Trump now wants to "increase" ACA exchange enrollment? Update: PSYCH!


OK, this one caught me by surprise. I'm not sure how I missed it last fall, but back in October of last year, around the same time CMS Administrator released her proposal to turn the ACA's 1332 Waiver rules into a complete joke, Trump's IRS, Labor and HHS Dept. got together and came up with this proposal for opening up the rules on Health Reimbursement Arrangements for employer-based healthcare coverage:

This document sets forth proposed rules to expand opportunities for working men and women and their families to access affordable, quality healthcare through proposed changes to regulations under various provisions of the Public Health Service Act (PHS Act), the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code (Code) regarding health reimbursement arrangements (HRAs) and other account-based group health plans. (For simplicity, this preamble generally refers only to HRAs, but references to HRAs should also be considered to include other account-based group health plans, unless indicated otherwise.)

Specifically, these proposed rules allow integrating HRAs with individual health insurance coverage, if certain conditions are met. The proposed rules also set forth conditions under which certain HRAs would be recognized as limited excepted benefits. Also, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) propose rules regarding premium tax credit (PTC) eligibility for individuals offered coverage under an HRA integrated with individual health insurance coverage.

In addition, the Department of Labor (DOL) proposes a clarification to provide plan sponsors with assurance that the individual health insurance coverage the premiums of which are reimbursed by an HRA or a qualified small employer health reimbursement arrangement (QSEHRA) does not become part of an ERISA plan, provided certain conditions are met.

Finally, the Department of Health and Human Services (HHS) proposes rules that would provide a special enrollment period in the individual market for individuals who gain access to an HRA integrated with individual health insurance coverage or who are provided a QSEHRA. The goal of these proposed rules is to expand the flexibility and use of HRAs to provide more Americans with additional options to obtain quality, affordable healthcare. The proposed rules would affect employees and their family members; employers, employee organizations, and other plan sponsors; group health plans; health insurance issuers; and purchasers of individual health insurance coverage.

Here's what all of this means in plain English (I may not have these numbers quite right; this is for illustrative purposes only):

  • Let's say your health insurance is currently provided by your employer, with the total premiums running around $6,500/year.
  • Let's say your employer is covering around 75% of that, or $5,000/year (which is pretty typical)
  • Because employer-sponsored health insurance is exempt from federal payroll taxes, the employer saves 7.65% on that $5,000, or around $383/year
  • The employee also saves 7.65% on their portion...$115/ well as saving a little bit more on their normal income tax, although this will vary.

However, let's suppose that for whatever reason, you and your employer both decided that you'd be better off enrolling in an ACA exchange policy. They make an offer to drop you from the group plan and simply pay you the $5,000 directly to go towards you enrolling in an ACA individual market policy instead.

Under the current ACA rules, if they do that, they lose their payroll deduction tax break, you lose your payroll and income tax breaks, and assuming your household income would normally be low enough to qualify for APTC tax credits, you also wouldn't be eligible for those either. It also makes almost no sense for most businesses to do this anyway since it'd cause all sorts of paperwork and legal headaches to have one type of arrangement for one or two employees vs. a whole other arrangement for the rest of them. As a result of all of this, this arrangement is pretty much unheard of.

Under this rule change, some employers would be allowed to do the above for some employees while still keeping the payroll tax break. Suddenly an arrangement like this starts to become a lot more tempting to the employer...and possibly the employee as well:

And here’s the odd twist: the employee contribution to premiums can ALSO be tax-advantaged, IF they purchase an OFF-Exchange. (ACA Sec 1515 prevented use of cafeteria plans to purchase on-exchange)

— John Barkett (@jmbarkett) June 13, 2019

The Trump Administration claims that this new rule will end up doubling the size of the Individual Market over the next decade...

The Trump administration estimates a new rule that will allow employers to fund tax-free accounts for workers to buy their own health insurance will be used by 11 million people. If that's right, it would create a huge influx into the ACA-compliant individual insurance market.

— Larry Levitt (@larry_levitt) June 13, 2019

...which you'd normally think I would be all for, since I'm obviously a strong advocate for increasing ACA exchange enrollment and I'm not at all a fan of tying health insurance to your employer. You'd think I would be thrilled about this, right?

HOWEVER, there's a TON of caveats and disclaimers surrounding both the current and changed rule...and there's some major potential problems with it as well.

Rachel Schwab of the Center on Health Insurance Reforms wrote up an explainer about the whole thing back in February:

Currently, most employers can only offer HRAs as an option if an employee also has an ACA-compliant group health plan (with the exception of small employers and certain plans for retirees). The proposed rule largely abolishes this prerequisite, allowing employers of any size to offer an HRA instead of traditional group health insurance. Employers can either offer “integrated HRAs” that provide funding for employees to purchase ACA-compliant plans on the individual market, or “excepted benefit HRAs,” which provide a maximum of $1800 per year to purchase a short-term plan, which is not subject to the ACA’s rules (employers are required to offer a group health plan in addition to the latter option, but employees may choose solely the HRA). The proposal would also permit employers to differentiate between different classes of employees, allowing them to offer certain classes an HRA instead of a group health plan while continuing to provide traditional group coverage for other classes.

DANGER, WILL ROBINSON. You can already begin to see the problems here...but if you can't, the CHIR blog lays them out for you:

...employers could easily discriminate against sicker, older workers by offering them HRAs instead of traditional group health insurance as a way to ease the employer’s financial burden. The California DOI argued that employers may treat the individual market as their “very own high-risk pool,” leading to adverse selection and market instability, including higher premiums. The D.C. marketplace echoed these concerns, further advising that the excepted benefit HRAs will increase the prevalence of “junk plans,” particularly among young and healthy workers; this could result in higher premiums for the workers who are too sick to opt for the excepted benefit HRA. The Minnesota DOI advised the excepted benefit HRA could siphon healthy risk out of the small group market...

The proposed rule contains provisions meant to prevent this sort of risk segmentation, but the states in our sample were skeptical of the current proposal’s effectiveness.

Of all the ugly problems and headaches listed here, this to me is the single worst one: This would result in federal taxes going to pay for junk policies, which is precisely the sort of thing that the ACA was specifically designed to eliminate (or at least seriously reduce).

But there's much more:

...Several state officials discussed the potential impact of expanding HRAs on federal premium subsidies,...most lower-income workers would otherwise qualify for premium tax credits, but an offer of an HRA could cause them to lose eligibility for the federal subsidy. The D.C. marketplace pointed out that because HRAs reimburse the account holder after the fact, workers would be forced to pay 100% of their premiums upfront...

...while federal premium subsidies for marketplace coverage are determined on a sliding scale, with lower-income workers contributing a lower portion of the premium than higher-income workers, the proposed HRA rule would require all workers to pay at least 9.86 percent of their income before premium subsidies kick in. The California DOI lamented that the proposed rule perpetuates the “family glitch”...

...consumers would have to differentiate between and understand four different types of HRAs...the Washington State marketplace warned that consumer confusion about HRAs, exacerbated by current issues with health insurance literacy, could cause workers to “give up on seeking coverage altogether.”

The CHIR post goes on and on...there's at least a dozen major red flags which they've come up with right off the bat, and likely many more landmines to come.

The ultimate irony of the Trump Administration implementing this rule as of January 1, 2020 (they ignored the please to bump it out a year and still plan on making it effective just 6 1/2 months from today) is actually baked right into the text of the nearly 500-page rule:

The Departments acknowledge that the extent to which the goals of expanding coverage and options through individual coverage HRAs will be achieved depends on the existence of a stable individual market. Accordingly, the Departments are finalizing the proposed rules with conditions on individual coverage HRAs intended to prevent a negative impact on the individual market. The Departments expect individual coverage HRAs, with the safeguards in the final rules, will substantially increase the size of the individual market and will not result in significant changes in the average health risk of the individual market risk pool. The Departments also understand that currently the stability of the individual market varies a great deal across the country, and that in some places improvement will likely be needed before employers elect to offer individual coverage HRAs. The Departments considered these issues in developing the proposed and final rules and incorporated significant flexibility, including geographic flexibility, to address these issues so that each employer may choose what is best for its workforce.

I'm fairly certain that repeatedly calling for the ACA to be repealed throughout, slashing the marketing & outreach budget of the exchanges by 90% and instructing your Justice Department agree with the plaintiffs in a lawsuit designed specifically to repeal the law don't do a whole lot to ensure the "existence of a stable individual market", but hey, that's just me.

As for how many employers will actually take the HHS Dept. up on this new offer, according to the folks in the actual insurance industry itself, they seem to think it's gonna be a big fat dud. A broker/blogger I know who is not a fan of the ACA to begin with (but who I have a lot of respect for) wrote the following blog post last summer about a different, but similar Trump HHS proposal which is in the same arena...and the complaints sure sound similar to the potential problems listed above:

The response from agents was tremendous: a great deal of enthusiasm both for the free CE and the plans themselves. Which is fine, but far from the most important metric: what about their clients?

Their reaction, once learning about the caveats and limitations, has been a resounding /crickets.

..."When we receive calls inquiring about the QSEHRA plans, we explain to the employer that it is like peeling back the layers of an onion to determine if they meet the requirements to offer the QSEHRA. Below are the peels that we go through that usually become the challenges:

  • They are a subsidiary of another company.
  • Corporation Type: Sole proprietors, partners within a partnership, owners of an LLC (filing as a S or partnership), owners of an LLP and more than 2% owners of an S Corporation are prohibited from participating in the plan and the rules of attribution apply to more than 2% S Owners, thus owner’s spouses, parents, children and grandparents cannot participate. – In the majority of the calls the corporation type is what puts a “STOP” in the peeling process.
  • They offer some type of other group plan including dental and/or vision. Even if it is voluntary it disqualifies them from being eligible to offer the QSEHRA.
  • If they are considering offering the QSEHRA to include eligible out-of-pocket medical expenses, they are surprised and often not thrilled that they have to offer it to all employees (even those on spouses plan).
  • Impact on the subsidies if an employees is receiving a subsidy of tax credit. Many employers who contact us have employees with plans that do receive the subsidy of tax credit."

So what happens is that the initial enthusiasm gives way to reality, and thus very few (if, indeed, any) of these actually get implemented. Which is a shame, since the concept holds such promise.

UPDATE: (sigh) Yup, sure enough, check out the official White House press release on today's Big HRA Announcement:

  • President Trump is working to expand association health plans (AHPs), which make it more affordable for small businesses to provide health insurance to their employees.
    • Some AHPs show up to 30 percent savings on premiums.
  • The President took action to expand short-term, limited-duration plans, increasing choices for Americans facing high premiums and creating flexible options that fit their needs.
    • The premiums for these plans can cost less than half the cost of Obamacare premiums.
  • Americans will receive $45 billion of annual benefit from the expansion of these plans plus the individual mandate penalty removal, according to the Council of Economic Advisers.
  • Nearly 2 million people who would have otherwise been uninsured are expected to gain insurance thanks to the new HRA rule and expanded AHPs and short-term plans.

Bullet points hawking AHPs. Bullet points hawking STLDs. Notice what's completely missing? A single mention of actual ACA-compliant Individual Market policies.

I don't know how many businesses or employees will take up this offer, and it's possible that a significant number will actually use it to enroll in ACA-compliant policies...but the Trump Administration is making it very, very clear that they plan on pushing as hard as they can for it to be used to enroll in junk plans.