Recapping Recent Health Care Updates
By Mark Avery, Chief Strategy Officer
Recently, President Trump took two distinct actions in his effort to shape health care. The first was to sign an Executive Order intended to increase access to association health plans, lengthen the availability of short-term medical policies, and allow insurance to be sold across state lines. The second was a pronouncement the government would immediately end Cost-Sharing Reduction (CSR) payments to insurers.
The first action, long a Republican ideal, was expected; the second was a bit more surprising if for no other reason than its timing.
What does the Executive Order mean?
Association health plans have existed for many years; however, they’ve been limited to operation within a single state and were subject to ACA regulations. Until now, these restrictions have limited employers’ ability to band together with other employers in creating health plans, which might otherwise enable them to leverage greater scale in spreading risk and negotiating pricing. Also, insurers have been required to comply with the state-mandated benefit requirements in each state they are participating. So, if one state has fewer coverage requirements which result in lower premiums, one can’t buy a policy in that state without residing there.
The EO seeks to allow associations to widen the use of health plans by directing several federal departments to rewrite the rules governing them. This could mean two things. It will be easier to create multi-employer plans, but also that plans can be created without some of the coverage elements required under the ACA. This will most likely result in a return to “skinny” or limited-benefit plans to create lower cost options for both the employer and individual markets.
Why is it controversial?
Broadly speaking Democrats have not been proponents of association health plans due to concerns regarding consumer protection. Without effective oversight that ensures consistency and solvency, participants could be left ‘holding the bag.’ To this point, in 1992, the Government Accountability Office published a report saying these multi-employer arrangements left almost 400,000 insureds with more than $123 million in unpaid claims over the preceding 3½ years.
Republicans, however, have long believed broadening benefit design options and enabling employers to leverage buying power created by associations will lead to greater consumer choice and lower premiums.
What does the elimination of the Cost-Sharing Reduction subsidy mean?
There are two types of subsidies paid to insurers on behalf of participants who meet the income requirements. The first, and most commonly known, are premium subsidies which assist individuals between 100 percent and 400 percent of the poverty level. The second, known as CSR subsidies, help offset the cost of deductibles and out-of-pocket limits for individuals up to 250 percent of the poverty line.
Why is it controversial?
The total estimated cost of these payments for 2017 was estimated at $7 billion. Eliminating the CSR subsidy payment for the last three months of the year means insurers will be shorted approximately $1.75 billion in reimbursements for obligations to participants. While implications exist both for insurance carriers now and premiums in the future, it should be noted that participants are not directly harmed by this.
Further clouding this issue is the ongoing question of whether or not these payments are even legal for the administration to continue making. In 2014 House Republicans filed a lawsuit alleging the then-Obama administration didn’t have the authority to make the payments because Congress needs to appropriate funding. Last year a federal judge concurred with Republicans that such payments needed to be authorized by Congress.
Creating further consternation among Democrats and many in the insurance industry is the timing of this announcement – occurring only weeks before the November 1, 2018, marketplace open enrollment period is set to begin.
Industry groups have estimated the impact of eliminating this payment to mean an approximate 20 percent increase in premiums next year. It is expected, however, given the current uncertainty, that insurers had factored this possibility into their rates already. Nevertheless, carriers now have a 90-day window to decide once again if they want to participate in the marketplace in 2018.
Whether or not one considers the demise of the ACA to be good or bad, most everyone agrees that ending these subsidy payments will serve to further erode the law’s sustainability. With this in mind, it’s possible a bi-partisan congressional effort could restore them. It’s also possible that Democrats could threaten to shut down the government at the next appropriations deadline this December if payments are not reinstated.
What should we expect next?
Obviously, it’s hard to predict what these two moves will mean. About the EO, it should be noted that what’s enacted by executive order can be ended by executive order, which practically speaking could be in as little as three years. With that in mind, we have to wonder how much prospective time, effort and investment will insurers and industry experts be willing to risk building new programs that could be summarily halted by the pen of a subsequent administration?
Nevertheless, while it will take a little time for details to emerge, the opportunity to create lower cost plans by eliminating some of the coverage elements required under ACA is significant enough we’re likely to see a multitude of new “skinny” and short-term benefit plans emerge. Likewise, the market opportunity created by association plans will result in many within the industry trying to determine how best to exploit it.
With regard to the CSR payments, while commentary and political positioning will continue to take center stage, it’s hard to envision a mass exodus of insurers at this point. This is due to the fact it’s difficult to believe those that have planned to participate in 2018 hadn’t anticipated this possibility. Especially when most are working without much competition in their respective markets and, hence, are less sensitive to the pressure of competitive pricing.
How does this affect me as an employer?
The change in the CSR will not have a direct effect on you or your plan. However, as we’ve already seen fewer options and higher premiums for individual plans through the marketplace might mean more employees and dependents seek enrollment in employer plans. For individuals who previously found dependent coverages less expensive through the marketplace, that may no longer be the case. It’s also true, of course, as insurance carriers seek growth and profitability the economics of one segment inevitably affect strategy and pricing in another.
The EO is likely to have a more immediate impact on the employer market. If current governing rules are rewritten as expected, some association sponsored plans could begin appearing. This would presumably be true for both employer and individual plans, and as mentioned earlier would likely include the return of limited benefit and catastrophic-only type plans, as well.
Be assured Truss will monitor developments closely and work aggressively to both anticipate and maximize opportunities that might benefit our clients.
In the meantime, should you have any questions or simply want to discuss any of this in greater detail, please reach out to your Truss consultant or service team.