On October 12, 2017, President Trump signed an executive order intended to improve access, increase choices, and lower costs for health care. The order states that it is the policy of the executive branch to facilitate the purchase of insurance across state lines. The order contains three primary directives addressing Association Health Plans, Short-Term Insurance Policies, and Health Reimbursement Arrangements:

1. Directing the Secretary of Labor to consider proposing regulations or revising guidance to enable more employers to form association health plans (AHP) within 60 days of the date of the order.
2. Directing the Secretaries of the Treasury, Labor, and Health and Human Services (HHS) to consider proposing regulations or revising guidance to expand the availability of short-term limited duration insurance within 60 days of the date of the order. Specifically, the Secretaries are directed to consider allowing such policies to cover longer periods and to be renewed by the consumer.
3. Directing the Secretaries of the Treasury, Labor, and Health and Human Services to consider proposing regulations or revising guidance to increase the usability of Health Reimbursement Arrangements (HRA) and to expand employers’ ability to offer HRAs to employees within 120 days of the date of the order.

The order also directs HHS, in consultation with the secretaries of the Treasury, Labor and FTC, to report to the president on state and federal laws, regulations and policies that limit health competition and choice.

Cornerstone will continue to monitor any proposed changes in response to President Trump’s executive order. While this order may mark the beginning of significant changes to health insurance markets, it remains important for brokers to educate their clients on the current ACA regulations and potential penalties throughout this upcoming open enrollment.

 

Elimination of Payments for Cost-Sharing Reductions

The Cost Sharing Reductions (CSR) were not addressed in the Executive Order issued on October 12, 2017. However, on the same day, the administration announced they would no longer make CSR payments to insurers.

CSRs are a subsidy created by the ACA and paid directly to health insurers. The subsidies provided lower out-of-pocket costs in the form of reduced deductibles, co-pays, and other expenses for silver-level plans purchased through the health care exchange.

The fate of CSRs has been in question for some time due to Congress failing to appropriate funding for the CSRs. During the Obama administration, the House of Representatives successfully sued to end the CSR payments. However, the payments continued while the case was being appealed by the Obama administration. Under the Trump administration, it remained unclear whether or not the appeal and CSR payments would continue. The administration has taken a month-to-month approach in deciding whether or not to pay the CSRs to insurers. Effective beginning with the upcoming October CSR payment, the administration will no longer pay CSRs and takes the position that the CSRs are prohibited, absent an appropriation by Congress.

In response to this announcement, a number of states are reportedly filing suit against the administration in an effort to continue payment of the subsidies.

The CSRs are separate from the subsidies paid directly to qualifying consumers to offset premium costs when purchasing a plan through the exchange. Those subsidies are not affected by this announcement. Additionally, consumers will not see a change in the costs of their plans for the remainder of 2017.

Many insurers have reportedly been preparing for the elimination of the CSR payments by filing an alternative set of rates that reflect significantly higher premiums for 2018 plans.

 

Individual Mandate and Associated Shared Responsibility Payment

The executive order issued last week along with the executive order issued in January does not eliminate the Individual Mandate or its associated penalties. The IRS has repeatedly indicated that the ACA remains the law of the land and that penalties associated with the individual mandate will be assessed. Most recently, in a “Dear Constituent Letter” issued this past June, the IRS indicated:

“The Executive Order does not change the law; the legislative provisions of the ACA are still in force until changed by the Congress, and taxpayers remain required to follow the law, including the requirement to have minimum essential coverage for each month, qualify for a coverage exemption for the month, or make a share responsibility payment.”

The penalty tax is calculated as the greater of either the “percentage of applicable income amount” or the “flat dollar amount.” The greater of these two amounts is then divided by 12 to determine the penalty that is due for each month that the penalty applies.

The penalty amounts for 2018 have not yet been announced.

For 2017 the penalty was calculated according to the following amounts:

Percentage of income

• 2.5% of household income
• Maximum: Total yearly premium for the national average price of a Bronze plan sold through the Marketplace

Per person

• $695 per adult
• $347.50 per child under 18
• Maximum: $2,085