Industry News

President Trump Signs Executive Order and Ends CSR Payments

On October 12, 2017, President Trump signed an Executive Order focused on three areas of regulation. There are no firm directives in the order other than to consider and propose regulation. Ordinarily this would not have triggered a blog post, but due to the high level of attention this order has received in the media we feel we must offer information and our perspective. The executive order is broken into three segments for regulatory review. In addition to the executive order the White House has also announced the end of cost sharing reduction (CSR) payments. In reality, this is the bigger story and will be discussed in this blog post. First, however, the Executive Order:

Association Health Plans

The executive order directs the Department of Labor (DOL) to consider proposing regulations or revising guidance to expand Association Health Plans (AHPs). The intent is to allow employers in the same line of business to join together to offer healthcare coverage to their employees. These could potentially become AHPs through existing organizations or newly created organizations. Furthermore, this could result in the sale of insurance across state lines.

There are many issues with AHPs in general and even more when considering the sale of such plans across state lines. Most notably are the state regulatory responsibilities to be ironed out for members not living in the AHP domiciled state. The NAIC has come out against the idea of AHPs in the past and will want to review any proposed regulatory changes. The 60 day window for responding to the executive order is a good time for lobbying efforts to advise and comment on regulations being considered.

Expand Short Term Limited Duration Insurance (STLDI)

The Departments of Labor (DOL), Health and Humans Services (HHS) and Treasury are directed to consider proposing regulations or revising guidance to expand STLDI. Currently this type of insurance is limited to three months or less and cannot but may be renewed at the carrier’s discretion. These limits were imposed by the Obama Administration. This review could usher in an expansion greater than three months and allow persons covered under such a plan to renew the plan.

Health Reimbursement Accounts (HRAs)

The Departments of Labor (DOL), Health and Human Services (HHS) and Treasury are directed to consider ways to expand the flexibility of HRAs. The focus of the administration is on three rules. Making HRA contributions tax deductible, allowing HRAs to be used for premium reimbursement, and allowing HRAs to be used in conjunction with non-group coverage. The intent is to provide employees with more flexibility in how their healthcare is financed. This is the most vague of the three elements of the order. This regulation is focused on the small employer, however the definition of a small employer is not defined.

As the executive order pertains to the payment of premiums through an HRA, the 21st Century Cures Act (2016) allows small employers to provide HRA funds for employees to purchase individual coverage, however the Texas Department of Insurance in bulletin B-0-28-06 from 2006 disallowed payment of premium through HRAs and has remained steadfast.

The executive order directs the departments to have their proposals or revisions to the President in the next 60 days for the AHPs and STLDI and 120 days to respond for the HSA proposals.

Our Perspective on the Executive Order

If you read the executive order you will find that there are no firm orders or mandates for action other than to consider and propose regulation. The news media has run ahead of any proposed regulation by any of the agencies and has offered assessments and opinion of the dire consequences of the executive order. We believe this to be sensationalized and grossly premature. The only direction was to consider and propose. The regulatory agencies have 60 days to report back to the White House their proposals.

Agents are responsible for simplifying the complex and to ease tensions and find positive solutions in tense times. Any change proposed or enacted can create that tension. Our advice in handling discussions with your clients:

  • State the facts of the executive order: – The President has only directed review and proposals.
  • The regulators have 60 days to come up with their proposals – There is nothing to be either for or against at this point.
  • When the proposals are revealed, you, as the agent will review and offer thoughts on what impact they might have.
  • If they are enacted, you, as the agent, will work with them to develop strategies on the best path forward.
  • Nothing has changed. The ACA remains the law of the land along with all current regulations.

CSR Payments

While not in the executive order the White House also announced it would end cost sharing reduction (CSR) payments immediately. CSRs are payments made to insurers to reduce out-of-pocket costs for enrollees based upon a silver tier qualified health plan (QHP) through an exchange for households up to 250% of the federal poverty level (FPL). Due to uncertainty regarding the administration’s approval to pay the CSR’s many carriers have opted to file their rates with the assumption the CSR’s would not be paid and if the CSR’s were paid, to offer rebates to policy holders. the impact to rates is most likely already being felt by your policyholders.

Our Perspective on the CSR Payments

The end of the CSR payments will have little to no impact on group plans, but may have far reaching impacts on individual plans. Furthermore, this topic is also at the top of the news feeds, therefore we decided to comment in this blog.

The end of cost sharing reduction (CSR) payments announced by the White House will have immediate impact to the marketplace. As stated above, CSR payments are made directly to insurers to offset costs of out-of-pocket expenses based on silver tiered plans for households up to 250% of the federal poverty level. Latest data shows that 26% of all people on an individual plan with ages <65 years old qualify for a CSR nationwide.

While many may applaud this action, there is a back side to this. The Advanced Premium Tax Credit (APTC) has not been touched and cannot be modified without legislation. Without the CSR, the insurance carriers will increase premiums to reflect the loss of the CSR. The majority have already increased premiums in their 2018 filings. This will mean the amount paid through the APTC will be higher based upon the higher premiums. In fact, the CBO released a report projecting that the federal government may pay $194 billion more over a ten-year period if the CSR payments are not continued.

We believe the President made this decision to undermine the ACA and to increase the pressure on Congress to legislate a correction or replacement of the ACA. In fact, the Senate Health Education Labor and Pensions Committee may have crafted a bipartisan agreement to fund the CSRs for a period of two years.

For those with individual clients, you may already see the impacts of the raised premiums. There is no good way to put a good face on it except to have the depth of knowledge to understand why the premiums have gone up and to explain those reasons to your client. In this sense the agents are once again cast as the designated “bad news givers”.

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