existing law.
Impact of the proposed change: Expanding the use of HRAs would make it easier for employers to offer a “health insurance benefit” without offering an ACA-compliant group health plan.
Further analysis: As outlined above, the Executive Order seeks to expand access to coverage outside of the fully-regulated markets. The impact of these changes could extend beyond those employers and individuals that change their coverage. AHPs and STLDIs generally attract healthier groups and / or individuals. Significant departure of healthier populations from the individual and small group markets would lead to adverse selection, undermining the risk pools and viability of those markets for those who must or seek to remain in such coverage.
However, the scope of possible changes is limited by the fact that any changes would have to be consistent with existing Federal law. Additionally, no changes will be immediate. The changes require further action to be implemented and, to the extent rulemaking is necessary, a public notice and comment period is required.
Under the Executive Order, the Departments are also required to report on existing law that fails to conform with the Executive Order and actions that could promote the Executive Order. The order also states that the administration will prioritize:
- Lowering barriers to entry in health care markets, limiting “excessive” consolidation, and preventing abuses of market powers.
- Improving access to quality information needed to make informed health care decisions while minimizing reporting burdens on industry.
(2) Administration ceases making payments to fund CSRs
On the same day as issuing the Executive Order, the administration announced that it will cease making payments to fund cost-sharing reductions (CSRs), effective immediately. The ACA provides for reduced cost-sharing for individuals below 250 percent of the Federal Poverty Level. Those subsidies are administered through insurance companies — under the ACA, insurers that offer Marketplace coverage are required to offer reduced cost-sharing plans to income-eligible individuals and the Federal government is required to reimburse insurers for the cost of doing so.
There has been controversy about the CSRs since implementation, centered around an ongoing legal dispute over whether the CSR payments were appropriated. The administration is now pointing to the debate over appropriation as a basis to end payments.
Impact of the decision: Despite the announcement that CSR payments will end, insurers that offer Marketplace coverage remain required under the law to offer reduced cost-sharing plans. Therefore, individuals who enroll in coverage through the Marketplace will maintain access to CSRs. However, subject to state law, insurers can cease offering coverage in the Marketplace as a result of the decision. If all insurers on the Marketplace in any service area pull out, individuals in that service area will not have access to CSRs (or advance-payment premium tax credits).
If insurers remain on the Marketplace, rates for all enrollees will be impacted. Without the Federal reimbursements, the cost of the (still-required) CSRs (estimated to be $11 billion in 2018 according to the Congressional Budget Office(CBO)) must be spread across the market in the form of higher premiums. In many states, insurers were allowed or required to file rates for 2018 that account for a lack of CSR reimbursements (in some states, the rate changes were required to be applied only to the Silver level plans for which CSRs are available). In those states, no further rate changes are expected. However, the Centers for Medicare and Medicaid Services (CMS) is allowing similar 2018 rate changes in states in which they were not already provided for. Rates for 2017 cannot be changed to account for the end to CSR payments. As a result, insurers are being forced to shoulder approximately $2 billion in CSRs (the remaining proportion of the $9 billion CBO estimate of the price tag for CSRs in 2017) without compensation (though they will be able to sue to recover losses).
In response to the announcements, 19 state attorneys general (AG’s) announced a lawsuit to require the administration to continue making CSR payments. A request for an emergency order to require the administration to keep making payments pending the case was denied based on the fact that states have taken steps to minimize the impact on consumers. However, the AG’s are continuing to pursue this case as well as the appeal in the lawsuit over the question of whether CSR payments were in fact appropriated and, therefore, can be made. Insurers may also raise judicial challenges regarding the fact that they remain legally obligated while the government is not making related legally-obligated payments.
(3) Alexander – Murray bill
Shortly after the administration’s announcement regarding CSRs, Senator Lamar Alexander, Chair of the Senate Committee on Health, Education, Labor and Pensions (HELP) Committee, and Senator Patty Murray, ranking minority member of the HELP Committee, announced that they had reached agreement on a bipartisan market stabilization package which – among other things – more clearly authorizes Federal funding CSRs for two years. If that specific provision advances, it would eliminate the administration’s basis for stopping required payments.
The Alexander-Murray bill also proposes to:
- Allow purchase of “catastrophic plans” (high-deductible, low-premium plans) for certain individuals outside of age and income parameters for such plans in the ACA, such as individuals over age 30 and individuals not meeting certain financial hardship criteria.
- Restore over $100 million in Federal funding under the ACA for 2018-2019 Exchange outreach and enrollment activities.
- Amend criteria and procedures for Federal approval of Section 1332 State Innovation Waivers, including:
- Clarifying that pass-through funding may be received if Federal spending on subsidies is reduced such as in the case of reinsurance, high-risk pool, invisible high-risk pool, or other market stabilization programs;
- Allowing for pass-through funding related to savings to Basic Health Programs;
- Allowing for Gubernatorial certifications in lieu of authorizing legislation;
- Reducing the Federal application review period (from 180 days to 90 days) and providing for expedited CMS reviews for waivers in emergencies identified by states and for CMS waiver applications modeled after waivers that have already been approved in other states;
- Extending the possible duration of waiver approvals to six years and allowing for unlimited renewals;
- Restricting Federal withdrawals of approval;
- Clarifying deficit neutrality requirements;
- Providing additional flexibility in meeting the “affordability guardrail” of coverage (would need to be comparable, rather than “at least as affordable” as without the waiver); and
- Rescinding existing regulations and guidance and allowing future rulemaking.
- Direct CMS to issue new regulations to implement section 1333 of the ACA, which already permits interstate compacts on selling health insurance across state lines.
Though the bill has 24 cosponsor and the required 60 votes in the Senate (this is not a budget reconciliation package so it is subject to filibuster), its prospects are uncertain. Senate Majority Leader McConnell will not bring the bill to the Senate floor unless the House will take up the bill and the President will sign it. Both Speaker Ryan and the President have said they do not support the bill. At the same time, Senator Orrin Hatch, Chair of the Senate Finance Committee and Congressman Kevin Brady, Chair of the House Ways and Means Committee, have filed a competing bill that would also clearly appropriate the CSRs for two years but would also temporarily repeal the individual and employer coverage mandates and expand use of Health Savings Accounts