President Donald Trump signed an executive order Thursday in what was called the first steps in reforming the U.S. health care system. The executive order has three major directives. First, it directs the Secretary of Labor to consider expanding access to association health plans (AHPs). Second, it directs the Departments of the Treasury, Labor and Health and Human Services to consider expanding coverage through short-term limited duration insurance. It also directs those departments to consider changes to health reimbursement arrangements (HRAs).
The Trump administration hopes that expanding access to AHPs will create a broader interpretation of ERISA that could potentially allow employers in the same line of business anywhere in the country to join together to offer health care coverage to their employees. The administration believes that AHPs will be formed through existing organizations and new ones will be created for the express purpose of offering group insurance options at lower rates. Employers participating in an AHP would be prohibited from excluding employees with pre-existing conditions and from developing premiums based on health conditions.
This is an idea that has been proposed at both the national and state levels as a mechanism to open up competition across state lines to potentially millions – and one that Sen. Rand Paul of Kentucky has been promoting to President Trump for several months. Critics have expressed the following concerns: it removes state regulatory authority and places it on the federal government; history demonstrates that some AHPs have had solvency issues; and it may create additional instability in the individual market when healthier individuals are siphoned off to an employer AHP. (Individuals would be prohibited from forming their own AHPs, which might make the instability less dramatic and somewhat less concerning to insurers.)
This Indiana Chamber believes this action would be helpful to member companies and has previously discussed this policy in a positive light with our state’s delegation members.
Meanwhile, under the Affordable Care Act (ACA), short-term limited duration insurance plans were limited to 90 days. The Trump administration expects this to be increased to up to one year. This would specifically benefit individuals who are in between jobs and people who missed the open enrollment period but still want insurance.
The third directive may be the best all-around aspect of the executive order, especially if it’s expanded properly, and it could possibly assist in stabilizing the individual market. HRA plans are employer-funded medical reimbursement plans. The employer sets aside a specific amount of pre-tax dollars for employees to pay for health care expenses on an annual basis. Employer contributions to the plan are 100% tax deductible to the employer and tax-free to the employee.
Some small employers implemented this type of arrangement to help their employees cover insurance premium costs before ACA. It was less expensive and it had fewer administrative burdens versus offering a group health insurance plan. However, ACA essentially prohibited employers from paying premiums for individual health policies or reimbursing employees for individual premiums on either a pre-tax or post-tax basis (the payment or reimbursement of group health insurance premiums is still allowed). ACA subjected employers to a $100 per day ($36,500 annually) per employee penalty if they reimburse or pay any portion of individual health coverage premiums on either a pre-tax or post-tax basis.
The administration hopes that expanded HRAs will give American workers greater flexibility and control over how to finance their health care needs. The Indiana Chamber believes the expansion of HRAs should include a return to a reimbursement for individual health insurance premiums. This would allow small group employers who can’t provide for fully-insured plans but want to help employees defray costs of an individual premium for a plan to do so. And depending on what happens with the tax subsidies in the exchange, this would give employees a supplement to assist in paying for individual premiums on the exchange.
Indiana Sen. Joe Donnelly released the following statement in response to the executive order:
“The President has said all along that it’s his goal for our health care system to explode, and for the last 10 months the administration has actively worked to undermine the law at every turn. My top priority is to stabilize the insurance markets, and the best way to do that is to work together to strengthen the health care law. I’m very concerned that the continued desire to push partisan or go-it-alone plans will have the opposite effect, causing many Hoosiers to pay even more for their health care.”
Then last night, word came that the President also plans to end the ACA cost-sharing reduction payments to insurers. These subsidies help low-income people pay for out-of-pocket medical costs. The reason given by the President: The payments were unconstitutional because Congress has not appropriated money for them.