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Executive Order Signals New Focus on Association Health Plans, Short-Term, Limited Duration Insurance, and Health Reimbursement Arrangements


PG Bulletin

October 19, 2017

By Stephanie Gross*

On October 12, President Trump signed an executive order (EO) intended to “to reform the United States healthcare system to take the first steps to expand choices and alternatives to Obamacare plans and increase competition to bring down costs for consumers.”1 The EO directs various federal agencies to take steps to loosen restrictions that limit the availability of association health plans (AHPs) and short-term, limited-duration insurance (STLDI) and the use of health reimbursement arrangements (HRAs). The EO also announces a “focus on promoting competition in healthcare markets and limiting excessive consolidation throughout the healthcare system.”2

The same day that the EO was signed, the administration announced it would no longer be making payments to insurers for cost-sharing reductions (CSR). These payments serve to offset the costs to insurers of complying with the Affordable Care Act’s (ACA’s) required reductions of out-of-pocket costs for low-income enrollees of the health insurance exchanges (also known as marketplaces).3 Although this bulletin focuses on the EO, the announcement to end the CSR payments also is widely expected to affect marketplace enrollment and the financial stability of its health plans. The administration’s decision also is the subject of a legal challenge in the Northern District of California and potential bipartisan legislation, originating in the Senate (Senators Lamar Alexander (R-TN) and Patty Murray (D-WA)), to restore the CSR payments.

The Executive Order

The EO announces a general objective to expand competition and reduce insurer consolidation in health care markets. To that end, it directs the relevant agencies to “consider proposing regulations or revising guidance” to expand access to AHPs and STLDI, two alternatives to marketplace coverage, and to HRAs, which can be used by employers to subsidize the cost of care and, in some cases, coverage on the individual insurance market.

Association Health Plans. First, the EO contemplates expanding an existing category of coverage in the form of AHPs, which generally are exempt from the ACA’s protections for individual and small group coverage. Because AHPs are offered by associations of employers, they are treated like health plans offered by large employers, which are governed under the Employee Retirement Income Security Act (ERISA). The EO tasks the Department of Labor, which has exclusive regulatory authority over ERISA, to consider proposing regulations or revising guidance to expand access to AHPs within 60 days of the date of the order.

According to the EO, the focus of such rulemaking or guidance should be the Department of Labor’s treatment of employer associations. In advisory opinions, the Department of Labor has taken the position that an AHP can be treated like a health plan offered by a large employer within the meaning of ERISA when it is offered by a “bona fide employer group or association,” and it has required fairly close relationships between employers for a group to qualify as a “bona fide employer group or association.”4 The EO envisions allowing employer associations to be formed based on looser relationships, like “common geography or industry.” This policy shift could expand the availability of AHPs. As can be seen in Table 1, AHPs are subject to a subset of ACA and pre-ACA requirements.

Short-Term, Limited Duration Insurance. Similarly, the EO envisions a wider role for STLDI, another category of coverage that generally is exempt from the ACA’s various consumer protections for individual and small group coverage. (See Table 1). The EO appears to contemplate allowing individuals to remain enrolled in such plans for longer periods of time and for STLDI plans to be renewable; under current regulations, such plans are limited in duration to three months, including any renewals.5 Currently, STLDI is not considered “minimum essential coverage” that would satisfy the ACA’s individual mandate. Although the Trump administration has signaled that it may not enforce the individual mandate as aggressively as the Obama administration did, the EO does not speak directly to this issue. Rather, it simply directs the Secretaries of the three relevant agencies (Treasury, Labor, and Health & Human Services) to “consider proposing regulations or revising guidance . . . to expand the availability of STLDI” within 60 days of the date of the EO.

Health Reimbursement Arrangements. Finally, the EO directs the agencies to expand the ways that employers can use HRAs to reimburse employees with pre-tax dollars for the cost of insurance coverage that is obtained in the marketplaces and not offered by the employer itself. Leading up to the rollout of the ACA, some employers pushed for the opportunity to do just this: employers sought to offer HRAs that could be used by employees to purchase coverage on the marketplaces in lieu of directly offering employer-sponsored insurance. The departments of the Treasury, Labor, and Health & Human Services concluded that doing so would run afoul of the ACA’s requirement that group health plans not impose annual dollar limits, because the employer’s spending is inherently limited to the amount of the HRA.6 The agencies declined to evaluate the HRA in combination with marketplace plans purchased using HRA funds.

The EO directs the Secretaries of the Treasury, Labor, and Health & Human Services to consider proposing regulations or revising guidance within 120 days to expand access to HRAs and to allow them to be used “in conjunction with nongroup coverage.” This suggests that the administration may be contemplating allowing employers to reimburse employees for individual insurance plans, including plans offered through the marketplaces.

Implications for the Individual and Small Group Insurance Markets

Though it is unclear how quickly or even if the policy changes announced in the EO will take effect in the form suggested by the EO, the prospect of wider availability of AHPs, STLDI, and HRAs changes the outlook for consumers, health insurers, providers, and state and local governments. The EO clearly is intended in part to provide alternatives to the health insurance coverage made available through the marketplaces. Some analysts are concerned that young and healthy people are most likely to take advantage of these new options, resulting in a concentration of higher-risk enrollment in the marketplaces, higher premiums, and financial instability.

Though some analysts have warned of rapid change in the individual health insurance market, the EO’s various policy goals will take time to implement. The EO directs agencies to “consider” changing regulations or revising guidance in as little as 60 days from the date of the order. To reverse course on established policies, however, agencies may be required to engage in notice-and-comment rulemaking, which can be time consuming. (One study under four of the previous five presidential administrations found that rulemaking took, on average, 462 days between the issuance of a notice of proposed rulemaking and a final rule or action.7) Moreover, the rulemaking process typically is more complex and time consuming when multiple agencies are involved, and the EO directs the departments of the Treasury, Labor, and Health & Human Services to coordinate rulemaking activity related to STLDI and HRAs. The EO’s proposed timeframes indicate that we may see proposed rules or other guidance regarding AHPs and STLDI by the end of the year, while proposed rules or guidance regarding HRAs may arrive early next year.

Adding to the uncertainty, it is unclear whether or how state regulators may attempt to curtail the EO’s reach. For example, nothing in federal law precludes STLDI from offering limited benefits, varying premiums according to an enrollee’s health status, or denying high-risk enrollees the opportunity to renew. State laws that reach STLDI are not preempted, and to the extent STLDI falls within a state regulator’s purview, consumer protections in state law may apply. States interested in protecting the viability of their marketplaces may explore the scope of state regulatory authority over STLDI or undertake legislative or regulatory action to limit the duration or renewability of STLDI or to impose individual market requirements, like coverage of pre-existing conditions. Conversely, state laws that would regulate AHPs generally are considered preempted by federal law (unless the product is fully insured). If the administration broadens its own definition of AHPs and relaxes oversight of them, self-funded AHPs, which are not subject to regulation under state law, may become more widespread.

The EO’s emphasis on competition and consolidation in health care markets took many analysts by surprise. The EO directs “government rules and guidelines affecting the United States healthcare system” to “re-inject competition into healthcare markets by lowering barriers to entry, limiting excessive consolidation, and preventing abuses of market power.” To that end, it directs the Secretary of Health & Human Services to report on its efforts in consultation with the Secretaries of the Treasury and Labor and the Federal Trade Commission (FTC) every two years. It is unclear whether or how this might impact FTC and Department of Justice antitrust enforcement priorities, but recent years have been marked by increased interest in collaboration and consolidation among providers and payers. To the extent the EO signals a shift in enforcement priorities, it is unclear whether the administration’s emphasis would be on providers, insurers, or both.

*We would like to thank Stephanie Gross (Hooper Lundy & Bookman PC, San Francisco, CA) for authoring this Bulletin.

1 White House, Office of the Press Secretary, President Donald J. Trump is Taking Action to Improve Access, Increase Choices, and Lower Costs for Healthcare, Oct. 12, 2017.
2 Exec. Order No. 13813, 82 Fed. Reg. 48385 (Oct. 17, 2017).
3 Department of Health and Human Services Press Office, Trump Administration Takes Action to Abide by the Law and Constitution, Discontinue CSR Payments, Oct. 12, 2017. A day after the administration announced it would cut off cost-sharing reduction payments, the Attorneys General of California, New York, and 17 other states filed a motion in the Northern District of California seeking to enjoin the administration from doing so.
4 See, e.g., 2017 Dep’t of Labor Adv. Op. 02AC (May 16, 2017).
5 26 C.F.R. § 54.9801-2; 29 C.F.R. § 2590.701-2; 45 C.F.R. § 144.103.
6 Department of the Treasury. Notice 2015-17: Guidance on the Application of Code § 4980D to Certain Types of Health Coverage Reimbursement Arrangements.
7 Anne J. O’Connell, Agency Rulemaking and Political Transitions, 105 Nw. U.L. Rev. 471, 521 (2011).

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