At the core of the Affordable Care Act (ACA) is the three-legged stool: (1) insurance reforms; (2) the individual mandate; and (3) premium and cost-sharing subsidies. Removal of any one of these legs could destabilize the ACA.
The ACA established insurance marketplaces in every state to provide access to ACA compliant private health insurance coverage (Qualified Health Plans) in the individual and small group markets. The ACA provides premium subsidies on a sliding scale for persons with incomes up to 400 percent of the federal poverty level (FPL) for the purchase of an individual policy on the marketplace exchange. It also provides cost-sharing subsidies for persons with incomes below 250 percent FPL.
Prior to the implementation of the ACA, insurers typically used manual rating for rate-making in the individual and small group markets, and exclusions from coverage for pre-existing conditions were common. Age-based rates were typically 5:1. The insurance reforms in the ACA are largely directed at the small group and individual markets (e.g., guaranteed issue/renewal, no preexisting condition limitations, adjusted community rating capped at a 3:1 ratio for age). Standardization of benefits is achieved by requiring coverage for ten essential health benefits (EHBs) and certain preventive services which in the latter case services must be provided without cost-sharing.
There are winners and losers under the ACA. Relatively unhealthy people that qualify for premium subsidies are the winners. Relatively healthy people that do not qualify for subsidies are the losers. Thus while the ACA has successfully expanded access to health care coverage, it has also resulted in higher premiums and a shift to policies with higher deductibles. There has also been ongoing concern about the withdrawal of insurers from the marketplace exchanges and the resulting lack of competition.
During his campaign President Trump promised to "repeal and replace" Obamacare, but in 2017 Congress rejected a Republican plan that would have repealed much of the ACA. Several recent developments could, however, destabilize the ACA: (1) zeroing out of the individual mandate penalty; (2) failure to fund cost-sharing subsidies; (3) increased access to Association Health plan for small employers; and (4) increasing the coverage period for short- term plans from three months to 12 months.
The purpose of the individual mandate was to provide incentives for younger, healthier people to sign up for coverage under a Qualified Health Plan thereby mitigating the problem of adverse selection. It required everyone to provide proof of minimum essential coverage to the IRS when filing a tax return. Nonetheless, since the marketplace exchanges began operation in 2014, there has been concern that the penalties were inadequate. Moreover, the penalty could only be collected from a refund due to a taxpayer. In December 2017, as a part of the Tax Reform legislation, Congress zeroed out the penalties attached to the individual mandate beginning in 2019, but did not actually repeal the mandate. CBO estimated that the effect of zeroing out of the penalty would be to reduce the number of people with health insurance by four million in 2019 and 13 million in 2027 "because healthier people would be less likely to obtain insurance and because, especially in the nongroup market, the resulting increases in premiums would cause more people to not purchase insurance."
Congress failed to appropriate money for the cost sharing subsidies. The government continued to reimburse insurance companies during the Obama administration. The House of Representative brought a lawsuit seeking to end the cost sharing subsidies and the U.S. district court for the District of Columbia decided that the Obama administration could not constitutionally reimburse insurers for the costs. In October 2017, the Trump Administration announced that it would discontinue cost-sharing reimbursements for insurers.
Association Health Plans.
The ACA does not require employers with less than 50 full-time employees to provide health insurance to employees. But the ACA requires that all small group plans are subject to the ACA market reforms - Adjusted Community Rating (ACR) and Essential Health Benefits (EHBs). Thus small employers with a relatively healthy pool of employees were concerned that the application of these requirements could increase their insurance costs.
There are two ways for small employers to avoid the impact of the ACA small group reforms: (1) self -insure; or (2) purchase coverage through an Association Health Plan (AHPs) that would be treated as a large group plan. Large group plans with 50 or more FTEs are not are not required to cover EHBs. Moreover, they are not subject to ACR. AHPs are established by professional groups to provide small groups the benefits of access to a large group plan and avoid state regulations of small group plans. They have been widely used in Oregon and Washington where they are regulated as large group plans under state laws.
After passage of the ACA, however, the Department of Labor (DOL), adopted rules that treated AHPs as small group plans under federal law unless the plan qualified as a "bona fide ERISA plan." This meant that AHPs would generally be subject to ACA small group market reforms. Under the DOL rules, an AHP could be treated as a "bona fide ERISA plan" unless the group of employers were bound together by a commonality of interest (beyond providing a health plan) with sufficient control by the association so that they effectively operated as a single employer. The DOL guidance stated that this would occur only in "rare instances" where the association of employers could be deemed to be the "employer," and thus exempt from regulation as a small group plan. On January 4, 2018, however, the Departments of Treasury, Labor, and Health and Human Services issued a proposed regulation to expand access to AHPs by allowing employers "to band together for the express purpose of offering health coverage if they either are: (1) in the same trade, industry, line of business, or profession; or (2) have a principal place of business within a region that does not exceed the boundaries of the same State or the same metropolitan area (even if the metropolitan area includes more than one State)."
Short -Term Coverage.
On February 20, 2018, the Departments of Treasury, Labor, and Health and Human Services issued a proposed regulation that would increase the maximum length of short-term health insurance policies to 12 months. Previously, the Obama Administration reduced the term of coverage to three months effective in April 2016. Generally, short -term policies are more affordable option for younger, healthier people. They are not subject to the insurance reforms (e.g., coverage of EHBs, ACRs, and the ban on pre-existing condition limitations). With the availability of a 12 month period of coverage, short- term plans will be a better deal for most healthy people who do not receive subsidies compared to QHPs. It allows people to cover themselves with a short term policy from one annual open enrollment period to another. Thus if they get sick, they will be able to purchase an exchange policy during the next enrollment period.
Obviously, reduction of the period made short- term insurance a less attractive option. If the insured was to get sick after the three month period, there could be a gap in coverage until the next open enrollment period. With the return to the 12 month period and repeal of the mandate penalty in 2019, short term policies will be an attractive option for healthy people and adversely affect the risk pools on the exchange. A recent report issued by the Urban Institute estimates that in 2019 the return to the 12 month coverage period will increase the number of people without minimum essential coverage by 2.5 million in the United States and increase premium by 18.2 percent for QHPs in states that permit this option.
Leonard J. Nelson, III is Professor Emeritus at the Cumberland School of Law.