Client Alert

October 16, 2017

President Trump Issues Executive Order on ACA, Separately Attempts to End Cost-Sharing Payments to Insurers

On October 12, President Trump signed an Executive Order directing the federal agencies in charge of implementing the Affordable Care Act (ACA) to propose new regulations or revise existing guidance to expand access to association health plans (AHPs), short-term insurance plans, and health reimbursement arrangements (HRAs).  While the order directs the agencies to consider changes that would have a sweeping effect on the health insurance industry, it has no immediate effect – any changes in rules or regulation will be subject to standard notice and comment periods. 

Separately, the President intends to stop the government’s reimbursement of cost-sharing reduction (CSR) payments made by insurance carriers that participate in the ACA’s Health Insurance Marketplaces.   A letter from Health and Human Services (HHS) to the Centers for Medicare and Medicaid Services (CMS) indicated that payments will stop immediately, effective with the payment scheduled for October 18, 2017.  The move resulted in a lawsuit filed on October 13, 2017, in federal court in the Northern District of California by a coalition of nearly twenty states against the Trump administration seeking declaratory and injunctive relief requiring that the CSR payments continue to be made.  If the CSR payments are not continued by Congress (by appropriating funds for the payments) or through judicial action (by finding that the ACA contains a permanent appropriation for the payments), it will have a much more immediate and disruptive effect on the individual market than the Executive Order.  It may also impact the small and large group markets, which rely on the individual market to provide coverage in certain cases to part-time employees, an alternative to COBRA, and encourage early retirement by offering a bridge to Medicare, as well as avoiding further cost-shifting from health care providers to private plans in response to shortfalls in public payments.  

Notably, the cessation of CSR payments does not impact an employer’s obligations under the ACA’s “pay-or-play” mandate, as penalties under that mandate are triggered by a full-time employee’s receipt of a federal premium tax credit, which continue to be funded under the ACA’s permanent appropriation.

Executive Order – Expansion of Association Health Plans

The order provides that, within 60 days of October 12, the U.S. Department of Labor (DOL) should consider proposing regulations or revising guidance to allow more employers to form AHPs.  The order directs the DOL to consider expanding the conditions that satisfy the commonality‑of-interest requirements under current Department of Labor advisory opinions interpreting the definition of an “employer” under the Employee Retirement Income Security Act of 1974 (ERISA).  In addition, the order directs the DOL to consider ways to promote AHP formation on the basis of common geography or industry. 

While the order itself is brief and does not offer much detail, an expansion of the definition of “employer” under ERISA might mean that the administration is considering ways to allow individuals and small employers to be treated as “large groups” for purposes of the ACA’s market reforms.  Under the ACA, health plans offered to individuals and small employers generally must include coverage for services in all ten categories of essential health benefits, and the premium rates cannot vary based on health status (rates may vary based only on age, tobacco use, geographic area, and family size).  If individuals and small employers could form “associations” to purchase health insurance as “large groups,” they could offer leaner, less expensive plans that might appeal to younger, healthier individuals.  For example, large group plans may, subject to any state insurance mandates applicable to fully-insured plans, exclude coverage for mental health and substance use disorders, prescription drugs, or other costly services that tend to be used by individuals who are older or less healthy. 

States traditionally have authority to regulate association health plans and insurance sold in their state and would likely challenge any rules that they perceive could damage their insurance markets.  In the past, when association coverage legislation was proposed, there has been opposition by various state governments, consumer, business, labor and health care provider and patient advocacy groups because of concerns regarding “cherry-picking” of healthier individuals (in turn, causing those with pre-existing conditions to pay more for such coverage on the open market) as well as concerns that such plans promote fraud and insolvency.  Depending on how the rules are written, associations could potentially offer plans across state lines, thus weakening states’ regulatory authority.  The extent to which any new rules regarding associations will attempt to supersede state authority remains to be seen. 

It will also be difficult under existing rules and regulations to fit non-employment based associations within the framework of ERISA, which requires an employment relationship between the plan sponsor and participants.  The order doesn’t address the potential MEWA status of AHPs.  Unless existing regulations are revised, AHPs composed of unrelated employers would still be viewed as multiple employer welfare arrangements (MEWAs) under ERISA, which means that they would be subject to state insurance laws such as solvency and licensing requirements and, except in limited situations, have additional administrative burdens (e.g., Form M-1 filing requirement).  It remains to be seen if future regulations would attempt to apply ERISA preemption to certain state requirements that may otherwise apply to MEWAs.

Executive Order – Short-Term Limited-Duration Insurance

Short-term limited-duration insurance (STLDI) is exempt from the ACA’s insurance mandates and market reforms.  It is intended to bridge gaps in coverage – for example, individuals between jobs or having just graduated from school.  Because it’s exempt from the ACA, insurers offering STLDI plans may underwrite based on medical history and charge higher premiums for individuals based on health status.  In order to prevent younger, healthier individuals from leaving the individual market, Obama-era regulations limited the coverage period for STLDI from less than 12 months to less than 3 months and prevented any extensions beyond 3 months of total coverage. 

The order provides that, within 60 days of October 12, HHS, the DOL and Treasury should consider proposing regulations or revising guidance to expand the availability of STLDI.  In particular, as long as it is supported by sound policy, the order provides that agencies should consider allowing STLDI to cover longer periods and be renewed by the consumer.  As with the section of the order dealing with association plans, states may challenge this order as infringing on their ability to regulate their insurance industry and may resist rules they consider to be disruptive or potentially damaging.

Executive Order – Health Reimbursement Arrangements (HRAs)

HRAs are tax-advantaged, account-based arrangements that employers can establish for employees to give employees more flexibility and choices regarding their healthcare.  The order providers that, within 120 days of October 12, HHS, the DOL and Treasury should consider proposing regulations or revising guidance to increase the usability of HRAs, to expand employers' ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with individual market coverage.  This provision appears to be intended to repeal Obama-era rules that required most HRAs to be “integrated” with a group health plan and generally prohibited their use to purchase individual market coverage.  Eligible “small employers” (i.e., those with fewer than 50 full-time employees or equivalents) have been able to use HRAs (referred to as Qualified Small Employer HRAs, or QSEHRAs) to reimburse individual market premiums since the start of 2017, a change made by the 21st Century Cures Act, which was passed in December 2016 (several restrictions apply, including the requirement that an employer offer no other group health plan aside from the QSEHRA).

Cessation of Cost Sharing Reduction (CSR) Payments

Also on October 12, 2017, the Trump administration filed a notice with the U.S. Court of Appeals for the District of Columbia Circuit, informing the Court that cost-sharing reduction payments will stop because it has determined that those payments are not funded by the permanent appropriation established for the ACA’s premium tax credits.  Therefore, the upcoming payment to insurance carriers scheduled for October 18, 2017, will not occur unless a court intervenes and orders the payment to be made, or Congress appropriates the funding.  

The move was met with a swift reaction from the Attorney General of California, who led a coalition of nearly 20 states in a lawsuit against the Trump administration, alleging that the sudden decision to stop the CSR payments did not evolve from “a good-faith reading of the [ACA]” and “is part of a deliberate strategy to undermine the ACA’s provisions for making health care more affordable and accessible” by making it more difficult and expensive for individuals to obtain health insurance through the ACA’s Health Insurance Marketplace.[1]

When Congress enacted the ACA, it intended to increase the number of Americans covered by health insurance and decrease the cost of health care.  To achieve these goals, the ACA adopted a series of mandates and reforms, including the creation of the Health Insurance Marketplace and provision of billions of dollars in federal funding to help make health insurance more affordable for low- and moderate-income Americans.  These subsidies help offset premiums as well as participant cost-sharing, such as deductibles and coinsurance.  The CSR payments to carriers reimburse them for reductions in participant cost-sharing that the carriers are required to apply under the ACA. 

The premium subsidies and CSRs are generally paid directly to insurance carriers.  The ACA requires the IRS to ensure payment of the premium tax credits and requires HHS to make “periodic and timely” payments to insurance carriers for the CSRs.  The premium credits and CSRs are paid through a single, integrated program created by the ACA.  To fund this integrated system of health insurance subsidies, the ACA established a permanent appropriation for amounts necessary to pay refunds due from the premium tax credit and CSR subsidies.  The lawsuit asserts that the Executive Branch has the authority and obligation to make premium tax credit and CSR payments to insurers on a regular basis and that no further appropriation from Congress is required.  The lawsuit also alleges that the sudden cessation of the payments is arbitrary and capricious under Administrative Procedure Act (APA), as the government failed to adequately explain their decision that that they no longer have the authority to make CSR payments.  Lastly, the complaint alleges that by refusing to make the CSR reimbursement payments mandated by the ACA and its permanent appropriation, as well as taking the other actions described above, the President is violating the Take Care Clause of the U.S. Constitution, which provides that the President must “take Care that the Laws be faithfully executed.”

It is also worth mentioning that stopping the approximately $7 billion per year in CSR payments is predicted to cost the federal government nearly $200 billion over 10 years, according to the Congressional Budget Office.  This is because the average amount of premium subsidy per person would be greater, and more people would receive subsidies in most years.

The View from MarBar

The Executive Order and the cessation of CSR payments follows a set of regulations released by the Trump administration the previous week that scaled back the ACA’s contraceptive coverage requirement.  After several attempts to repeal and replace the ACA, a seminal campaign pledge of President Trump, failed to garner enough votes in the Republican-controlled Senate, it appears that the Trump administration is turning to regulatory and sub-regulatory action to make changes to the nation’s health care system in what may be an effort to force Congress to revisit legislative action.  While some Republicans in Congress view the President’s action as expanding “free market reform,” there are those on the other side of the aisle that view it as “executive sabotage” of the ACA.  The approaches described in the Executive Order expose the Obama administration’s reliance on regulatory and sub-regulatory guidance to implement strategies to advance the ACA.  Time will tell if the Trump administration’s guidance is consistent with faithfully executing the ACA, now that it remains the law of the land for the foreseeable future. 

In the meantime, employers should wait to see how any regulations are drafted as a result of the Executive Order.  As mentioned, new rules would be subject to notice and comment periods, which should allow employers adequate time to prepare for any changes.  Lastly, employers should be concerned with the government’s cessation of CSR payments and its potential impact on the group insurance market, especially the potential increase in COBRA participation and delay of early retirement.  Health insurance industry trade groups have issued statements indicating that the payments are critical and that there are real consequences to stopping them, in that costs will rise and the insurance markets could become unstable. 

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About The Authors.  This alert was prepared for [INSERT AGENGY NAME] by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.  Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.

 The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2017 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

[1] The lawsuit highlights various efforts by the Trump administration aimed at weakening the Marketplace, including the administration’s substantially reduced efforts to educate and encourage individuals to sign up for health insurance through the Marketplace. In addition, HHS has reduced its advertising budget for the Marketplace program to $10 million, a 90% decrease from the $100 million allocated for the program in 2016. HHS also reduced the amount of money granted to nonprofit organizations that serve as “navigators” to help individuals enroll in health plans offered through the Marketplace to $36 million, as compared to $63 million in 2016.  HHS has also reduced the Marketplace open enrollment period from twelve weeks to six, and has announced that it will shut down the HealthCare.gov website for 12 hours every Sunday during the open enrollment period.


Client Alert

October 13, 2017

President Trump Issues Executive Order on Healthcare

The Executive Order issued today:

  • States that it is the position of the executive branch to “facilitate the purchase of health insurance across state lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American people; and, 
     
  • Declares that the Affordable Care Act (ACA) has limited health insurance choices and produced large premium increases.

The Executive Order further states that there are three options: Association Health Plans (AHPs); short term, limited-duration insurance (STLDI); and Health Reimbursement Accounts (HRAs) that will expand access to health insurance, lower health insurance premiums, and increase financing options for health insurance.

To address these items, the President, through this Executive Order:

  • Instructs the Secretary of Labor, within 60 days, to issue a regulation expanding the availability of association health plans (AHPs). Specifically, the President ordered the Secretary of Labor, within 60 days, to “consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form AHPs.”
     
  • Instructs the tri-agency group (the Departments of Labor, Health and Human Services, and Treasury) to issue two regulations to:
     
    • Expand the availability of short term, limited-duration insurance (STLDI); and,
       
    • Expand the “usability” of HRAs; expand employer’s ability to offer HRA’s to their employees; and allow HRAs to be used for non-group coverage.
       

What this Executive Order means for the PEO industry

Until the actual proposed regulations are issued, NAPEO cannot determine the exact impact on the PEO industry. However, given the parameters of the Executive Order, it is clear that the President wants associations and other similar groups to be able to provide coverage to small employers on a large group basis. It appears the way the Trump Administration will get around the ACA restrictions on AHPs is by issuing a regulation broadening the definition of “employer” under ERISA. Expanding the use of HRAs could affect the market for group health insurance, also. Clearly, such regulations – if issued – would have a substantial impact on the PEO industry. 

NAPEO is on top of this issue, and is prepared to take action as the regulatory process begins.


Client Alert

October 9, 2017

Trump Administration Releases Guidance on ACA’s Contraceptive Coverage Mandate

On October 6, 2017, The U.S. Departments of Health and Human Services (HHS), Treasury, and Labor (the “Departments”) released interim final regulations allowing employers and insurance companies to decline to cover contraceptives under their health plans based on a religious or moral objection.  The new rules – which are effective immediately – scale back Obama-era regulations under the Affordable Care Act (ACA) that require non-grandfathered group health plans to cover women’s contraceptives with no cost-sharing, with limited exceptions for non-profit religious organizations or closely-held for-profit entities. 

The new regulations were released in two parts, one covering employers with moral objections (the “Moral Exemption”), the other for those with religious objections (the “Religious Exemption”).  The regulations are scheduled to be published in the October 13, 2017 Federal Register.  Within hours of their release, the Departments were sued by the Attorney Generals of California and Massachusetts, and the American Civil Liberties Union (ACLU), alleging that the regulations violate the Administrative Procedure Act, the Establishment Clause of the First Amendment to the Constitution, and the Equal Protection guarantee implicit in the Fifth Amendment to the Constitution.  The lawsuits seek to stop implementation of, and invalidate, the regulations.  Other states, including Virginia and Oregon, are exploring legal options to challenge the exemptions.

Background on ACA’s Contraceptive Coverage Mandate

Originally, the bill that became the ACA did not cover certain women’s preventive services that many women’s health advocates and medical professionals believed were “critically important” to meeting women’s unique health needs.  To address that concern, the Senate adopted a “Women’s Health Amendment,” to the ACA, which added a new category of preventive services specific to women’s health based on guidelines supported by the Health Resources and Services Administration (HRSA).  Supporters of the amendment emphasized that it would reduce unintended pregnancies by ensuring that women receive coverage for “contraceptive services” without cost-sharing. 

The ACA was enacted in March 2010.  In 2011, the Departments issued regulations requiring coverage of women’s preventive services provided for in the HRSA guidelines, which include all Food and Drug Administration (FDA)-approved contraceptives, sterilization procedures, and patient education and counseling for women with reproductive capacity, as prescribed by a health care provider.

Once these rules took effect in 2012, women enrolled in most health plans and health insurance policies (non-grandfathered plans and policies) have been guaranteed coverage for recommended preventive care, including all FDA-approved contraceptive services prescribed by a health care provider, without cost sharing.  Under rules released in 2013, exemptions were introduced for certain religious employers (generally churches and houses of worship), as well as “accommodations” for non-profit religious organizations that “self-certify” their objection to providing contraceptive coverage on religious grounds.  Under the accommodation approach, an eligible employer does not have to arrange or pay for contraceptive coverage.  Employers may provide their self-certification to their insurance carrier or third-party administrator (TPA), which will make contraceptive services available for women enrolled in the employer’s plan, at no cost to the women or the employer.  

In 2014, regulations were published to establish another option for an employer to avail itself of the accommodation. Under these rules, an eligible employer may notify HHS in writing of its religious objection to providing coverage for contraceptive services.  HHS or the Department of Labor, as applicable, will notify the insurer or TPA that the employer objects to providing coverage for contraceptive services and that the insurer or TPA is responsible for providing enrollees in the health plan separate no-cost payments for contraceptive services. 

In 2015, in response to the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc., regulations were released that expanded the availability of the accommodation to include a closely held for-profit entity that has a religious objection to providing coverage for some or all contraceptive services.

In May 2017, President Trump issued an Executive Order that directed the Departments to consider amending the contraceptive coverage regulations in order to promote religious liberty.  Specifically, the Executive Order instructed the Departments to “consider issuing amended regulations . . . to address conscience-based objections to the preventative-care mandate.”  These latest regulations are consistent with the Executive Order. 

Overview of the Moral & Religious Objection Regulations

The Regulations expand existing exemptions to the ACA’s contraceptive carerequirement. The Religious Exemption automatically exempts all employers—non-profit and for-profit organizations alike—with a religious objection to contraception from complying with the contraceptive care requirement.  

The Moral Exemption exempts all non-profit employers and non-publicly traded for-profit employers with a moral objection to contraception from complying with the contraceptive care requirement. The rules also give exempted employers the authority to decide whether their employees receive independent contraceptive care coverage through the accommodation process.  In other words, by making the accommodation process voluntary for employers, employees would no longer be guaranteed the seamless coverage for contraceptive care that currently exists under the accommodation process.  

ntities that qualify for the exemptions include churches and their integrated auxiliaries, nonprofit organizations, closely-held for-profit entities, for-profit entities that are not closely held, any non-governmental employer, as well as institutions of higher education and health insurers offering group or individual insurance coverage.  Publicly-traded companies, however, are not eligible for the Moral Exemption.  The rules also appear to have been drafted separately to ensure that one remains if the other is struck down.  

Employers currently operating under the religious accommodation (or that operate under the voluntary accommodation in the future) who wish to revoke that status may do so and rely on the exemptions in the new regulations.  As part of any revocation, the insurer or TPA must notify participants and beneficiaries in writing.  If contraceptive coverage is being offered by an insurer or TPA through the religious accommodation process, the revocation will be effective on the first day of the first plan year that begins on or after 30 days after the date of the revocation.  Alternatively, an eligible organization may give 60 days’ advance notice under the ACA’s Summary of Benefits and Coverage rules, if applicable.

Next Steps and Impact on Employers

Although the Moral and Religious Exemptions are effective immediately, employers that plan to avail themselves of either exemption should exercise caution and consult with qualified ERISA counsel before making plan changes.  The regulations are already under challenge, regarding both their substance and their accelerated effective dates.  Also, in many states, contraceptive coverage is a state-mandated benefit.  Practically, this means that employers sponsoring fully-insured non-grandfathered group health plans may be precluded from exercising either exemption because insurance carriers in those states would be required to write policies that provide such coverage.  Moreover, an employer availing itself under either exemption may face private lawsuits from participants and beneficiaries under Title VII of the Civil Rights Act of 1964, which prohibits discrimination based on sex.

About The Authors.  This alert was prepared for GEX Management by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions. 

© 2017 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.