The president’s executive order on health care: Not repeal, but is it a big deal?
Health Care Current | October 24, 2017
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The president’s executive order on health care: Not repeal, but is it a big deal?
By Anne Phelps, principal, US Health Care Regulatory Leader, Deloitte & Touche LLP
On October 12, the White House issued an executive order directing the Departments of Health and Human Services (HHS), Treasury and Labor to consider promulgating new rules – or reinterpret existing ones – to affect the small group and individual insurance markets with the stated goal of expanding consumer choices. Since its release, quite a bit of information (and some misinformation) has come out about the order’s potential impact on the markets.
In addition, over the weekend, the administration emphasized its desire for Congress to eliminate the individual and employer mandate provisions of the Affordable Care Act (ACA), suggesting such changes will likely be included in the bipartisan legislation now working its way through the Senate. If enacted later this year, and in conjunction with the changes the agencies are reviewing under the executive order, we could be on a clear path to allow employers to offer money to workers to buy cheaper coverage in the individual market.
Depending on how the agencies move forward with the executive order, and what Congress does with the mandates, I think there is potential for significant impact on the individual, small group, and perhaps even the larger group insurance markets. But let’s start with the basics.
What is an executive order? On its own, an executive order does not change existing laws or regulations. It is essentially a formal, but broad set of instructions from the president that directs federal agencies to create, rescind, reinterpret, or modify certain regulations under existing law. In this case, the president directed HHS, Treasury, and Labor to revisit several existing regulations under the ACA, including regulations that govern employer plans.
From my perspective, special attention should likely be paid to two provisions included in the executive order. First, the directive to consider – within 60 days – existing regulations regarding the formation of association health plans (AHPs) for small employers. Second, the directive to consider – within 120 days – existing guidance that currently limits the use of health reimbursement arrangements (HRAs) by employers to allow their employees to purchase coverage in the individual market.
AHPs: There is a very long legislative and regulatory history around the formation of AHPs. The general idea has been whether and how to allow small employers with common interests (e.g., “associations” of trades or industries) to band together, pool their employees, and form an employer plan. This could give small employers leverage in the market when negotiating rates with health plans, and could allow them to operate like a large employer that enjoys the ability to offer uniform arrangements under federal law and are not subject to state-by-state benefit mandates.
In order to assess the market impact, we will need to watch how the regulators rule on some of the following key questions:
- How broadly will an “association” be defined, and will an association be treated as all other employer plans that offer benefits?
- What is the size of the employers that can join? Is it limited to smaller employers with 50 employees, or open to larger employers with say 500 employees?
- Would AHPs be fully insured entities – potentially working with traditional health insurers to manage risk – or would they be self-insured arrangements where they are responsible for managing the premiums that must be collected and the payments that cover the cost of care?
- If self-insured, how do the agencies set forth the fiduciary and solvency requirements for these plans?
The solvency requirements for self-insured AHPs, which the executive order hints at, might be the most important question here. Self-insuring means the association, rather than an insurance company, is responsible for paying medical claims. Self-insured organizations similar to AHPs ran into financial problems in the early 2000s. Multiple employer welfare arrangements (MEWAs) allowed employers with two or more employees, or self-insured people, to self-insure. However, unlike insurance companies, MEWA enrollees had no protections if the organization was unable to pay its medical claims. As a result, several large MEWAs left behind millions in unpaid claims and thousands of people without health coverage. It will be critical to watch how the past pitfalls of MEWAs will influence agency action around this provision.
HRAs: In 2002, the Treasury Department authorized the issuance of HRAs. An HRA is a notional account, which means it isn’t funded up front with actual dollars. Rather, it works more like an IOU from the employer as an unfunded arrangement designed to reimburse employees for medical expenses including health care premiums. Similar to health savings accounts (HSAs), unused HRA dollars roll over at the end of the year. Unlike HSAs, HRA funds belong to the employer, not the employee. But importantly, these accounts were generally treated as employer-sponsored plans that were compliant with the ACA insurance market reforms and the employer and individual mandates if they were integrated with the employer group health plan.
So, is there an issue? In 2013, the Treasury Department issued a notice explaining whether the reimbursement funds in these accounts could be used by employees to purchase coverage on the individual market. In sum, the answer was no. Generally, the agencies ruled that the “stand-alone” HRAs (other than ones limited to reimbursement of “excepted benefits”) could not be maintained for active employees as they would violate the ACA insurance market reform rules such as the requirement not to impose annual or lifetime limits. In other words, there was no way to “define” the contribution that would need to be placed in the accounts to satisfy the market reforms and the employer and individual mandate standards for coverage.
Like the AHP provision of the executive order, there are key questions about HRAs that likely need to be answered to determine how the use of HRAs could be expanded under the legal constraints imposed by the ACA. Such questions include:
- Will the HRA still be treated as an employer plan under the ACA?
- Will the definition of an “excepted benefit” be expanded to ease the limits on HRAs and thus eliminate the need to satisfy the insurance reform mandates?
- If treated as an excepted benefit, how will revisions be made to satisfy the ACA’s individual and employer mandates in order to meet the minimum essential coverage and affordability standards?
- Will individuals be able to purchase coverage on the public exchanges or only on the private/non-exchange individual market?
In a nutshell, I believe the resolution of these issues could have tremendous impact on the insurance markets. This could be a major step toward a “defined” contribution approach – an employer puts money into an account to reimburse an employee for premiums and medical claims for coverage in the individual market. What will be critical to watch in the upcoming guidance is how this type of reimbursement account affects the insurance market if these type of arrangements do not need to meet the insurance market reforms, the employer mandate (offering coverage to certain employees that is affordable and of minimum value), and the minimum essential coverage standard to satisfy the individual mandate.
If Congress steps in and repeals the individual and employer mandates through legislation, it could clear the way for HRAs to be used by employers to offer money to employees that could be used to buy coverage in the individual market that would not necessarily have to meet the affordability or minimum essential coverage standards.
What happens next? Until we have more guidance from the administration, it is unclear how AHPs or HRAs will operate, or what impact they might have on the small group and individual markets. My take on this executive order is that while it has the potential to impact the small group and individual markets, there are still far too many unanswered questions at this point to know for certain what the impact will be. What is certain at this point, is this executive order is contributing to an uncertain environment for health plans. As we continue toward the end of 2017 – and into the 60- and 120-day periods for the agencies – it will be important to keep watch on agency actions that are in response to this executive order and how quickly it will impact the 2018 markets.
In the news
After the administration decided to cease cost-sharing reduction (CSR) payments last week, several health plans asked to refile 2018 rates (see the October 17, 2017 Health Care Current).
The effect on health plans and enrollees of the nonpayment varies depending on whether plans anticipated this action in their premiums for 2018. Insurance and exchange officials in some states directed plans to offer rates under both scenarios and others are having plans increase their rates now to reflect the decision. For example, Oregon allowed insurers to increase rates for silver plans by 7.1 percent after the CSR nonpayment announcement, and Pennsylvania, which originally projected premiums for silver plans would increase by 8 percent, announced silver plan premiums would increase 31 percent.
CSRs are only available for silver plans, so the premium hikes will probably not apply to bronze, gold, or platinum plans. Some observers point out that premiums for gold plans could end up being lower than silver plans for people who are not eligible for premium subsidies. In other states, plans have chosen to increase premiums for all types of benefit packages to make up for the lost revenues.
The attorneys general (AGs) of eighteen states and the District of Columbia filed an ex parte notion with the US District Court for the Northern District of California, seeking to compel the administration to continue making the CSR payments. The AGs contend the administration’s actions violate the Administrative Procedures Act, in addition to the ACA, and constitute a breach of the executive branch’s constitutional duty.
Related: Senator Lamar Alexander (R-Tenn.), chairman of the Health, Education, Labor, and Pensions (HELP) Committee, and Patty Murray (D-Wash.), the ranking member, announced on October 17 that they developed a bill that would include funding for CSRs for two years. The agreement would also provide more flexibility to states submitting 1332 waivers. It would also allow people over age 30 to purchase catastrophic plans, which are currently only available to people under age 30. As of October 19, the bill had 24 co-sponsors, including 12 Republicans.
HELP Committee debates drug importation and rebates
On October 17, the Senate HELP Committee held its second hearing on drug prices (see the June 20, 2017 Health Care Current for information on the first hearing). The committee discussed potential ways to lower drug costs including importing drugs from Canada and other countries where pharmaceuticals are less expensive and implementing policies that promote transparency or simplify drug rebates.
Witnesses included representatives from branded and generic drug manufacturers, as well as pharmacists, drug distributors, and pharmacy benefit managers.
Chairman Alexander (R-Tenn.) stressed having affordable medications for consumers, balanced with companies being able to develop innovative new products. Ranking Member Murray (D-Wash.) said she wanted more transparency around drug prices, and said Medicare should be allowed to negotiate drug prices. She also suggested that some pharmaceutical companies engage in anticompetitive behavior, such as delaying generic entry into the market, which drives up costs.
Some senators used the hearing as an opportunity to discuss their concerns of the Drug Enforcement Agency’s oversight of opioid shipments.
Senate approves budget resolution with cuts to Medicare and Medicaid
On October 19, the Senate approved the $4 trillion 2018 budget package that paves the way for tax reform (read a full summary and analysis of the implications in Deloitte’s Tax News and Views). The package aims to reduce Medicare spending by $473 billion, and Medicaid spending by $1 trillion over the next 10 years, according to Budget Committee ranking member, Bernie Sanders (I-Vt.). Senate Budget Chairman Michael Enzi (R-Wyo.) said that cuts are needed to make Medicare and Medicaid more sustainable, and they would total a 1 percent reduction annually in the projected growth of the two programs.
The budget proposal, which needs to be reconciled with the House budget, is a nonbinding proposal that sets top-line totals for the committees to use when drafting spending bills. It includes reconciliation instructions that allow the Senate to pass the administration’s tax-reform proposal with a simple majority, rather than 60 votes.
New ACO data reveals significant savings for CMS in 2016
On October 13, US Centers for Medicare and Medicaid Services (CMS) released quality and performance data for three of its accountable care organization (ACO) innovation models: Pioneer, Next Generation, and Comprehensive ESRD. Last year, the three models saved the Medicare Trust Fund $836 million ($70.6 million net) combined. ACOs began under the ACA as a way to decrease health care costs while improving the quality of services.
The Pioneer model, which has been in place the longest, coordinates care for Medicare beneficiaries among physicians, hospitals, and other providers. ACOs receive a proportion of the total savings if their total spending is at or lower than a certain benchmark and they meet minimum quality measures. Pioneer began with 32 ACOs in 2012 and concluded with eight last year. All of the ACOs in 2016 had some savings, and six had high enough savings to qualify for shared savings.
The elements of the Next Generation ACOs reflected experience with the Pioneer ACOs. Under the Next Generation model, participants had to take on more risk and could earn a larger reward than under the Pioneer model. Providers also had access to “benefit enhancements” – waivers for certain Medicare service rules – to help them better care for patients. Eleven of the 18 Next Generation ACOs had savings last year, totaling $71 million.
The Comprehensive ESRD Care model, which also began last year, focuses on services provided by dialysis clinics, nephrologists, and others to beneficiaries with end-stage renal disease (ESRD). Although less than 1 percent of Medicare beneficiaries need ESRD care, their treatment accounts for more than 7 percent of Medicare fee-for-service spending, according to CMS’s website.
VA provides Congress with plan for health care system overhaul
On October 16, the Department of Veterans Affairs (VA) released its plan to improve access to its hospital facilities and eliminate the controversial “Choice” program, which allows eligible veterans to receive care outside of VA facilities under certain circumstances.
The proposed plan, the Veterans Coordinated Access and Rewarding Experiences (CARE) Act, would let veterans decide with their VA physicians if they want to seek care at non-VA facilities. They would also be permitted to visit walk-in clinics for minor injuries and illnesses. In addition to giving veterans more flexibility in determining where and when to seek care, the legislation is hoped to cut wait times at VA facilities.
The bill also seeks to coordinate care, streamline administrative processes, improve financial management, and bolster the VA’s medical workforce.
Congress and the president would need to approve the bill. Some veterans’ organizations and members of Congress have voiced concern that this Act could force more veterans to seek private care and undermine the VA system.
Medicaid enrollment growth slows but spending increases
Medicaid enrollment growth was 2.7 percent in 2017, down from 3.9 percent in 2016, according to the Kaiser Family Foundation. A stabilizing economy and fewer states expanding their Medicaid programs contributed to the slower growth rate. Total Medicaid spending growth was 3.9 percent in 2017, up from 3.5 percent in 2016.
Researchers predicted that Medicaid spending would increase slightly in the coming year because of rising prescription drug costs, provider rate increases, and growth in the cost of long-term care services.
Generally, the report noted the uncertainty of the Medicaid program going forward. Some states that did not expand eligibility under the ACA have placed potential expansion on hold because of the unclear future of the ACA. Additionally, several states are considering and applying for Section 1115 waivers that would reduce enrollment, including adding premiums.
The report noted that thirty-nine states use managed care organizations (MCOs) in Medicaid, with 29 states having 75 percent or more of their Medicaid population enrolled in the MCOs. States are using their MCOs to promote alternative payment models, and to address beneficiaries’ social determinants of health. The Deloitte Center for Health Solutions looked at how Medicaid initiatives might align with the Medicare Quality Payment Program (QPP) established by the Medicare Access and CHIP Reauthorization Act to reinforce value-based care initiatives and drive system-wide change.
Background: Kaiser and Health Management Associates surveyed all 50 states and DC for the data.
(Source: Kathleen Gifford, et al., “Medicaid Moving Ahead in Uncertain Times: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2017 and 2018,” Henry J. Kaiser Family Foundation, October 19, 2017)
Minnesota moves to implement reinsurance program for exchange
Minnesota is implementing its reinsurance program for its state-run insurance exchange, despite a disagreement over federal funding. In its waiver approval, released September 22, CMS said it will not give Minnesota the same amount of overall funding that would have been available without the waiver. As the decision stands, Minnesota will lose about $369 million in federal funding.
The state is one of two that created a Basic Health Program (BHP) under the ACA, which provides benefit coverage for low-income residents who would otherwise be eligible for subsidies on the exchange. Through the BHP, beneficiaries get more coverage, and the state can better coordinate coverage for those who fluctuate between the Children’s Health Insurance Program (CHIP), Medicaid, and BHP eligibility. States with BHPs receive federal funding equal to 95 percent of the amount of the premium tax credits and the CSRs otherwise provided to eligible individuals in the exchange.
The state had requested funding to support the reinsurance program and to maintain current levels of funding in the BHP under the waiver. CMS approved the reinsurance program, but said that funding would likely decrease for the BHP. The agency also said that savings from the BHP program would not be returned to the state. Governor Mark Dayton disagreed with that decision and said he would appeal or work with Congress. He signed the waiver agreement so the state could proceed with the reinsurance program.
Under the reinsurance program, the state will pay for 50 percent of beneficiary claims above $50,000.
Related: CMS also approved a reinsurance waiver for Oregon. Though the approval does not indicate how much funding the state will receive in 2018, CMS said it would provide more details before December 30.
Innovations in addressing childhood obesity
HHS has challenged mobile app developers and other technology innovators to design an intervention to promote nutrition, health, and fitness among low-income children and families. The winner of the competition will receive a $150,000 prize, with other participants eligible for cash prizes as well.
The HHS challenge has three phases: design, development and small-scale testing, and scaling. The interventions must address childhood obesity from a population-based perspective and apply to low-income communities, and can include mobile apps or other technology-based innovations. The Health Resources and Services Administration (HRSA) is sponsoring the competition.
HHS has identified childhood obesity as a priority target for the agency. Rates of obesity in children have tripled in the past four decades, and there is no one-size-fits-all solution. Research shows that effective strategies will likely be multi-faceted and target issues such as food availability, environmental factors such as neighborhood safety, and social and cultural norms, rather than just interventions that increase exercise or offer dieting tips.
HHS acknowledges that there are many existing apps and tools to address individual behaviors, such as exercise and nutrition, but the agency urges potential competitors to think about how to tailor their tools and interventions to underserved communities and their unique barriers. The Federal Register announcement offers a range of activities for competitors to address. They include:
- Promoting access to healthy, affordable food;
- Supporting community-owned solutions that increase families' knowledge and skills related to healthy eating and nutrition;
- Finding innovative ways that increase physical activity, such as gamification, while accounting for environmental barriers to physical activity in underserved communities; and
- Empowering families to achieve healthy eating practices, healthy lifestyles, and sustainable changes in the home environment, while accounting for limited access to healthy foods in under-resourced communities.
HHS staff and experts in childhood obesity make up the judging panel, choosing between seven and 10 winners in the first phase who will be eligible to win up to $100,000. Criteria will include accessibility, impact, sustainability, implementation, and scalability. The phase 1 submission period ends January 31, 2018. Phase 2 will have between three and five winners, eligible for up to $125,000. The winner of the third and final phase will receive the $150,000 cash prize.
Related: Earlier this month, research released by the Centers for Disease Control and Prevention showed that growth in obesity is a barrier to reducing cancer. Scientists now estimate that 40 percent of all cancers in the US are likely related to overweight and obesity. The study was based on data from more than 1,000 studies conducted between 2005 and 2014. Excess weight might fuel cancer growth by increasing inflammation in the body and altering levels of insulin and hormones, which could trigger uncontrolled cell growth. About two-thirds of adults in the US are overweight or obese, defined as having a body mass index of at least 25 (overweight) or at least 30 (obese). Compared with adults who are at a healthy weight, overweight and obese adults are nearly twice as likely to develop certain cancers, including esophageal, stomach, liver, and kidney cancer, while obese adults are approximately 30 percent more likely to develop colorectal cancer. The research has implications for childhood obesity given that studies indicate being obese as a child greatly increases the risk of obesity in adulthood.