The October 12, 2017 Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States has been greeted with a lot of political rhetoric about its effects, primarily with respect to the Patient Protection and Affordable Care Act (ACA). But let’s talk about what it does, and doesn’t, do.
The Executive Order states that:
“[i]t shall be the policy of the executive branch, to the extent consistent with law, to facilitate the purchase of 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”.
The Order directs the relevant departments of the Executive Branch (primarily the departments of Labor, Treasury, and Health & Human Services) to “consider” proposing regulations to enable and expand the availability of association health plans (AHP’s), short-term, limited-duration insurance (STLDI), and health reimbursement arrangements (HRA’s). So, right now, there are no regulations in place that authorize deviation from existing rules governing the ACA and ERISA, among other statutes. But, if there were such regulations, what would they do?
- Association Health Plans: In 1983, ERISA was amended by the Multiple Employer Welfare Act (MEWA). Prior to the amendment, multiple employer welfare plan sponsors contended their plans were covered by ERISA and therefore exempt from state regulation. But these multiple employer welfare plans, while offering attractive premium rates, sometimes were underfunded and undercapitalized, and therefore defaulted on their obligations in a number of cases. MEWA provided that states can regulate such multi-employer plans, resulting in some cases in concurrent jurisdiction by the federal and state governments over such a plan. The Executive Order directs the Secretary of Labor to consider proposing regulations to allow more employers to form AHP’s, including promotion of “AHP formation on the basis of common geography or industry”. The magnitude of the risk that AHP’s will replicate the MEWA experience will depend on the regulations enacted. In addition to the risk of default presented by an unregulated or loosely regulated health insurance provider, AHP’s present adverse selection and uniformity of regulation concerns. Because of lower premium costs, there is a concern that AHP’s will attract the young and healthy, leaving cost of providing health care to older and sicker individuals to existing health insurance markets and the federal and state governments. In addition, if AHP’s are allowed to be organized across state lines but regulated by the state of formation, the result is likely to be formation of AHP’s in the states with the least regulation, in turn presenting a threat to the viability of traditional health insurers in more tightly regulated markets.
- STLDI: Short-term, limited-duration insurance policies are not regulated by the ACA, but they are limited to three months in duration. The Executive Order contemplates extending the maximum duration and allowing such policies to be renewed at the option of the consumer. Instead of buying a health insurance policy that covers most health conditions and that remains in place for an unlimited time, STLDI policies are designed to provide health insurance on an as-needed basis. They present cost advantages to the consumer, but run the risk that the consumer, for whatever reason, will misjudge the period of need and thus will be uninsured when an otherwise insurable health crisis occurs.
- HRA’s: With two exceptions, an employer is allowed to employ a health reimbursement arrangement to reimburse employees for medical costs incurred only if the HRA is integrated with a group health plan. These two exceptions are the one-person stand-alone HRA and the Qualified Small Employer HRA (QSEHRA). Both the one-person HRA and the QSEHRA are applicable to certain types of businesses only and are otherwise limited in application. The Executive Order directs the Secretaries of Labor, Treasury and Health and Human Services to consider regulations or guidance to broaden the conditions under which employers may offer HRA’s to employees.
Stand-alone (non-integrated) HRA’s were in relatively common use before 2014, when the federal government (the IRS and the Departments of Labor and Health and Human Services) issued guidance requiring, in most cases, that an HRA operate in conjunction with the employer’s health insurance plan. The concern was that, without such guidance, employers would be encouraged to offer HRA’s in lieu of health insurance, in effect subsidizing the cost to employees of obtaining their own insurance through the ACA Marketplace.
There are a number of options for expanding the use of HRA’s, including allowing the rules for integrated HRA’s to apply to non-integrated HRA’s, or applying the QSEHRA model to employers of all sizes. At this time, no predictions can be made as to the direction that the new regulations or guidance may take with respect to HRA’s, or, for that matter, AHP’s or the expansion of STLDI.