After a fiery beginning with the issuance of a broad executive order on Inauguration Day entitled “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal,” and the cutting off of television advertising in the final days of the 2017 open enrollment period, the Trump administration has been largely quiet on ACA issues during its first two weeks.
Awaiting A Proposed Market Stabilization Rule
On February 1, 2017, the administration sent to the Office of Management and Budget a proposed “market stabilization” rule. The proposed rule is rumored to contain a provision that would raise the age rating ratio in the individual market from the statutory 3-to-1 ratio to 3.49-to-1, increasing premiums for older people and decreasing them for younger enrollees. The proposed rule is also reported to: shorten the 2018 open enrollment period to a month and a half; tighten verification for special enrollment eligibility; permit insurers to sell plans with lower actuarial values; and tighten grace period rules—in sum, giving insurers everything they believe is needed to stabilize the individual insurance market, regardless of the potential harm such changes may have on consumers.
It is important to emphasize that we do not know exactly what is in the proposed rule and that its contents may well change under OMB review. When it is issued, it will be as a proposal subject to comment for a period of time. HHS will then have to review and respond to the comments and issue a final rule, explaining its reasoning for adopting the position it adopts. If the rule violates the ACA (as a 3.49 to 1 age ratio would), it will be subject to legal challenge. The administration may try to expedite the change by putting out an interim final rule without notice and comment, but to do so, it would have to show something close to an emergency, which clearly does not exist since most of the proposed changes would not apply until 2018. The market rules for 2017 are generally fixed and incorporated into insurance contracts.
As the OMB considers the proposed rule, the business of government goes on.
Tax Treatment Of Benefits Paid By Fixed-Indemnity Health Plans
On January 20, 2017, Inauguration Day, the Internal Revenue Service Office of the General Counsel released a Memorandum addressing the Tax Treatment of Benefits Paid by Fixed-Indemnity Health Plans. Fixed indemnity plans are “excepted benefits” under the ACA. Excepted benefits are health and health-like benefits, such as dental and vision coverage or long-term care insurance, that do not offer comprehensive medical coverage,. Excepted benefit coverage is exempt from the requirements of the ACA. It also does not qualify as “minimum essential coverage.” Thus, an individual who has only excepted benefit coverage must pay the individual mandate penalty and a large employer that offers only excepted benefit coverage to its full-time employees will have to pay the employer mandate penalty.
Fixed indemnity coverage is excepted benefit coverage that pays a fixed amount per service or per time period of service without regard to the cost of the service or the type of items or services provided. In 2014, HHS issued regulations requiring insurers selling fixed indemnity coverage in the individual market to provide a warning to applicants that it was not a substitute for major medical coverage and that an individual who purchased only fixed indemnity coverage would have to pay the individual mandate penalty.
The rule further required insurers or agents marketing fixed indemnity policies to obtain an attestation from applicants that they already had ACA-compliant minimum essential coverage. The attestation requirement was struck down by a federal district court, which held that HHS lacked the authority to impose it, a decision upheld on appeal. The warning requirement still applies, however.
The General Counsel Memorandum addresses the tax treatment of employer-sponsored fixed indemnity coverage. Employer-sponsored major medical insurance coverage is essentially excluded from taxation twice—first under section 106(a) of the Internal Revenue Code when the employer pays for the coverage and second under section 105(b) when the insurer reimburses the cost of a medical product or service. Amounts paid by health insurance are also not taxable under section 104(a)(3), but only if they are attributable to employer contributions that were included in gross income. If an employee chooses to receive health benefits through a section 125 plan in lieu of taxable cash contributions, the cost of the coverage is excludable from gross income under section 106. The rules for exclusion of employee compensation from Social Security, Medicare, and federal unemployment taxation generally follow the rules imposed by sections 105, 106, and 125.
Fixed-indemnity coverage is health plan coverage within the meaning of section 106(a), therefore employer payments for fixed indemnity coverage are not taxable. On the other hand, fixed indemnity payments do not pay for or reimburse the cost of medical care—they are paid regardless of actual cost. An employee might receive a $200 payment for a $30 service, or vice versa). Fixed indemnity payments are thus taxable. This is true even if the indemnity policy is paid for through a 125 plan or a wellness program. Fixed indemnity payments are only free from taxation if the employer’s payments for the coverage itself are taxable under 104(a)(3).
If the enforcement of the individual and employer mandates were weakened in some way by the Trump administration, it is possible that some employers and some individuals (probably particularly young and healthy consumers) might turn increasingly to fixed indemnity coverage because it can be quite inexpensive. The fact that the benefits are taxable may be something of a deterrent. This may help encourage the provision of comprehensive medical coverage, and thus to the stability of health insurance markets.
Ongoing Program Guidance Includes Details On Cost-Sharing Reduction
In other matters, CMS continues to issue program guidance at its Regtap.info website (registration required) as if nothing had changed. On February 7, 2017, it released a timeline for EDGE server milestones for the next few months, and several guidances on cost-sharing reduction payments.
One of these guidances provides that qualified health plans continue to be eligible for cost-sharing reduction reimbursement after an enrollee is terminated from the plan if the plan is responsible under state law to continue to pay under an extension-of-benefit requirement for the duration of a pregnancy, hospitalization, or disability. Another release announces the availability of a web form for choosing a cost-sharing reconciliation methodology for 2017. A third release states that for 2017, CMS will not apply the methodology it announced in December of 2016 for QHPs to use to ensure the application of accumulated cost-sharing when an enrollee moves from a standard plan to a reduced cost-sharing variation plan (or vice versa). But, the release states, QHPs are still responsible for transferring accumulated cost sharing. This guidance states that the methodology is being delayed because of the operational burden of the new policy. This could be a response to the Trump administration’s Executive Order, but also could just be a routine adjustment in CMS policy.
Describing The Health Insurance Markets
On January 31, 2017, the Government Accountability Office offered testimony to Congress on Concentration, Plan Availability and Premiums, and Enrollee Experiences in Health Insurance Markets Since 2014. The report merely summarizes earlier reports and contains nothing new, but it certainly does not describe a market on the verge of collapse, as the Trump administration and Congressional Republicans have recently claimed. While the number of insurers participating in the individual market decreased in most states after the ACA reforms went into place in 2014, most of the insurers that exited the markets had very small market shares. Most consumers continued to have multiple plans available at several metal tiers with a range of premiums through 2017. Most health insurance exchange enrollees continue to be satisfied with their coverage, and the concerns of enrollees who express concerns involve issues that apply to private insurance generally, such as high cost sharing or difficulty in understanding the product.
Update Of Civil Money Penalty Amounts
Finally, in one of its first final rules to be published under the Trump Administration, the Department of Health and Human Services released on February 2, 2017, a schedule of statutorily required civil money penalty inflation updates for 2017. A handful of these address ACA marketplace insurance issues, including:
- an update for the per-day, per-affected individual civil money penalty for violating rules or standards of behavior of insurers in the federal marketplace, from $150 in 2016 to $152 for 2017;
- an update for the civil money penalties for providing false information on a marketplace application or knowingly and willfully disclosing protected information from the marketplace, from $27,186 to $27,631; and
- an update of the civil money penalty for knowingly and willfully providing false information to the marketplace, from $271,862 to $276,310.