On Thursday President Trump signed an Executive Order (EO) directing specific federal agencies to review the Affordable Care Act (ACA) regulatory framework.  The EO has no direct immediate impact on repealing ACA, but instead embraces the philosophy that federal agencies through regulatory power can shape the offerings and framework that are in the ACA market.  “This [EO] will direct [departments] to take action to increase competition, increase choice, and increase access to lower-cost, high-quality health-care options,” President Trump said. “This will cost the United States virtually nothing, and people will have great, great health care.”

Specifically, the EO directs Health and Human Services, the Department of Labor, and the Treasury Department to focus on rules that would permit small businesses to band together in arrangements called “Association Health Plans,” which would allow for the purchase of less expensive but also less-comprehensive plans outside the ACA market requirements. The EO also promotes the sale of short-term, limited duration insurance policies, which was previously restricted by the Obama administration. Finally, it directs for recommendations for changes to health reimbursement arrangements (HRAs) to allow for the payment of health insurance by employees.

The ACA affects small employer plans (under 50 employees) more profoundly than large employer plans.  Costs have grown much greater for small employer plans because of ACA requirements.  The Trump administration wants to combat the effects of the ACA on small employer plans.  The EO envisions Association Health Plans (AHPs) to be a solution to stem the rising costs of healthcare in the small employer market. Rather than being an actual product, AHPs are an umbrella term used to refer to the concept of different associations that offer health insurance, as well as for Multiple Employer Welfare Arrangements (MEWAs).  Many states, however, prohibit MEWAs or more heavily regulate their activity because of past history of fraud. Regulatory guidance will likely create an opportunity for employers or individuals in a bona fide association to pool their risk in an insured (and potentially self-funded) arrangement while maintaining preemption from state insurance regulation. 

President Trump is also directing the Department of Labor to review the rules around cross state line purchases of health insurance in order to increase the competition and lower the costs of healthcare policies.  The EO envisions that AHPs may be formed across state lines, thus building purchasing power for the groups in the AHPs.  Although the ACA provides "health care choice compacts" to facilitate sales across state lines, it is extremely complicated to implement.  Five states – Georgia, Kentucky, Maine, Rhode Island, and Wyoming – already have enacted interstate compact statutes, according to the National Conference of State Legislatures.  A major drawback for implementation of this initiative is that there is no uniformity by state how health insurance plans are regulated.  The Obama administration was to develop rules on this process, but failed to do so.  Now the Trump administration will step in.  The only issue is whether any attempt to do so will violate ERISA.

Short-term, limited-duration insurances are insurance products that are exempted from ACA consumer protections such as coverage for preventive health services, a prohibition on lifetime limits, and minimum value requirements. Individuals who were transitioning between jobs with employer-provided health coverage primarily used these policies.  By regulation, these plans had to be three months or less to be considered “temporary.” However, President Trump plans to allow them to last as long as 12 months and be renewable – essentially functioning as standard insurance—but without requiring the ten essential health benefits. Coverage will likely be capped.  Since these policies do not have to follow the ACA requirements, those with pre-existing conditions will likely be paying much more out of pocket to have a plan that covers their pre-existing condition.

Finally, the Trump administration wants to revisit the issue of the use of HRAs for the purchase of healthcare policies.  Under current regulations, if the group policy provides a stand-alone HRA to be used for the purchase of insurance coverage on the individual market, it would not be considered integrated with that coverage under the Affordable Care Act (ACA) and would, therefore, be illegal.   Currently, HRAs that are used as a part of the group plan are considered integrated and legal.  The EO provides that within 120 days the agencies must consider proposing regulations or revising guidance.

Also, last Thursday the Trump administration cut the controversial subsidy payments to insurers.  The "cost-sharing reduction payments," worth an estimated $7 billion this year, are intended to reduce out-of-pocket costs for low-income Americans on Obamacare.  The administration stated that Congress has not authorized these payments; therefore, by providing them the administration is overstepping its authority.   Therefore, health insurers will not receive any subsidies, yet they are required by law to provide the subsidies to individuals on the exchange.  Therefore, the insurance companies will likely increase the policy costs to cover the shortage expected or exit the marketplace as open enrollment is shortly coming.  Last Friday, 18 states and the District of Columbia have stepped up to sue the administration stating that it will destabilize the local exchange and could kill the entire ACA marketplace.

For small employers, if these changes are enacted, costs could go down, but coverage could be limited.  Of the proposals in the EO, the HRA proposal has the most impact on many small employers.  However, if tax reform is down the road, the health care deduction for employers and employees could be eliminated as speculated, thus negating any gains by actions under the EO.

Sources:  The Wall Street Journal 10/13/17, ABC 10/12/17, Washington Post 10/12/17, Yahoo News 10/13/17, CDN 10/12/17, US News 1/6/16, Seyfarth Shaw 10/16/17, CCH 10/16/17