Last week, the Administration took two actions aimed at rattling the foundations of the Affordable Care Act (ACA).  The President signed an Executive Order (EO) directing federal agencies to relax restrictions on insurance plans that do not have to comply with certain ACA rules.  The Administration followed that with an announcement they will cut off  subsidy payments to insurers selling coverage under the ACA.

The EO is designed to eliminate regulations that “limit choice and competition” for the purchase of insurance.  This includes allowing insurance to be sold across state lines and addressing rising premiums.  To achieve these goals, the EO directs the Departments of Labor, Treasury, and Health and Human Services (HHS) to reduce limits on temporary or short-term insurance plans, association health plans, and health reimbursement arrangements.  It is worth noting, while there was much fanfare when the EO was released, the regulatory agencies have not and are not required to issue regulations for 60 days for association and short term plans and 120 days for health reimbursement arrangements. 

Here is a quick take on the steps put forward in the EO.  First, association health plans. The ACA permits insurance offered by an employer to an employee.  However, association health plans would not fit that definition. Under the EO, business associations or chambers of commerce would now be able to offer group health plans.  These plans would be regulated under the Employee Retirement Income Security Act of 1974 rather than state insurance regulators, thus making them available across state lines.  Second, with respect to temporary plans, currently under the ACA, individuals who only have short-term insurance without some additional compliant coverage would not meet the individual mandate and would be forced to pay a penalty.  The EO suggests that short-term plans should in fact be sufficient to meet coverage requirements.   Finally, the EO directs regulators to loosen restrictions on the use of health reimbursement arraignments, which means they could be used to pay premiums. 

The second, and perhaps more controversial action, was the decision to end subsidies, also known as cost sharing reduction (CSR) payments.  Insurers had long claimed that CSR payments were necessary for them to remain in Obamacare exchanges while others have argued that they were costly and possibly even illegal.  The Administration took this action based on a legal memorandum from the Department of Justice (DOJ) that concluded that the ACA does not provide an appropriation for CSRs. 

CSR payments help reduce insurance co-payments and deductibles for low income consumers on the ACA exchanges.  The reductions are mandated by law and the CSRs act as an offset.  The Republican-controlled United States House of Representatives has sued in Federal Court to end CSRs arguing that there was no appropriation given by Congress and therefore no ability to pay.  On Friday, 18 states and the District of Columbia sued the Administration to block its action arguing that the action’s legal basis – the lack of mandatory budget authority – was not properly explained, thus making the determination to terminate payments arbitrary and capricious.  CSR payments were estimated to be $7 billion this year and likely to increase over time.   While insurers have set rates for 2018, ending CSRs now could have future impacts including higher rates and fewer insurers participating in the ACA exchanges.   Finally, cutting off CSR payments puts greater pressure on Senators Lamar Alexander (R-TN) and Patty Murray (D-WA), who have been working to develop a legislative solution to stabilize ACA-related insurance markets.  Given the potential disruption, that solution could include authority, and funding, to restart CSR payments.

With Congress still wrestling with how to repeal and replace the ACA, last week’s actions are not the last from the Administration.  We’ll be watching and reporting as issues and new activity arise.

UPDATE 10/25/2017  Today, U.S. District Judge Vince Chhabria of the United States District Court, Northern District of California, issued a ruling denying a request by 19 attorneys general that the Administration immediately resume CSR payments.  The opinion and other court documents are available here.

Posted by Vince Sampson