By: B. Cameron Webb, MD, JD
LAST WEEK IN REVIEW: Monday, Oct. 9th – Friday, Oct. 13th
It was another busy week in the world of health policy. Picking up where last week left off, the response to the Trump Administration’s roll back of the contraception mandate continued, with the Attorneys General of Washington state and Pennsylvania both filing lawsuits against the Administration. Sticking with state health policy,California Governor Jerry Brown signed what is now the nation’s most comprehensive drug pricing transparency bill on Tuesday, which touched off some interesting responses from the pharmaceutical industry.
From the Administration, President Trump addressed a critical gap in his leadership team, formally naming Eric Hargan as the acting United States Secretary of Health and Human Services (HHS). Meanwhile the Food and Drug Administration (FDA) held their inaugural meeting of a new Patient Engagement Advisory Committee to better engage patients in the agency’s regulatory activities.
But despite the range of activity, the week’s biggest news in health policy came on Thursday, when President Trump signed an Executive Order (EO) entitled “Promoting Healthcare Choice and Competition Across the United States” followed by HHS’s announcement that they would discontinue cost-sharing reductions (CSR) payments effective immediately. We’ll provide viewpoints on both of these big moves from the Trump Administration in this week’s Spotlight.
SPOTLIGHT: Trump’s Health EO & the end of the ACA’s CSR payments
KEVIN LAMARQUE/REUTERS
After sifting through the deluge of news alerts and the endless discussion on major media outlets, most people are still a little confused as to what exactly the administration did to Obamacare, or to the Affordable Care Act (ACA), or—wait, aren’t those the same thing? Did the President just repeal and replace the ACA? Can Virginians buy health insurance from Maryland? What will happen to health insurance premiums for most Americans? We’re going to break down the EO and the HHS announcement so you start off your week in the know.
The Executive Order
The EO led with an announcement of the Administration’s policy toward healthcare—namely, the “development and operation of healthcare system that provides high quality care at affordable prices for the American people.” To that end, they identified three priority areas within the EO that will serve as the short-term policy targets for the Trump Administration: association health plans (AHPs), short-term, limited-duration insurance (STLDI), and health reimbursement arrangements (HRAs).
Association Health Plans
The first health insurance innovation described in the EO is actually an old conservative favorite. While, more recently, they have been associated with Senator Rand Paul of Kentucky, AHPs have been pitched in federal health legislation since the late-1990s, sometimes referred to as “Small Business Health Plans.” The basic premise is that individuals and small businesses could group together to self-insure or purchase large group health insurance. Presumably, this would help small businesses overcome a competitive disadvantage by allowing them to optimize the terms of their health insurance. It would also help small businesses avoid some ACA requirements. Most importantly, the Administration sees AHPs as an opportunity to provide more affordable health insurance options for Americans, with these groups being able to obtain better terms on health insurance due to an enhanced ability to spread risk and distribute administrative costs.
Critics of the AHP model, however, highlight a range of unintended consequences for patients and for the marketplace as a whole. First, use of AHPs could result in market segmentation that could threaten the viability of other insurance products, making it more difficult for high-cost individuals and groups to obtain coverage. Next, there is the concern that AHPs could skirt state patient protections, such as access to certain services (e.g., emergency care and specialists) or state solvency requirements. Additionally, some have noted that it would be unlikely for AHPs to obtain lower provider payment rates than larger insurance companies, but would more likely need to “rent” provider networks and pay associated access fees—cutting into the potential savings they could attain.
Short-term, limited duration insurance
In brief, the name says it all. While short-term, limited-duration insurance (STLDI) was intended to function as transitional coverage—for example, when individuals are between jobs—an increasing number of Americans used these plans as an alternative to traditional insurance products in recent years. In October 2016, the Obama Administration attempted to curb the use of these plans as primary insurance by limiting their duration to 90 days (down from 364 days). In the EO, the Trump Administration highlighted the ACA-noncompliant nature of these plans as part of their appeal. As viable, alternative mechanisms of obtaining insurance without having to comply with the ACA’s mandates and regulations, the Administration hopes to increase the overall duration that policyholders could have STLDI plans as well as the number of times they could renew the policies.
Last fall, when changing the regulations around STLDI, the Obama Administration criticized these plans as being of generally poor value for patients. Additionally, they argued that deregulation of these plans would adversely affect the exchange risk pools. Others disagreed, believing that STLDI more effectively meets the needs of some healthier individuals and should be welcomed as complimenting the exchange rather than supplementing it. The National Association of Insurance Commissioners (NAIC) added that the 90-day limitation would prevent only those who became seriously ill within 90 days from renewing plans, sending disproportionately costly individuals to the exchanges. In the end, the support for a longer “short-term” (364 days versus 90 days), is largely centered around the idea that STLDI is an attractive alternative for insurance to some Americans, and eliminating it through regulations as a means of protecting or improving the ObamaCare health insurance exchanges amounts to an unfair government intervention.
Health Reimbursement Arrangements
The final priority area described in the EO was health reimbursement arrangements (HRAs). For starters, HRAs are distinct from health savings accounts (HSAs), the latter being the more oft-proposed idea in conservative health policy circles. As a payment mechanism for health care, HRAs are tax-advantaged accounts that provide employers with enormous flexibility. From choosing eligible expenses, deciding whether or not funds can be carried over, and considering whether or not to fund the accounts, employers have the greatest choice in reimbursing health care costs when it comes to HRAs. Over the next four months, the Administration will consider proposing regulations or revising guidance to make it easier for employers to offer HRAs to their employees.
Although the details remain to be seen, several challenges have been described with previous iterations of HRA proposals. First, as they are employer-funded, there often is no portability of the accounts. Additionally, there tends to be a lack of standardization between HRAs, leaving employees to face different reimbursement rules if and when they change employers. Finally, reimbursements are just that—typically leaving patients on the hook for medical expenses, receiving reimbursement only after showing proof of their insurance premium and medical expenses.
EO Summary
President Trump’s Executive Order made a big splash in the news, but while it was long on style—complete with an announcement from the Roosevelt Room in the West Wing—it was relatively short on details. Over the next few months, the Administration will consider these and other ideas, and presumably promulgate rules around AHPs, STLDI and HRAs (how’s that for some alphabet soup?). Those details—the execution of this Executive Order—will offer the first real chance to predict how this order will impact the American people.
Discontinuing Cost-Sharing Reduction Payments
While the Health Care Executive Order was effectively the Administration’s preliminary thought paper on expanding choice through the insurance marketplace, a much more impactful action on the insurance marketplace played out quietly with a press release from the Department of Health and Human Services (HHS). The administration’s decision to immediately discontinue cost-sharing reductions (CSR) payments stands to have significant implications not only for the upcoming open enrollment period, but also for the wallets of some of the most vulnerable Americans.
What are CSR payments?
First of all, it’s important to understand which Obamacare subsidy was impacted. The two health insurance marketplace subsidies created by the ACA are the premium tax credit and the cost-sharing subsidies (both are described in detail here). The cost-sharing subsidies reduce out-of-pocket expenses (deductibles, copayments, and coinsurance) for Marketplace participants with incomes from 100% to 250% of the federal poverty line who are enrolled in a silver plan. These CSR payments cost the federal government $7 billion in 2016, and 7 million people—or 58 percent of all Obamacare enrollees—qualified for these CSR subsidies for 2017.
Why were CSR payments targeted by the Trump Administration?
After the ACA was passed, the Obama Administration began identifying how it would pay for the cost-sharing reduction payments. While the permanent Treasury appropriation for tax credits could be used for premium tax credits, Treasury counsel determined in 2012 that this allocation could not be used for CSR payments.
After initially requesting a $4 billion annual allocation for CSR payments in the FY 2014 budget, the administration later withdrew this appropriation request, asserting that it had legal authority to fund the CSR program through the premium tax credit account. The House of Representatives filed suit against the Obama Administration in July 2014, challenging the government reimbursements to health insurance companies for CSRs on the grounds that Congress had not appropriated the money to fund them.
In May 2016, the District Court for the District of Columbia ruled in favor of the House of Representatives, saying that the cost-sharing program was spending money not appropriated by Congress. Still, the Judge did find that Congress had, in fact, authorized the program’s creation. While the Court’s ruling would have prohibited CSR reimbursements until a valid appropriation was in place, the Judge stayed the injunction and allowed the subsidies to continue pending appeal. After President Trump’s election, the appeal was on hold as the House and the Trump Adminstration attempted to negotiate a settlement.
In February 2017, the House of Representatives and Trump Administration’s Department of Justice asked the court to temporarily hold off on a judicial determination in the appeal, allowing time for other resolutions, including potential legislative action. After Congress was unable to pass legislation to repeal/replace the ACA, the Administration decided last week to move forward with the District court’s determination that the payments were unlawful, end the appeal, and immediately discontinue CSR payments.
What will be the impact of the discontinuation of CSR payments?
Although HHS stated an immediate need to discontinue payments in light of the legal opinion issued by Attorney General Jeff Sessions on October 12, the reasons that the Administration previously delayed ending its appeal and initiating such action went without mention. Namely, there was no description of any continued effort to find a legislative or other means of mitigating the significant impacts of such an action, beyond ending a so-called bailout of health insurance companies and ending unlawful federal spending.
For patients, with 58 percent of enrollees in the Marketplace qualifying for CSR payments last year, there will certainly be a significant financial impact on patients if this action proceeds without intervention. For enrollees with incomes below 150 percent of poverty, there was an average reduction in the out-of-pocket limit of $5,587 through CSR payments. Those with incomes between 150% and 200% of poverty and between 200% and 250% of poverty, saw $4,653 and $1,294 reductions in their out-of-pocket limits, respectively. For middle-class families who never qualified for CSR payments in the first place—those with incomes greater than 400% of poverty—they are likely to see their premiums increase an estimated 20 percent nationwide.
While the Marketplace was already facing reduced participation of insurers, the Adminstration’s decision could drive more insurers out of the exchanges. This is because the termination of CSR payments is a stated cause for termination of their participation in the exchange in the contracts with the federal exchange. While many insurers factored the potential discontinuation of CSR payments into their bids for 2018, those who did not could be facing a significant shortfall in payments.
Finally, there are estimates on the broader impact of this decision as well. Back in August, the Congressional Budget Office (CBO) estimated that ending CSR payments would increase the federal deficit by $6 billion in 2018, and by a total of $194 billion over the next ten years. The increase was estimated to occur largely due to corresponding increases in health insurance premiums (and, as such, premium subsidies).
What’s next?
Several states have already intervened in the appeal, and may seek to block the withdrawal of CSR payments. Other legal action from the states may be forthcoming as well, with multiple state Attorneys General indicating their intention to file suit. Finally, Congress could decide to provide an appropriation to fund the CSRs under the intensified urging from patients, insurers, and other key stakeholders.
In the meantime, there is tremendous uncertainty regarding the stability of the Marketplace heading into Open Enrollment (November 1 – December 15). The extent to which this will impact individual or insurer willingness to participate in the Marketplace remains to be seen. For now, all eyes are on health insurers and on Congress to see how they both respond in the short-term.
Student Contributors on this Article:
Marissa Alvarez, Chad Fletcher, Shaina Haque