Proposed rulemaking would permit employers to defray employee premiums, out of pocket costs for non-group plans via HRAs

The Trump administration is proposing regulations that it estimates could substantially expand enrollment in non-group medical plans. The proposed rulemaking would do so by reversing Obama administration rules prohibiting employers from using employee Health Reimbursement Arrangements (HRAs) to help employees pay premiums and out of pocket costs for non-group individual coverage. The proposed rulemaking would also allow employers to give employees HRA contributions of up to $1,800 (indexed to inflation) per plan year starting in 2021 to go toward short-term limited duration medical insurance plans and standalone dental plans. Employers could continue to offer group coverage. However, the proposed rules would bar employers from offering both group or self-insured coverage and HRAs to the same class of employees and prohibit steering of employees with higher medical costs into HRA defrayed non-group plans.

The rulemaking could improve quality and spread of risk in the non-group segment, substantially expanding the risk pool by bringing in people who might otherwise obtain group coverage with small employer sponsored plans. Small employer staff most likely to benefit would be those not offered employer coverage and earn too much to qualify for income tax credit premium subsidies for plans offered on state health benefit exchanges. Those employees who enroll in non-group plans using an HRA would be eligible to enroll outside of the fall annual enrollment period when they become eligible for an HRA as would employees covered under Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) authorized by 2016’s 21st Century Cures Act.

The Treasury Department estimates the proposed rules could result in 800,000 employers offering HRAs to pay for individual health insurance coverage to about 10 million employees. For plan year 2018, non-group enrollment totaled 14.4 million Americans, according to the Kaiser Family Foundation.

If the rules take effect as proposed starting in 2020, they could accelerate declining enrollment in small group plans, particularly for very small groups of 10 or fewer employees. In announcing the proposed rules, the administration noted among firms that employ 3-to-24 workers, the percentage of workers covered by employer medical benefit plans fell from 44 percent in 2010 to 30 percent in 2018. For firms that employ 25-to-49 workers, the percentage of workers covered by employer plans declined from 59 percent in 2010 to 44 percent in 2018.

The proposed rulemaking would allow employers to take an income tax deduction for HRA employee contributions as currently permitted for the employer portion of group plan premiums. There is no limit on the amount employers can contribute. HRA contributions are also not counted as taxable income for employees and can be carried over from one year to the next. Integrating tax deductible employer HRA contributions with non-group coverage would effectively provide smaller employers a means of indirectly shifting the current employer group plan tax deduction subsidy from the group to the non-group market. Employees offered an HRA integrated with a non-group plan would not be eligible for premium tax credit subsidies for exchange plans unless their income less the HRA amount offered by the employer exceeds 9.5 percent of the premium for self only coverage for the lowest cost silver exchange plan sold in their rating area.

Trump administration adopts market-based statement of health care policy

Nearly nine months into his administration after many months of policy debate in Washington, President Donald Trump has issued an official statement of his administration’s health care policy in an October 12, 2017 Executive Order.

Trump’s policy is essentially not much different than that of his predecessor, Barack Obama, insofar as it retains one of the nation’s largest private sector financing mechanisms: employee benefit medical care plans. Like the managed competition principle of Obama’s Patient Protection and Affordable Care Act, Trump’s policy is market-based and aspires to harness competitive market forces to reduce medical costs and increase access to coverage.

It also mirrors the Affordable Care Act insurance market reforms by concentrating on the small employer group and individual (non-group) market segments where medical care cost pressures hit hardest. The order suggests (not orders) his administration explore allowing small employers to participate in association health plans traditionally used by large employer groups. In addition, Trump suggested his administration consider proposing regulations or revising guidance to increase the use of Health Reimbursement Accounts (HRAs) and expand employers’ ability to offer HRAs to their employees and allow HRAs to be used in conjunction with non-group coverage for employees.

The latter element closely aligns with recent legislation signed into law late in the Obama administration that enables employers to use a new type of HRA to subsidize premiums on a pre-tax basis for employees obtaining coverage in the non-group market. Effective January 1, 2017, employers of 49 or fewer employees that do not offer group coverage can fund up to $4,950 annually for single employees and $10,000 for an individual plan covering an employee and their family members.

Various observers expressed concern at the executive order’s suggestion (once again couched as a request, not a directive) that the administration consider reversing an Obama administration restriction limiting short term individual medical insurance policies to a maximum term of three months and expanding the limit to 12 months or even longer. The concern is well placed because doing so would put short term plans in competition with non-group and small group plans sold with the standard 12 month coverage term.

The Affordable Care Act established ten essential benefit categories with the goal to put small group and non-group coverage on a par with large group plans. But the tradeoff for these more generous plans is high and rapidly rising premium rates and deductibles, particularly painful for households earning too much to qualify for premium and cost sharing subsidies for individual plans sold on state health benefit exchanges. However, short term plans offering skimpier coverage for lower cost won’t comply with the Affordable Care Act’s minimum coverage mandate for individual taxpayers, subjecting them to a tax penalty.

Finally, Trump’s executive order reinforces market-based approach to mediate medical care costs by requiring the Health and Human Services Department in consultation with the departments of Treasury and Labor as well as the Federal Trade Commission to produce a report by April 12, 2018 and every two years following outlining where existing state and federal policy hinders market competition. The report must also identify policy actions to reduce barriers to market entry, limit excessive consolidation and prevent abuses of market power.

Individual health insurance segment will continue to face existential crisis post-election

Source: Health Affairs Blog. http://healthaffairs.org/blog/2017/02/08/the-marketplace-premiums-increase-underwriting-cycle-or-death-spiral/

 

Regardless of what the incoming Trump administration and Congress opt to do with the Patient Protection and Affordable Care Act’s reforms of the individual health insurance market, the segment will continue to face an existential crisis. The individual market remains the problem stepchild of health coverage, playing an important but relatively minor role in a siloed scheme dominated by employer sponsored coverage for a solid majority of those under age 65 and the big government entitlement programs of Medicare and Medicaid for most of the rest. Not to mention the other integrated government run care systems for active duty military members and their dependents and military veterans.

Given its place in the overall scheme of things, individual health insurance is the remainder market of last resort for those not covered by the dominant private and public systems. It functions as a high turnover, temporary segment that’s inherently unstable. People move in and out of coverage due to changing life circumstances or obtaining eligibility for coverage under one of the dominant systems. Others possess a deeply ingrained “culture of coping” as some have termed it to get medical care where it’s the most easily accessible and affordable such as hospital emergency departments, community clinics and free care events. That coping culture includes avoiding paying for individual health insurance, a pattern in place decades before the Affordable Care Act’s individual market reforms went into effect in 2014. It’s not going to be changed quickly even as health plan issuers are required to accept all applicants without regard to medical history and the law provides subsidies for premiums and out of pocket expenses to low and moderate income households.

That instability makes it very challenging for the basic insurance principle of risk spreading since the risk being insured against is highly dynamic. Actuaries base their projections on relatively stable risk pools and flows of premium dollars into the pool. As long as “covered lives” are moving in and out of the individual market, that desired actuarial predictability will remain elusive, the Affordable Care Act’s carrots and sticks aimed at stabilizing the pool notwithstanding.

As policymakers reassess the Affordable Care Act health insurance market reforms in the post-election period, they might well reexamine an assumption of the law that small group coverage would be eclipsed by the reformed individual market. It was expected that by making individual market coverage more like small group coverage by establishing small group plans as benchmark plans, that along with the individual market reforms would drive more people into individual coverage.

It hasn’t quite worked out that way. Even though the Affordable Care Act does not mandate they do so, small employers are continuing to offer group coverage, albeit less generous than the recent past and more akin to major medical, catastrophic plans with high deductibles. If they are offered coverage under them, employees have little incentive to enroll in individual coverage since they would not qualify for subsidized coverage sold on state health benefit exchanges.

That circumstance reduces the potential size of the individual segment and in so doing, degrades the individual market risk pool. While the Obama administration’s health insurance reforms are based on keeping employer-sponsored health benefits as the bedrock of coverage for most pre-retirement Americans, they also were aimed at revitalizing the struggling individual market. Given that employer-sponsored coverage cuts against a robust individual health insurance space, it may not be possible to have both.

California exchange models managed competition in individual, small group health insurance markets

At the other end of the policy spectrum, the exchange serves as an “active purchaser” of health insurance on behalf of its clients, the individual consumers. In effect, the exchange seeks to move insurance from a let-the-buyer-beware retail market to a two-stage wholesale and retail market. The first (wholesale) stage uses supply chain management tools developed by corporate buyers of other services, while the second (retail) stage encourages consumers to select from a more narrow range of pre-contracted offerings.

Source: Whither Health Insurance Exchanges Under The Affordable Care Act? Active Purchasing Versus Passive Marketplaces

This article co authored by UC Berkeley School of Public Health economist James C. Robinson, the executive director of California’s health benefit exchange, Peter Lee, and exchange policy staffer Zachary Goldman effectively argues California exchange’s active purchaser role vis health plan issuers embodies the concept of managed competition in health insurance described in this January 1993 Health Affairs article by Alain C. Enthoven:

A sponsor (either an employer, a governmental entity, or a purchasing cooperative), acting on behalf of a large group of subscribers, structures and adjusts the market to overcome attempts by insurers to avoid price competition. The sponsor establishes rules of equity, selects participating plans, manages the enrollment process, creates price-elastic demand, and manages risk selection.

As the authors note, the Patient Protection and Affordable Care Act creates basic standards for health plans in terms of defining required covered services, actuarial value and annual out of pocket maximums. But to realize the full benefit of managed competition, they appear to assert that health benefit exchanges must function as demanding and exacting wholesale purchasers of health plans in order to achieve maximum comparable selection and value for their retail customers. By aggregating purchasing power for insurance buyers, the exchanges help balance out market power between buyers and health plan issuers in a market that due to high entry and operating costs tends to be oligopolistic.

ACA small group market changes for 2016 could potentially benefit SHOP

The Patient Protection and Affordable Care Act holds two significant changes for the small group market taking effect for plan year 2016:

• A mandatory definition of “small employer” as those employers with 100 or fewer full time equivalent (FTE) employees. Section 1304(b)(3) of the Affordable Care Act afforded states the option – which all exercised – to set the metric at 50 or fewer employees for plan years 2014 and 2015.
• The delayed phase in under 2014 federal transition relief guidance of the large employer shared responsibility mandate. Under the guidance, the requirement that employers offer most employees health coverage meeting minimum benefit and affordability standards encompasses employers with 50-99 FTE employees starting in 2016.

Both alter the post-Affordable Care Act landscape of the small group market starting next year by expanding its parameters and providing greater incentive for small employers to offer health coverage. What remains to be seen is whether they will operate to expand small employer participation in the Small Business Health Options Program (SHOP) that all state health benefit exchanges must have in place unless they opt to combine their individual and small group exchanges as authorized by ACA Section 1311(b)(2). SHOP enrollment has been very weak in nearly all states relative to small group market as a whole.

A larger and more compulsory small group market could potentially boost SHOP’s prospects. But it won’t address the lack of strong economic inventive for small employers and their brokers to engage with the SHOP. The SHOP is predicated on pooling the purchasing power of small employers to drive down premiums that many small employers perceive as unaffordable. Gaining that purchasing clout with small group health plan issuers requires SHOPs first bring a lot more covered lives to the bargaining table – the classic chicken and egg conundrum.

Meanwhile, 17 business groups and the National Association of Health Underwriters have asked the U.S. Department of Health and Human Services in a February 18, 2015 letter to postpone implementation the 2016 mandatory definition of small employer to 100 or less employees to 2018, warning it would produce market disruption among health insurers that could limit employer coverage options as well as potentially lead to premium increases.

Business groups, broker association urge 2-year delay in expansion of small group market starting in 2016

Seventeen business groups and the National Association of Health Underwriters have requested the U.S. Department of Health and Human Services delay implementation of a Patient Protection and Affordable Care Act provision requiring states to expand the small group health insurance market starting next year.

Section 1304(b)(2) of the law defines the small group market as employers who employed at least 1 but not more than 100 employees on business days in the previous calendar year. Section 1304(b)(3) allows states to temporarily define the small group market as 50 or fewer employees for plan years starting before January 1, 2016.

In a February 18, 2015 letter to HHS Secretary Sylvia Burwell, the signatories urge extending that date to January 1, 2018. Doing so would allow organizations employing 51 to 100 employees to continue to purchase company rated coverage not compliant with Affordable Care Act requirements for small group coverage including modified community-based rating based on a single statewide risk pool, specified essential health benefits and standards for minimum actuarial value and affordability for participating employees. They warn broadening the scope of the small group market will lead to market disruption among health insurers that could limit employer coverage options as well as potentially lead to premium increases. The signatories cite an Oliver Wyman study finding that two thirds of employers affected by the expansion would see premiums rise by an average of 18 percent in 2016. That could lead some employers to choose to self-insure, reducing the size of the risk pool and putting additional upward pressure on premiums, they contend. The implication is employers with 50 or fewer workers tend to employ less healthy staff with higher medical utilization than firms with 51 to 100 employees, degrading the quality of the risk pool if all employers of 100 or fewer employees were forced to jointly pool their risk.

In an issue brief examining the effect of the expansion of the small group market, the American Academy of Actuaries concluded premiums could increase for some employers – such as those employing relatively younger, healthier workforces – and conversely decline for those with less healthy staff members. The brief noted that since there are more than twice as many covered employees in the 1-50 employee group size cohort than in the 51-100 category, the impact on premium rates would be moderated.

John Arensmeyer, founder and CEO of Small Business Majority, opposes the requested delay that would continue to segment off the smallest employers given no states have opted thus far to define their small group markets as employers with up to 100 employees. Businesses with fewer than 50 employees would benefit from the increased spread of risk of more covered lives by having larger employers in the small group market, Arensmeyer wrote in a March 5, 2015 blog post. “The entire pool becomes bigger,” he observed.

That larger pool, Arensmeyer wrote, would help boost the struggling Small Business Health Options Program (SHOP) of the state health benefit exchange marketplace and benefit brokers. “We’ll also see more broker involvement in SHOP as firms of this size are more likely to utilize the help of agents,” Arensmeyer added.

Doubts over wellness programs could unravel employer health coverage

Questions over the effectiveness of employer wellness programs intensified this month and could mark the beginning of the end of employer-sponsored health benefits that have already been eroding from the bottom up in the small group market segment. Wellness programs seek to improve the health status of large employer risk pools in order to reduce the utilization of high cost medical services and to hold down premiums for large insured employers. Now that their efficacy has been called into question, it also begs the larger question of the degree of control large employers have over health care costs. The experience with wellness programs suggests little if any. As Bill Leonard writes for the Society For Human Resource Management:

Even with the modest rise in health care costs over the past several years, sources familiar with the issue believe businesses have reached a tipping point and that the expense of providing medical benefits to workers has become unsustainable. Cost-containment efforts therefore are putting more pressure on wellness programs to deliver on the promise of reducing health care expenses. However, as the CHRO survey and other recent studies have shown, wellness plans may not be producing the return on investment (ROI) that employers expect and need.

The sense of no control over rising costs could prompt large employers to increasingly throw up their hands and cease offering health benefits. The money saved could then be redirected to higher earnings and compensation that couldn’t be done when the U.S. government established wage and price controls during World War II and employers first began offering employee health benefits in lieu of higher compensation. That in turn would create pressure to repeal the Patient Protection and Affordable Care Act’s mandate that employers with 50 or more employees offer health coverage.

There would also be a philosophical motive. Employers and employees alike could rightly declare health is an individual responsibility. Accordingly, the role of employing organizations would shift from a medicalized view of wellness – one that wellness program critics equate to nannying — to one that promotes a culture of wellness that supports healthy lifestyle choices and affords their members sufficient schedule control to engage in health promoting behaviors such as adequate sleep and exercise. Those behaviors require time and commitment in order to become healthy lifestyle habits. For office-based knowledge workers where the greatest occupational hazard is sedentary lifestyles that lead to preventable chronic health conditions, giving them greater control over when and where they work would provide a mutually beneficial tradeoff for taking responsibility for their health. That could pay bonuses in the form of increased engagement and staff attraction and retention.

SHOPs unlikely to stem erosion of small group health coverage

To restore functionality to the troubled individual health insurance market, the Patient Protection and Affordable Care Act operates to force sellers and buyers together. On the sell side, it does so by requiring individual health plan issuers to accept all applicants without medical underwriting. On the buy side, it creates incentive for people not covered by employer-sponsored or government plans to sign up for coverage or pay a tax penalty. In addition, advance tax credit premium subsidies are available to those with low and moderate incomes.

The small group health insurance market segment — coverage sold to small employers – lacks this mix of sticks and carrots. The sole incentive is for small employers with 25 or fewer low wage employees, who can receive tax credits if they offer coverage to their employees and pay at least half the premium. The credits are available for 2014-16 and for plans purchased through the Small Business Health Options Program (SHOP) of the state health benefit exchange marketplace.

SHOPs are grounded in the Affordable Care Act’s philosophical underpinnings that recognize most working age Americans obtain health coverage though their employers. Rather than incentives, the idea behind the SHOPs is to strengthen the small group market by pooling the buying power of small employers. The SHOPs are designed to act like a small employer health insurance purchasing cooperative, giving small employers collective negotiating leverage with health plans, thus in theory helping to drive down premiums and making small group coverage more affordable to even the smallest employers.

As The New York Times reports, however, multiple stumbling blocks impede the rollout of the SHOPs that may ultimately make it impossible for them to build critical mass and achieve the pooled purchasing power they were intended to provide:

Experts say it remains an open question whether the program, known as SHOP for Small-Business Health Options Program, will eventually work. “I think it will take a number of years, if it succeeds,” said Jon Gabel, a policy expert at NORC at the University of Chicago. There remains strong opposition from brokers and some insurers, he said, who view it as a threat to their existing business.

That is leading to the classic chicken and egg problem. If too few small employers opt for SHOP coverage, they will have little buying clout with health plan issuers and thus SHOPs won’t be able to help hold down premium rates. That will encourage more small employers to stop offering coverage to their employees on the grounds that it’s not affordable, which in turn reduces the potential market of the SHOPs.

Floor of small group market may be rising

The small group market may be undergoing a redefinition. Section 1304(b(2) of the Patient Protection and Affordable Care Act defines small employers as those having between 1 and 100 employees. (Through 2015, states have the option to set the upper limit at 50 employees.)

The marketplace could be raising the single employee floor on a de facto basis, according to this Bloomberg story reporting those working for small employers are increasingly purchasing individual coverage though state health benefit exchanges. The shift is accelerating among the smallest employers, Ana Gupte, an analyst at Leerink Partners LLC, told Bloomberg, adding it’s “happening faster than expected.”

The implication is the low end of the small group market – generally defined as organizations with fewer than 10-20 employees — is being cannibalized by the individual market, where the incentives for participation are far stronger. That would effectively change the practical definition of the small group market to a range of between 10 or 20 and 100 employees.

How this will affect state small group markets over the next few years remains to be seen. It could adversely impact the small employer side of the state exchanges — the Small Business Health Options Program (SHOP) – by significantly shrinking the pool of small employers that might potentially enroll. That could prompt all but the largest states to exercise their option under Affordable Care Act Section 1311(b)(2) to merge their individual and SHOP exchange functions. States also have the option starting in 2017 to offer large group plans on their exchanges as allowed under Section 1312(f)(2)(B)(i). But with the growth of private exchanges in the large group market, it’s doubtful the public state benefit exchanges would be appealing to large group plans.

N.Y. limits average health insurance increases to 5.7%

ALBANY – The state on Thursday approved an average 5.7 percent rate increase for health insurers in 2015, spurning their request for a 13 percent hike.

Insurers in July cited growing costs in their rate requests. But the state Department of Financial Services set the rate and said it would be an average of 5.7 percent for individual plans, saying it will save customers about $1 billion next year.

Overall, the agency contended that rates will remain 50 percent lower than they were prior to state’s health care exchange that started Jan. 1. Nearly 1 million New Yorkers enrolled in the health exchange. The next enrollment period starts Nov. 15 for coverage starting on Jan. 1.

For small-group insurance, insurers wanted a 13.9 percent increase. The state reduced it to 6.7 percent.

via N.Y. limits average health insurance increases to 5.7%.

This development could have implications for California which like New York operates a state-based health benefit exchange that actively negotiates premium rates with health plan issuers.

A measure on California’s General Election ballot in November, Prop. 45, would bring the Golden State in line with New York and a majority of states that require health plan issuers obtain prior regulatory approval before using rates.

Prop. 45 has raised concerns among opponents as well as the state’s health benefit exchange, Covered California, of potential disruption of the individual and small group health insurance market if plan issuers decide they can’t live with approved premium rates lower than those filed. That could possibly lead to plans being withdrawn from regions or all of the state as threatened by the New York state Health Plan Association in this story.