As part of the executive branch’s ongoing efforts to peel back portions of the Patient Protection and Affordable Care Act of 2010 and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the ACA), President Trump on Oct. 12 issued an Executive Order aimed at “Promoting Healthcare Choice and Competition Across the United States” (the Order). The Order states that the policy of the executive branch is to facilitate the purchase of insurance across state lines and develop a healthcare system that “provides high quality care at affordable prices.”
To achieve these goals, the Order promoted three objectives:
- expanding alternatives such as association health plans and short-term, limited duration plans, and increasing flexibility in the use of health reimbursement arrangements(HRAs);
- lowering barriers to businesses entering the healthcare market and limiting consolidation in the industry; and
- improving access to and quality of information regarding healthcare (including data about prices and outcomes), while minimizing reporting burdens on health plans, providers and payers.
The Order directs the Departments of Treasury, Labor, and Health and Human Services to evaluate and consider revising existing regulations or proposing new guidance within specific time frames. The major focus of the Order was a discussion of three alternatives the administration believes will help improve the healthcare marketplace, and, in so doing, assist in meeting the Order’s stated objectives:
Association Health Plans
- The administration believes an expansion of association health plans (plans based on common industry or geography) will help small businesses pool risk to self-insure or purchase large group health insurance. The Order directs the Secretary of Labor to consider proposing regulations or revising guidance within 60 days of the date of the Order to expand access to coverage by allowing more employers to form association health plans.
- Among other things, the Secretary of Labor is directed to consider expanding the “commonality-of-interest” requirements under current Department of Labor advisory opinions interpreting the definition of an “employer” under Section 3(5) of the Employee Retirement Income Security Act of 1974, as amended (ERISA); however, the Order is unclear on how the term “association” would ultimately be defined. While the Order suggests that association health plans can be formed across state lines, it does not describe how this process would be coordinated or how association plans would work within the current framework of state insurance laws and whether, and to what extent, ERISA preemption may apply. There is also no mention in the Order on how association health plan expansion would interact with Department of Labor rules regarding multiple employer welfare arrangements (MEWAs) and any prior concerns of the Department of Labor regarding fraud and abuse in multiple employer plan structures.
Short-Term, Limited-Duration (STLD) Insurance
- STLD insurance policies are currently exempt from broad-based market reforms in Title I of the ACA, and therefore are not required to provide the “minimum essential coverage” mandated for policies offered in the individual marketplace. Final regulations issued by the Departments of Treasury, Labor, and Health and Human Services in October 2016 (effective December 30, 2016) restricted STLD coverage to three months, due to concern about individuals purchasing STLD coverage as their primary coverage. Under that regulation, STLD policies had to include a statement indicating that the coverage was not qualifying health coverage that satisfies the health coverage requirement of the ACA and indicating that those who had only STLD coverage may be still exposed to the penalty under the individual mandate.
- While STLD coverage is typically “stripped down” coverage used by those who are between jobs, due to its lower costs, the order seeks to expand STLD into an “alternative” to the broader coverage options offered in the individual market and on the government exchanges. The Order directs the Departments’ Secretaries to, within 60 days of the date of the Order, consider proposing regulations or revising guidance to expand the availability of STLD insurance, including permitting the STLD insurance to cover longer periods and be renewed by the consumer. The Order does not provide any further detail as to whether the coverage offered by longer-term or renewable STLD policies will need to include a certain number, type or minimum level of covered healthcare services, or the extent to which such coverage will be deemed to qualify as coverage for either the individual or employer mandate.
Health Reimbursement Arrangements (HRAs)
- Perhaps most importantly for employers, the Order suggests expanding the flexibility and use of HRAs, which could mean the reconsideration or reversal of prior Internal Revenue Service guidance that restricted the use of HRAs to purchase coverage in the marketplace. While the Order specifically targets small employers and notes that HRA expansion could provide “more options for financing their healthcare,” such an expansion could also benefit large employers.
- Under existing guidance, specifically IRS Notice 2013-54, HRAs offered by an employer must be integrated with employer-provided coverage, and employers cannot use stand-alone HRAs to purchase any individual coverage on a tax-favored basis. The underpinning of the guidance results from the IRS’ position that HRAs constitute employer-provided group health plans, but they are group health plans that provide tax-favored contributions toward medical coverage and not any actual medical benefits, thereby failing to meet the market reform requirements of the ACA unless integrated with other medical coverage that provides those broad-based benefits. Consequently, employers could not satisfy the employer mandate and avoid assessments under Section 4980H of the Internal Revenue Code simply by providing HRAs so employees could purchase individual coverage.
- The Order directs the Department’s Secretaries to, within 120 days of the date of the Order, 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 non-group coverage. A change in existing guidance as a result of the Order as applied to HRAs, could have an impact on how different sizes of employers fund and provide group health coverage.
Finally, the Order creates an obligation to report back to the President regarding efforts to meet the Order’s objectives. The Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor, and the Federal Trade Commission are to issue a report, within 180 days of the date of the Order and every two years thereafter, that: (a) details the extent to which existing State and Federal laws, regulations, guidance, requirements and policies fail to conform to the policies set forth in the Order and (b) identifies actions that States or the Federal government could take in furtherance of the policies set forth in the Order.
As new information becomes available and should additional guidance be issued as a result of the Order, expect updates to this article and additional insights on health insurance reform initiatives.
For further information, please contact one of the authors of this article — Felicia M. Gardner, Sally Doubet King, and Carolyn M. Trenda — or any other member of the McGuireWoods employee benefits team.