On October 12, President Trump signed an executive order aimed at "promoting healthcare choice and competition." This latest executive order on health care had been expected for some time, especially after legislative efforts to repeal the ACA failed in July and again in September. Unsurprisingly, the executive order is controversial, and attorneys general from several states already have announced they will challenge it in court.
But for the time being, nothing has really changed for employers. The executive order doesn't make any changes to health policy regulations. It simply instructs the Secretaries of Health and Human Services, Treasury and Labor to "consider proposing" regulations that would expand access to association health plans and short-term health insurance plans, and add flexibility for health reimbursement arrangements (HRAs).
The details of any proposed changes would be up to the relevant departments, and any new regulations would have to go through the normal rulemaking process that includes a notice and public comment period. So while employers should keep this on their radar, the changes stemming from the executive order are unlikely to be implemented in time for the start of the 2018 plan year.
Association Health Plans
Expanding access to association health plans (AHPs) is a primary focus of the executive order on health care. The idea is to allow small businesses to join together as an association that would either self-insure or purchase large group coverage. Self-insured group plans are regulated under ERISA rather than state regulations, which means that such plans can be offered across state lines — a concept that has been a key aspect of Republican health care reform efforts.
Under the ACA, small groups are defined as having up to 50 employees (according to the Centers for Medicare and Medicaid Services, there are four states where the definition extends to businesses with up to 100 employees), and small group health insurance is heavily regulated by the ACA. All plans with effective dates of 2014 or later must include coverage for the ACA's essential health benefits, and must fit into the actuarial value ranges allowed for metal level plans. Risk rating is no longer allowed on small group plans, as premiums can only vary based on age, geographic location and employees' tobacco use.
In contrast, the regulations that apply to the large group market (including self-insured plans) are less stringent and provide more flexibility. The goal of the executive order is to let small businesses gain access to the same level of flexibility that large groups already have, by joining together with other small businesses as part of an association. But according to the American Academy of Actuaries, the ACA-compliant small group market could be destabilized by an exodus of healthier groups taking advantage of AHPs, so there is considerable controversy around this proposition.
Health Reimbursement Arrangements
Another key tenant of the executive order is its aim to expand the utilization of health reimbursement arrangements (HRAs). HRAs already exist, but current regulations prevent large employers from using HRAs to reimburse employees for individual market health insurance premiums (small employers can reimburse individual market premiums via qualified small employer health reimbursement arrangements, which is a new provision as of 2017).
The executive order calls for proposed regulations "to expand employers' ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage." So regulations may be forthcoming to allow large employers to use HRAs to reimburse employees for nongroup health insurance. A critical question would be whether employers who do so would be in compliance with the ACA's employer mandate, as the employer mandate can only be altered or removed via additional legislation.
If large employers gain access to HRAs that can be used to reimburse a portion of their employees' individual market health insurance premiums, some employers may opt to take advantage of this option. But it's important to note that there are concerns about the stability of the individual market under the various provisions outlined in the executive order. If that option indeed becomes viable for employers, they would need to keep a close eye on their local individual markets before opting to use HRAs in place of group health insurance.
Although not directly related to the executive order, on October 12 the White House also confirmed that President Trump plans to cut CSR payments to insurers who sell healthcare plans on the ACA Exchanges. According to the White House, the payments will be stopped immediately, because of the fact that they occur monthly and are not appropriated by Congress. The announcement concerns CSR payments or the cost-sharing subsidy and not the other type of subsidy available to Exchange enrollees — the premium tax credit. In order to receive either type of subsidy, individuals must enroll in a plan offered through a health insurance Marketplace and have household income within specific Federal Poverty Level ranges.
Despite these executive actions, employers should not lose sight of the fact that the ACA is still the law of the land. Subsequently, employers should be continuing their preparations for 2017 ACA annual reporting, as the reporting requirements for employers are unchanged and IRS deadlines remain the same. Although it is seemingly inevitable, the ACA will continue to evolve, employers can move forward on the basis that nothing is really changing in the short term.
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington web page.
SIGN UP FOR THE BOOST NEWSLETTER