In late March, the Centers for Medicare & Medicaid Services (CMS) released its Marketplace open enrollment report showing that 11.4 million people selected Affordable Care Act (ACA) Marketplace plans in 2019—a 4% decline in the 39 states that use Healthcare.gov and a 1% increase in the 11 states (plus D.C.) that run state-based Marketplaces. While Marketplace enrollment remains relatively stable, 2019 is the third straight year of incremental decline from a peak of 12.7 million enrollees. New enrollees show the steepest enrollment decline, from 4.9 million in 2016 to only 2.7 million people in 2019. With fewer people electing to enroll in the Marketplace, states are considering a variety of options to increase insurance coverage—on or off the Marketplace—for those who remain uninsured or are struggling to find affordable coverage. Recent federal regulatory activity is encouraging decision-making authority at the state level. These regulations will influence how states on both ends of the political spectrum design new programs to increase coverage while maintaining a stable market for those currently enrolled.
- Short-Term, Limited-Duration Plans. The Trump Administration’s short-term, limited duration (short-term) rule, released in August 2018, extended the acceptable duration of a short-term policy to three years (or potentially longer, using multiple contracts), reversing the Obama Administration’s attempts to limit these plans. Because short-term policies are not subject to ACA individual market reforms, they can be attractive substitutes for consumers who can pass medical underwriting and are willing to accept lesser coverage in exchange for avoiding higher-cost plans in the ACA-compliant individual market. As state-regulated plans, individual states have the authority to determine whether these policies should be promoted as cheaper alternatives for healthy individuals or whether they should be banned or limited to ensure that people have access to ACA-compliant health coverage. Many states have taken legislative or administrative action since the rule was adopted last year. Most recently, Idaho Governor Brad Little (R) signed legislation enacting “enhanced” short-term plans in the state, while New Mexico moved in the opposite direction by adding new restrictions on short-term plans, and Virginia retained its current level of regulation when Governor Ralph Northam (D) vetoed legislation that would have rolled back restrictions on short-term plans. This week, the Congressional Budget Office indicated that House Bill 1010—which would prevent the implementation and enforcement of the Administration’s rule—would save the federal government $8.9 billion over ten years.
- Association Health Plans (AHPs). In June 2018, the Department of Labor (DOL) finalized a rule designed to promote AHPs—plans sponsored by groups or associations of employers who have come together to arrange health benefits—by loosening the definition of “employer” to those in the same trade or region, and also allowing AHPs to form solely for the purpose of providing health benefits. AHPs are regulated by federal and state law and enjoy significant regulatory flexibilities, but are prohibited from excluding employers, from charging higher premiums based on individuals’ health status, and from setting annual or lifetime limits on essential health benefits; other ACA consumer protections do not apply. Similar to short-term plans, the increased availability of AHPs could destabilize the individual and small group market, prompting a lawsuit from a coalition of 12 state attorneys general to vacate the rule. On March 28, the D.C. District Court struck down two core components of the AHP rule: the provision defining “employer” to include employers who form an association solely to provide health insurance and the provision that permits associations to include sole proprietors. On April 26, the DOL appealed the ruling but did not seek a stay. Absent a stay, AHPs formed under the new federal rule will not have a legal basis for continuing to enroll new employers, but federal and state regulators appear to be united in protecting benefits under current contracts since terminating contracts mid-term can be highly detrimental for employers and employees. On Monday, the DOL issued a statement that it would hold all parties harmless for past actions taken in reliance on the federal rules as long as those parties continued to provide benefits as promised under their existing contracts. State insurance departments will likely issue additional guidance regarding how the ruling impacts existing policies. Before the ruling, AHPs were gaining traction in several states. Last year, the Iowa and Nebraska Farm Bureaus began offering plans, and Land O’Lakes became the first multistate AHP, offering plans to individual dairy farmers and dairy cooperatives in Minnesota and Nebraska. The court ruling may stall other states’ plans to promote AHPs.
- “Grandfathered” and “Grandmothered” Plans. Grandfathered plans are plans that were in effect prior to enactment of the ACA, and are not subject to most ACA requirements, as long as they remain unchanged, with certain minimum modifications allowed. In February, the Department of Health and Human Services (HHS), along with the Department of the Treasury and the DOL, issued a Request for Information (RFI) to gather information about how it can help these plans and issuers address their challenges to maintaining grandfathered status, including which requirements are the hardest to meet and whether there are specific ACA requirements grandfathered plans seek to avoid. The RFI was limited to group plans since very few people in the individual market are enrolled in grandfathered coverage. The group market is a different story; in 2018, 20% of employers extending health benefits offered at least one grandfathered plan and 16% of covered workers were enrolled in a grandfathered plan. The RFI suggests the Administration may be considering altering Obama-era regulations that govern group grandfathered plans.
CMS also extended states’ authority to allow grandmothered plans, or transitional health policies that were in effect in 2013, to continue through the 2020 plan year. Grandmothered plans must comply with 2010 ACA reforms, but do not have to meet reforms that took effect in 2014. Thirty-six states currently permit grandmothered plans, which generally divert healthier people from the Marketplace risk pool. However, their impact is shrinking each year, since coverage dating back to 2013 is required.
- Insurance Across State Lines. States can permit insurance to be sold across state lines without federal approval, and under Section 1333 of the ACA, insurers are permitted to sell policies to individuals and small businesses in any state that participates in “Health Care Choice Compacts.” But to date, HHS has not issued regulations implementing Section 1333 (which requires HHS approval and imposes approval conditions similar to Section 1332 coverage waivers), and no state has created a Health Care Choice Compact. Signaling increased interest from the Administration, in March, CMS released an RFI on how to increase interest and expand access to health insurance coverage across state lines, noting that it does not intend to preempt state law to do so. Specifically, CMS asked stakeholders for information about Health Care Choice Compacts; how states and plans would operationalize the sale of such coverage; insights into the expected fiscal impact for policyholders, issuers and overall healthcare cost growth; and other mechanisms to promote these plans. Proponents of interstate sales claim these sales would increase competition and reduce premiums, but few states have pursued these options due to concerns that they would create an unlevel playing field between in-state and out-of-state plans. Such an approach could give out-of-state insurers an unfair advantage over local insurers or force states to change their rules to protect local insurers. Comments on the RFI are due Friday, May 10.
- New Section 1332 Guidance. New guidance released last year by the Administration offers more flexibility for states to meet the “coverage guardrails”1 for Section 1332 waiver approval. The guidance shifts these conditions to enable states to develop policies that allow individuals who want to retain coverage similar to what they had before the ACA to “continue to do so, while also permitting access to other options that may be better suited to consumer needs and more attractive or affordable” to others. The Administration also released a discussion paper outlining the types of waivers it is likely to approve, notably redirecting premium tax credit funding to non-Qualified Health Plans (QHPs) and/or contribution arrangements (similar to Health Savings Accounts), restructuring subsidies to be flat dollar amounts not tied to income, and risk stabilization strategies (like high-risk pools). To date, no states have submitted waiver applications under the new guidance. In the short term, Iowa, Oklahoma and Idaho have been cited as the states most likely to take advantage of the new reforms (see the February 25 Manatt Health Update for more information). On May 1, the Administration issued an RFI asking for more ideas on innovative programs and waiver concepts that states could consider in developing 1332 waiver(s).
- Notice of Benefit and Payment Parameters. The final 2020 Notice released in April avoided many of the contentious policy changes being considered by the Administration, such as a proposal to require QHP issuers to offer plans without abortion coverage, potential action to end “silver loading,”2 and changes to the automatic re-enrollment process. While not enacted for 2020, these changes could still be proposed for the 2021 plan year. The final rule includes new consumer protections for issuers and web brokers that use a “direct enrollment” process to enroll consumers in subsidized coverage through their own non-Exchange websites. The new rules are intended to strengthen the direct enrollment channel, which has accounted for a steadily increasing share of enrollment in the 39 states using Healthcare.gov. The final rule also loosened standards for Marketplace Navigators, and allows issuers new authority to disregard amounts covered by manufacturer coupons—for brand-name drugs with medically appropriate generic equivalents only—when tallying amounts paid toward an enrollee’s annual out-of-pocket maximum. Notably, this year, HHS is also revising the ACA “premium adjustment percentage” methodology—a measure of premium growth in the market that is used to set the growth rate for annual limits on cost-sharing, exemptions from the individual mandate (which is in effect for 2018), and the employer mandate penalty amounts—in a way that will likely make coverage more expensive to consumers. If, as expected, the Department of the Treasury adopts the same measure for premium tax credit purposes, it would also increase the portion of premium that subsidized individuals are required to pay, leading to higher out-of-pocket premium costs. HHS estimates that the new methodology will reduce premium tax credit payments by $780 million and will lower enrollment by 70,000 individuals.
In addition to new regulatory guidance, the potential impacts of Texas v. United States, a federal lawsuit challenging the ACA, are being closely followed by state policymakers. In December, a Texas district judge ruled that the now-invalid individual mandate cannot be separated from other provisions of the ACA and that Congress would not have passed the ACA without a valid individual mandate. As such, the court struck down the entire ACA. The judgment is stayed pending appeal, meaning that the ACA can still be enforced in its entirety while the appeal proceeds. Despite its original stance that only a few provisions need to fall if the individual mandate is unconstitutional, in March, the Department of Justice altered its previous position to agreeing that the entire Affordable Care Act (ACA) should be struck down entirely based on a federal district judge’s conclusion. Well-regarded legal scholars across the political spectrum have argued that the district court’s decision to strike down the entire ACA with the individual mandate is incorrect. However, if a higher court upholds the decision to overturn the ACA, the implications would be enormous for the individual market (including core protections for people with preexisting conditions), Medicare, and Medicaid.
Looking Ahead to 2020 Open Enrollment
With release of the payment notice, the stage is now set for the 2020 open enrollment season, barring any regulatory surprises. At this point, it appears that 2020 will be similar to 2019, with modest premium increases being the norm, but also wide variations in premiums and the number of insurers among states and within state regions. Repeal of the mandate will make it harder to attract new enrollees, but continuation of ACA subsidies will likely lead to high reenrollment rates as it did in 2019. With major changes unlikely at the federal level under a divided Congress, states are expected to be the major drivers of reform and, with the increased flexibility outlined in this article, will likely take divergent paths to increase coverage options for those in the individual market and those who remain uninsured.
1 Coverage provided under a Section 1332 waiver must (1) be at least as comprehensive as coverage provided absent the waiver; (2) provide coverage and cost-sharing protections so that coverage is at least as affordable as coverage absent a waiver; (3) provide coverage to a number of residents of the state comparable to the number of residents who would be provided coverage absent a waiver; and (4) not increase the federal deficit. The new guidance allows states to evaluate affordability and coverage in the aggregate instead of at the individual level.
2 The federal government no longer pays subsidies to offset cost-sharing reductions (CSRs) that issuers are required to give to lower-income individuals in QHPs. With the approval of state regulators, nearly all issuers have included these costs—which are incurred on silver plans sold to low-income enrollees—in their silver plans sold on the Marketplaces. This practice, known as “silver loading,” increases the premiums in those silver plans; but, since most enrollees in those plans are eligible for premium subsidies, the cost is largely borne by the federal government.