Not a One-Stop SHOP: Small Group Health Option Program Exchanges and the Future for Small Business Health Insurance By Brendan Williams* Most of the public and political attention paid to the Patient Protection and Affordable Care Act (ACA) has focused upon its individual mandate for the uninsured to purchase insurance – a mandate rescinded by the Tax Cuts and Jobs Act signed into law by President Trump1 – or the costs of Medicaid expansion for the thirty-one states that have chosen to embrace it. After years of controversy, and Republican efforts to repeal the law, even casual consumers of the news likely were aware of the challenges facing the individual market for health insurance including high deductibles, premium increases, narrow networks, and under-participation by insurers in offerings through state-run exchanges or the federal Healthcare.gov exchange. Far fewer would be aware of the challenges facing the small group market-and yet increasing the availability of affordable health insurance for small businesses had been a stated goal of the ACA’s architects. In fact, whether this could actually be achieved was the subject of Senate floor debate. As Senate Finance Chair Max Baucus (D., Montana) stated during that debate, “[o]ur bill creates small business insurance exchanges, known as shop exchanges, where small businesses can join together and pool their risks. That will enhance their choice and buying power.”2 Yet this was a complicated process, as Sen. Kit Bond (R., Missouri) complained: One of the gimmicks the majority is using to hide the cost of the bill is a weak tax credit that is supposed to help small businesses in purchasing health insurance. The hitch is that small businesses will only receive the full tax benefits if they have less than 10 employees. If they hire that 11th employee, the tax credit is reduced. At 25 employees the tax credit is no longer available.3 However well-intended, the concept of Small Business Health Option Program (SHOP) exchanges showed little understanding of health care economics, and seemed more designed to put a friendly face on the ACA. Carriers, already making considerable money, were under no obligation to participate in SHOP exchanges even if they might gain additional small business customers interested in obtaining the federal tax credits available to them only through those exchanges. An insurer could make the cold-eyed calculation that, rather than assuming risk by playing in a small business exchange, it would get small businesses’ employees anyway through the individual market – with employees financing their own health care and getting their own tax deductions.
*
Attorney Brendan Williams is a long-term care advocate, former insurance regulator, and prolific columnist on health care issues. 1 Pub. L. No. 115-97 2 155 CONG. REC. S12783 (Dec. 9, 2009) (statement of Sen. Baucus). 3 155 CONG. REC. S13811 (Dec. 23, 2009) (statement of Sen. Bond).
While a worse deal for those individual consumers than employer-subsidized health care, the equities were not a matter insurers were required to consider. The Obama Administration’s promises were oversold, including the proposition that “SHOP Exchanges will reduce the burden and costs of enrolling employees in small group plans, and give small businesses many of the cost advantages and choices that large businesses already have.”4 It was never clear what would compel insurers to treat small businesses like large businesses. Senator Al Franken (D., Minn.) similarly misstated reality during the ACA floor debate, when he said that “in 2014, once the exchanges are up and running, small businesses can choose to go into the exchange so they can pool their risk with other small businesses.”5 But that is not how small group market rating works. Rather, each small business is rated individually. Consequently, following 2017 open enrollment, only 3,009 Minnesotans were obtaining coverage through the MNsure SHOP exchange.6 Congressional Democrats demonstrated indifference to this aspect of the ACA by leaving it exposed to cuts from Congress’s self-inflicted 2013 “sequestration” for unprotected parts of the federal budget. As a result, small business tax credits were reduced 6.8 percent at last measure – hardly an option that small businesses could reliably budget for.7 In November 2013 the Obama Administration further undermined the potential for SHOP success by announcing online enrollment for small businesses through HealthCare.gov would not be available until November 2014.8 As a Roll Call article noted, “Sometimes to save the patient, you have to chop off a limb.”9 An Obama Administration official admitted to me that the federal SHOP delays were an act of triage, because cleaning up the individual market mess took precedence. In many places insurers blew up state SHOP exchanges on their launch pads by not participating. As a consequence, small businesses faced being far worse off than they were prior to the ACA. That was due to the fact that the health insurance small businesses made available to their employees had to rise to the Bronze actuarial level, or, “a level of coverage that is designed to provide benefits that are actuarially equivalent to 60 percent of the full actuarial value of the 4
Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014, 78 FED. REG. 15410, 15413 (Mar. 11, 2013) (to be codified at 45 CFR Parts 153, 155, 156, 157 and 158) https://www.federalregister.gov/articles/2013/03/11/2013-04902/patient-protection-and-affordable-care-act-hhsnotice-of-benefit-and-payment-parameters-for-2014. 5 155 CONG. REC. S13817 (Dec. 23, 2009) (statement of Sen. Franken). 6 MNSURE, ANNUAL REPORT 2016 (Jan. 15, 2017), https://www.mnsure.org/assets/MNsure-Annual-Report2016_tcm34-273079.pdf 7 INTERNAL REVENUE SERV., SMALL BUSINESS HEALTH CARE TAX CREDIT QUESTIONS AND ANSWERS: CALCULATING THE CREDIT, https://www.irs.gov/newsroom/small-business-health-care-taxcredit-questions-and-answers-calculating-the-credit (Last visited Mar. 12, 2018). 8 Sarah Kliff, Obamacare’s online SHOP enrollment delayed by one year, WASHINGTON POST (Nov. 27, 2013), http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/27/obamacares-online-exchange-for-smallbusinesses-is-delayed-by-one-year/?hpid=z1 9 Steven T. Dennis, Triage for HealthCare.gov: Administration Punts on Small Business Exchange, ROLL CALL (Nov. 27, 2013), http://www.rollcall.com/news/triage_for_healthcaregov_administration_punts_on_small_business_exchange229355-1.html?pos=hftxt
benefits provided under the plan.”10 In other words, small businesses already offering insurance below the Bronze level would see higher premiums with the risk of no corresponding opportunity to use their tax offset. And, as was true with individual market plans, small group offerings also had to include the ten essential health benefits mandated by the ACA.11 Prior to the state of Washington’s SHOP imploding for 2014, Small Business Administration regional administrators had published a newspaper column encouraging Washington small businesses to buy insurance through it. “By making the health insurance market work better for Washington's small businesses, the law is letting them focus on what they do best: delivering great products and services, creating jobs, and growing our economy,” they effused.12 Instead, Washington’s SHOP exchange became a “pilot” offered through one insurer doing business in two counties out of thirty-nine. That meant only small businesses in those two counties could use their ACA tax credits. By May 2014, only eight businesses had signed up. Democratic Sen. Patty Murray of Washington was able to get the Obama Administration to agree to allow Washington small businesses in the other thirty-seven counties to use their tax credits outside the SHOP exchange for 2014.13 Similar meltdowns occurred in other states. For 2015, the Washington SHOP was to finally operate statewide, but with only a single option in 37 out of 39 counties.14 By June 2015 the Seattle Times reported that 100 small businesses, covering only 535 lives, were using the SHOP.15 Compare that enrollment to the fact that, according to the Small Business Administration's most recent data at that point, there were 127,600 small businesses in Washington employing 1-19 employees.16 In total, 506,300 Washingtonians worked for such businesses.17 Many Washingtonians get health coverage through small business association plans, and, in 2015, the insurance commissioner’s efforts to deny the continuity of that coverage was blocked by one of his own administrative law judges.18 Washington finally decided to close its SHOP exchange, beginning in 2018.
42 U.S.C. 18022 (2012). 42 U.S.C. § 300gg–6 (2012). 12 Susan Johnson & Calvin W. Goings, Opinion, Health insurance marketplace for small businesses in WA, FEDERAL WAY MIRROR (Apr. 19, 2013), http://www.federalwaymirror.com/business/203839001.html 13 Lisa Stiffler, Small employers now eligible for health-insurance tax break, SEATTLE TIMES (Dec 18, 2013), http://seattletimes.com/html/businesstechnology/2022479459_acasmallbizfoloxml.html 14 Lisa Stiffler & Aaron Spencer, Small businesses can enroll in Obamacare statewide, SEATTLE TIMES (Oct. 29, 2014), https://www.seattletimes.com/seattle-news/health/small-businesses-can-enroll-in-obamacare-statewide/ 15 Lisa Stiffler, More small employers using state’s health-insurance exchange, SEATTLE TIMES (June 4, 2015). 16 U.S. SMALL BUS. ADMIN., SMALL BUSINESS PROFILE: WASHINGTON 2 (2013), https://www.sba.gov/sites/default/files/advocacy/wa12.pdf 17 Id. 18 Lisa Stiffler, Small businesses hail ruling that protects association health plans, SEATTLE TIMES (July 12, 2015), http://www.seattletimes.com/seattle-news/small-businesses-hail-ruling-that-protects-association-health-plans/ 10 11
While there were state-run SHOP exchanges that were “functional” from the outset, even those exchanges had their issues: Covered California took its enrollment offline in 2014 and made it impossible for small businesses to even get real-time quotes online.19 As was true with the individual market, the value of the ACA to small businesses was sold using the image of one-stop comparison shopping. Absent that user-friendliness, in California, for example, only 1,200 small businesses had enrolled by May 2014 through the SHOP exchange – despite a public estimate that as many as 350,000 small businesses might be eligible for the tax credit.20 Using the data most recently-available, and with the federal government refusing to reveal its own SHOP enrollment, a U.S. General Accounting Office report issued in November 2014 found that only 76,000 Americans were enrolled through state-based SHOP exchanges—compared to the projection that 2 million would be enrolled in 2014.21 Further, almost half of that enrollment was located solely in one small state, Vermont (33,696 covered lives versus, say, 9,563 in California).22 California, often cited by ACA supporters as an exemplar of ACA implementation, chose to delay the inevitable for its small group market. With the state’s SHOP exchange floundering, Democratic Gov. Jerry Brown signed legislation in July 2014 delaying the application of the ACA’s market reforms to small group offerings until 2016.23 It was not clear how this tacit acknowledgement of how damaging the ACA could be for small businesses was actually reconcilable with ACA support. Matters had not improved much a few years later – as of a December 2017 press release, enrollment in California’s SHOP exchange was only up to “more than 40,000.”24 We can compare that to a Small Business Administration calculation of 6,471,608 Californians employed by small businesses, with one-fifth (or over 1 million) working for businesses of fewer than 20 employees — all eligible for the ACA’s small business tax credit.25 However, it could be worse. The 2014 GAO report had found that Mississippi had only a single person enrolled in its state-run SHOP.26 The state’s longtime insurance commissioner, Mike See Emily Bazar, Small-business exchange is offline and off target, SACRAMENTO BEE (Feb. 24, 2015), http://www.sacbee.com/news/local/health-and-medicine/ask-emily/article11078306.html 20 Anna Gorman, California’s Still Struggling to Set Up SHOP, VOICE OF SAN DIEGO (May 5, 2014), http://voiceofsandiego.org/2014/05/05/californias-still-struggling-to-set-up-shop/ 21 U.S. GENERAL ACCOUNTING OFFICE, GAO-15-58, SMALL BUSINESS HEALTH INSURANCE EXCHANGES: LOW INITIAL ENROLLMENT LIKELY DUE TO MULTIPLE EVOLVING FACTORS 14 (2014), https://www.gao.gov/assets/670/666873.pdf 22 See id. at 13. And this was because “Vermont required that all small group plans in the state be offered only through the SHOP.” See id. at 12 n.34. 23 Michael Giardina, California delays ACA for small employers, EMPLOYEE BENEFIT NEWS (July 8, 2014), http://ebn.benefitnews.com/news/ebn_hc_health_reform/california-delays-aca-for-small-employers-27426081.html?utm_campaign=ebn%20in%20briefjul%209%202014&utm_medium=email&utm_source=newsletter&ET=e bnbenefitnews%3Ae2808962%3A4237886a%3A&st=email 24 Covered California, Press Release, Covered California for Small Business Continues to Grow and Announces New Partnership With EaseCentral (Dec. 13, 2017). 25 U.S. SMALL BUSINESS ADMINISTRATION, SMALL BUSINESS PROFILE: CALIFORNIA 1 (2015), https://www.sba.gov/sites/default/files/advocacy/CA_1.pdf 26 GAO-15-58, supra note 21, at 13. 19
Chaney, deserves credit, however. He has kept his One, Mississippi SHOP exchange open, even with only one carrier offering coverage.27 States that still maintained SHOP marketplace offerings, as did Connecticut for 2018, could still see higher rate increases than small group coverage outside of the SHOP. In Connecticut, only two carriers were participating in the SHOP for 2018. One was new, while the average rate increase for Anthem was approved at 25.4 percent, as compared to a 12.7 percent average rate increase for the carrier with the largest small group enrollment – entirely outside of the SHOP.28 Senator Ben Cardin (D., Maryland), a SHOP enthusiast during ACA floor debate, stated: “[t]here is not competition to provide coverage to small businesses in America. Small businesses in Maryland want to have the opportunity to cover their employees, and they know competition will work, and this bill provides for a lot more competition.”29 Yet, experience has showed Cardin’s constituents did not share his enthusiasm. According to the 2017 annual report of the Maryland Health Benefit Exchange, “[a]n average of 113 small businesses used the Small Business Health Options (SHOP) Marketplace in Maryland to cover more than 700 individuals as of Sept. 30, 2017.”30 In May 2017 the Centers for Medicare and Medicaid Services (CMS) announced that it was “exploring a more efficient implementation of the Federally-facilitated SHOP Marketplaces in order to promote insurance company and agent/broker participation and make it easier for small employers to offer SHOP plans to their employees, while maintaining access to the Small Business Health Care Tax Credit.”31 According to CMS, where the federal government was facilitating SHOP enrollment, “as of January 2017, approximately 7,600 employers had active SHOP coverage, covering nearly 39,000 individuals.”32 Adding state-run SHOP marketplaces, “approximately 27,000 employers have active coverage through SHOP Marketplaces, covering nearly 230,000 individuals.”33
27
See COMPARE PLANS, ONE, MISSISSIPPI, https://www.onemississippi.com/2016-uhc-plans-summary-benefitcoverage (Last visited Mar. 12, 2018). 28 CONN. INS. DEP’T, 2018 RATE CHART, http://www.ct.gov/cid/lib/cid/RateChart2018-Final.pdf 29 155 CONG. REC. S13798 (Dec. 23, 2009) (statement of Sen. Cardin), 30 MD. HEALTH BENEFIT EXCHANGE, ANNUAL REPORT 9 (2017), http://www.marylandhbe.com/wpcontent/uploads/2012/10/2017-Annual-Report.pdf 31 U.S. CENTERS FOR MEDICARE & MEDICAID SERVICES, THE FUTURE OF THE SHOP: CMS INTENDS TO ALLOW SMALL BUSINESSES IN SHOPS USING HEALTHCARE.GOV MORE FLEXIBILITY WHEN ENROLLING IN HEALTHCARE COVERAGE (2017), https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/The-Future-of-the-SHOP-CMSIntends-to-Allow-Small-Businesses-in-SHOPs-Using-HealthCaregov-More-Flexibility-when-Enrolling-inHealthcare-Coverage.pdf 32 Id. 33 Id.
This SHOP enrollment was less than one-sixteenth of what projections had forecast it to be just three years prior. In 2014, the Congressional Budget Office had estimated 4 million lives would be covered through SHOP exchanges by 2017.34 An incongruity of the ACA is that it effectively punishes small businesses relative to larger ones by requiring of the small group market protections, including the ten essential health benefits, not required of the large group market. To put that into perspective, a florist offering health insurance must provide more robust coverage than Walmart does. It was small wonder that hardly any small businesses enrolled in SHOP exchanges. This was foreseeable. After Kentucky tried health care reform in 1994, a 1997 report on its failure noted Kentucky failed to recognize the uniqueness of the small group segment. This segment has traditionally subsidized the large group segment which has the numbers to negotiate large discounts. Carriers would spread the cost over small groups to ensure some margin of return for bigger groups. . . . To combine this segment with the individual market only increased its exposure for high rates.35 (Emphasis added). Under the ACA, the tax credit can only be claimed for two years. And even without the complication of sequestration the formulas for claiming this credit would be utterly baffling to the average small business owner or, frankly, anyone who is not a statistician. Consider this helpful example from the IRS: Example: For the 2014 taxable year, Employer has four FTEs with average annual wages of $23,000. Employer offers one plan under a list billing system with different tiers of coverage. Employer receives a list billing quote for each of the four employees. For Employee A, the employee-only premium is $3,000 per year, and the family premium is $8,000. For Employees B, C and D, the employee-only premium is $5,000 per year and the family premium is $10,000. Employer computes an employer-computed composite employee-only rate of $4,500 ($18,000 / 4). Employer offers to make contributions such that each employee would need to pay $2,000 of the premium for employee-only coverage. Under this arrangement, Employer would contribute $1,000 toward employeeonly coverage for Employee A and $3,000 for employee-only coverage for Employees B, C and D. The total employee-only premium for the four employees is $18,000 ($3,000 + (3 x $5,000). CONG. BUDGET OFFICE, UPDATED ESTIMATES OF THE EFFECTS OF THE INSURANCE COVERAGE PROVISIONS OF THE AFFORDABLE CARE ACT 10 (2014), 34
http://www.cbo.gov/sites/default/files/cbofiles/attachments/45231-ACA_Estimates.pdf 35 KY. DEP’T OF INS., KENTUCKY’S MARKET REPORT ON HEALTH INSURANCE viii (April 1997)
In the event an employee elects family coverage, Employer would make the same contribution ($1,000 for Employee A or $3,000 for Employees B, C and D) toward the family premium and satisfy the uniform percentage requirement.36 Even an attorney would be hard-pressed to understand this. In 2014 the GAO reported that “several stakeholders noted that the tax credit is too small and administratively complex to motivate many small employers to enroll.”37 President Clinton’s ill-fated Health Security Act was more pragmatic about the insurance marketplace for small businesses. As his proposal noted, “[t]oday, a major insurance carrier doesn’t have to give any kind of deal to the Mom and Pop store in Peoria. But they will not be able to ignore 5000 Mom and Pop stores brought together in an alliance from Central Illinois.”38 Only giving small businesses the opportunity to do group purchasing will address their health care costs. Yet, existing arrangements to do that were imperiled in some states by ACA implementation. The state of Washington, for example, has long had a significant number of lives covered through association health plans (AHPs), which were authorized in response to an individual market collapse following a failed 1993 health care reform law. By 1999 there wasn’t a single insurer offering coverage in Washington’s individual market.39 In fact, a 2011 report had found nearly a half-million residents had been insured through AHPs as of 2008.40 That number included 48 percent of small group enrollees.41 Because such plans were able to avoid the state’s community-rating law that predated the ACA, their rates were lower. The state’s insurance commissioner, Mike Kreidler, tried to shut AHPs down as non-compliant with the ACA, but was rebuffed, in 2015, by an administrative law judge INTERNAL REVENUE SERV., supra note 7. This sort of mind-numbing complexity is why the Affordable Care Act has been a boon to professional employer organizations (PEOs) that, by “co-employing” the employees of a small business, are able to aggregate risk and facilitate lower health care premiums, in addition to assuming W-2 payroll and other human resources responsibilities. While such arrangements can be very positive, small businesses must be diligent in examining their pros and cons. See, e.g., Cameron Keng, Danger Of Using A Professional Employer Organization, FORBES (Sept. 12, 2016), https://www.forbes.com/sites/cameronkeng/2016/09/12/dangerof-using-a-professional-employer-organization/#43b2f23d4a21. A good idea would be to look at the list of PEOs that have chosen to meet the standards necessary to become certified by the Internal Revenue Service. See IRS CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS, INTERNAL REVENUE SERV., https://www.irs.gov/tax-professionals/cpeo-public-listings. 37 GAO-15-58, supra note 21, at 19. 38 BILL CLINTON, HEALTH SECURITY: THE PRESIDENT’S HEALTH CARE PLAN 57 (1993) (Archived at https://clintonwhitehouse6.archives.gov/1993/10/1993-10-27-the-health-plan-chapter-6-savings.html) 39 David Gutman, Dismantling of state’s health reforms in 1993 may offer lessons for Obamacare repeal, SEATTLE TIMES (Jan. 12, 2017), https://www.seattletimes.com/seattle-news/politics/dismantling-of-states-health-reforms-in1993-may-offer-lesson-for-obamacare-repeal/ 40 Deborah Chollet et al., Association Health Plans and Community-Rated Small Group Health Insurance in Washington State, MATHEMATICA POLICY RESEARCH viii (2011), http://www.statecoverage.org/files/Mathematica_assoc_healthplans_WA.pdf 41 See id. 36
in his own office.42 A 2018 proposal from Kreidler would have, if adopted by the Legislature, taxed such plans in order to fund a reinsurance program for high-risk individuals.43 However, his fellow Democrats in control of the Legislature killed the House and Senate bills introduced at his request.44 While events during 2017 proved that congressional Republicans had failed to coalesce around an alternative to the ACA, some concrete ideas were offered from time to time. A January 2014 proposal from then-Sen. Tom Coburn (R., Oklahoma) and Sen. Orrin Hatch (R., Utah) sounded promising when it stated “[s]mall businesses would be free under our proposal to band together to negotiate small business health plans, similar to how large employers are able to leverage purchasing power through their size. This step could help some businesses expand access to coverage and lower health care costs for these smaller firms.”45 However, the senators did not reduce their proposal to bill language so that one could see how it would actually work. In April 2014, both parties, in a little-noticed section of a perennial bill to “fix” Medicare reimbursement for doctors, agreed to remove ACA language that had arbitrarily limited small group plans to $2,000 deductibles for those plans covering single individuals and $4,000 for any other plans.46 Because the limitation upon out-of-pocket expenses already otherwise limited deductibles, it is unclear why the ACA had ever precluded small businesses from buying the highdeductible plans allowed in the individual and large group markets – plans that had, indeed, become common in a 2014 individual market where insurers often sought to make the deductible the entire 2014 out-of-pocket limit of $6,350 for an individual. For both 2014 and 2015, the Obama Administration delayed the clear statutory requirement that small business employees have choices in purchasing through SHOP exchanges, even though the Administration’s May 2014 rulemaking acknowledged that “[c]ommenters expressed concern that the deferral of employee choice could go on for years and could possibly be permanent.”47 As North Carolina Insurance Commissioner Wayne Goodwin had argued in a June 2014 letter to the Department of Health and Human Services: [S]ince North Carolina had only one issuer participate on the FFSHOP for 2014, and there is no expectation of additional Editorial: Association health plans are key to Washington’s health insurance market, SPOKESMAN-REVIEW (Oct. 3, 2015), http://www.spokesman.com/stories/2015/oct/03/editorial-association-health-plans-are-key-to/ 43 Zack Hale, Kreidler proposes plan to stabilize rural health care markets, DAILY NEWS (Jan. 10, 2018), http://tdn.com/news/local/kreidler-proposes-plan-to-stabilize-rural-health-care-markets/article_0e6c0c92-fd3a-5828a26f-5d8b7d3bf2c4.html 44 See WASH. ST. LEGISLATURE, SB 6062 - 2017-18 HISTORY, http://app.leg.wa.gov/mobile/BillSummary/History?Number=6062&Year=2017; WASH. ST. LEGISLATURE HB 2355 - 2017-18 HISTORY, http://app.leg.wa.gov/mobile/BillSummary/History?Number=2355&Year=2017 45 The Patient Choice, Affordability, Responsibility, and Empowerment Act: A Legislative Proposal (archived at https://www.hatch.senate.gov/public/_cache/files/bf0c9823-29c7-4078-b8afaa9a12213eca/The%20Patient%20CARE%20Act%20-%20LEGISLATIVE%20PROPOSAL.pdf). 46 Pub. L. 113–93, title II, §213(a)(1), Apr. 1, 2014, 128 Stat. 1047. 47 Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond, 79 Fed. Reg. 30240, 30306 (2014), https://www.gpo.gov/fdsys/pkg/FR-2014-05-27/pdf/2014-11657.pdf 42
participation in 2015, the Department questions whether there is meaningful choice among Qualified Health Plans (QHPs) when all of the QHPs are issued by the same issuer. Without additional issuer participation leading to broader employee choices, we believe that requiring employee choice is not justified and will increase costs for small employers and their employees needlessly.48 While congressional Republicans offered no alternative to the SHOP concept in their various failed 2017 bills to repeal, and replace, the ACA, President Trump issued an October 2017 executive order purporting to assist small businesses – and, remarkably, individuals – by allowing them to group together and purchase health insurance through association health plans. According to the executive order, “[l]arge employers often are able to obtain better terms on health insurance for their employees than small employers because of their larger pools of insurable individuals across which they can spread risk and administrative costs. Expanding access to AHPs can help small businesses overcome this competitive disadvantage by allowing them to group together to self-insure or purchase large group health insurance.”49 These purchases ostensibly could occur across state lines, a familiar policy preference of Republicans that runs afoul of the fact that insurance is state-regulated. A statement from Ted Nickel, the Wisconsin insurance commissioner and president of the National Association of Insurance Commissioners, noted that “[t]he NAIC has long expressed concerns with expanding AHPs in a manner that reduces consumer protections or solvency requirements that promote safe and sound markets. We also have concerns about the impact of such a proposal on already fragile markets. We look forward to working with the Administration and DOL in their rule making process to help address these concerns.”50 The health insurance industry’s trade organization joined consumer groups in a letter expressing concern: “We are concerned that this could create or expand alternative, parallel markets for health coverage, which would lead to higher premiums for consumers, particularly those with preexisting conditions. Further, these actions destabilize the health insurance markets that guarantee access to comprehensive health coverage regardless of health status.”51 Meaning, even individuals would be allowed to join association health plans, something that was illegal under any prior interpretation of the 1974 Employee Retirement Income Security Act, this was a fact acknowledged by the Department of Labor (DOL) in its January 5, 2018 proposed rule, 48
Letter from Wayne Goodwin, Insurance Commissioner, State of North Carolina, to Kathleen, Sec’y, U.S. Dep’t of Health & Hum. Services (June 2, 2014), https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-InsuranceMarketplaces/Downloads/NC_Recommendation_Form_for_the_2015_Transition_to_Employee_Choice.pdf 49 Exec. Order No. 13,803, 82 Fed. Reg. 48385 (Oct. 17, 2017), https://www.federalregister.gov/documents/2017/10/17/2017-22677/promoting-healthcare-choice-and-competitionacross-the-united-states. 50 Statement from Ted Nickel, NAIC President and Wisconsin Insurance Commissioner, NAIC Reacts to Health Executive Order, NAT’L ASSOC. OF INS. COMMISSIONERS (Oct. 12, 2017), http://naic.org/newsroom_statement_171012_health_executive_order.htm. 51 Sarah Lueck, Trump Proposal Expanding Short-Term Health Plans Would Harm Consumers, CTR. FOR BUDGET & POL’Y PRIORITIES (Feb. 20, 2018), https://www.cbpp.org/blog/trump-proposal-expanding-shortterm-health-plans-would-harm-consumers (link to letter).
which dispenses with decades of interpretive history, and allows “new organizations whose sole purpose is to provide group health coverage to member employers and their employees.”52 Those “new organizations” sound a lot like insurance companies. And if individuals are treated as “employers,” it would allow the strange possibility of a group of individuals pooling risk across state lines in an under-capitalized scheme, as state requirements for risk-based capital would not apply. DOL casually admitted the possibility of “more opportunities for mismanagement or abuse,” but seemed little-concerned. Mismanagement or outright fraud was once commonplace with multiple-employer welfare arrangements (MEWAs), which these new AHPs run the risk of resembling. As a 2013 DOL report notes, “MEWA-promoter claims of ERISA-plan status and claims of ERISA preemption, coupled with the attributes of an ERISA plan, too often served to impede State efforts to obtain compliance by MEWAs with State insurance laws.”53 Those claims could be irresistible to some: By avoiding State insurance reserve, contribution and other requirements applicable to insurance companies, MEWAs are often able to market insurance coverage at rates substantially below those of regulated insurance companies, thus, in concept, making the MEWA an attractive alternative for those small businesses finding it difficult to obtain affordable health care coverage for their employees.54 Federal law was changed in 1983 to address this, but unscrupulous practices persisted. “While the 1983 ERISA amendments were intended to remove Federal preemption as an impediment to State regulation of MEWAs, it is clear that MEWA promoters and others have continued to create confusion and uncertainty as to the ability of States to regulate MEWAs by claiming ERISA coverage and protection from State regulation under ERISA’s preemption provisions.”55 By its own admission, DOL “is proposing to amend the definition of employer in section 3(5) of ERISA[.]”56 As the proposed rule acknowledges, there has long been a three-part test to determine “whether there is a sufficient common economic or representational interest or genuine organizational relationship for there to be a bona fide employer group or association capable of sponsoring an ERISA plan on behalf of its employer members.”57 Those factors are:
52
Definition of “Employer” Under Section 3(5) of ERISA-Association Health Plans, 83 Fed. Reg. 614, 620 (proposed Jan. 5, 2018) (to be codified at 29 C.F.R. 2510), https://www.federalregister.gov/documents/2018/01/05/201728103/definition-of-employer-under-section-35-of-erisa-association-health-plans. Given publication deadline, this article speaks to the proposed rule, but the final rule was published June 19, 2018. 53 54
Id. At 632.
Id. Id. at 4. 56 Definition of “Employer”, supra note 52, at 615. 57 Id. at 616. 55
(1) whether the group or association is a bona fide organization with business/organizational purposes and functions unrelated to the provision of benefits; (2) whether the employers share some commonality and genuine organizational relationship unrelated to the provision of benefits; and (3) whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program, both in form and substance. 58 (emphasis added). Ominously, in changing the rules, DOL also embraces the same naïve conceit that has brought down MEWAs: “AHPs may also help contain costs by creating a stable risk pool that may enable AHPs to self-insure rather than purchase insurance from commercial insurers.”59 Self-insure by what standard of solvency? Commercial insurers are required under state regulation to have a certain amount of risk-based capital. If an AHP was undercapitalized a handful of costly claims might easily break it. Though the risk of AHP insolvency would be damaging for consumers, the health of individual insurance markets would also be damaged by such arrangements cherry-picking healthy risk for plans that avoid the ACA’s high standards, especially once no individual mandate to purchase insurance exists. In a prescient January 2017 issue brief, the American Academy of Actuaries had warned of any scenario where “lower-cost groups and individuals would move to establish an AHP, and higher-cost groups and individuals would remain in traditional insurance plans. Such adverse selection would result in higher premiums in the non-AHP plans. Ultimately, higher-cost individuals and small groups would find it more difficult to obtain coverage.”60 For anyone unclear on whether such arrangements would challenge the individual market, a January 4, 2018, press release from Senator Lamar Alexander (R., Tennessee), the chair of the Senate Health and Labor Committee, should clarify, as he claimed they would “provide new, more 58
Id. at 616-17. Id. at 619. 60 ISSUE BRIEF: ASSOCIATION HEALTH PLANS, AM. ACADEMY OF ACTUARIES 1 (2017), www.actuary.org/files/publications/AssociationHealthPlans_021317.pdf. One May 2018 article noted that “many states — blue and red — are sounding alarm bells, arguing that by weakening state authority over the plans, the changes would enable unscrupulous operators to sell cheap policies with skimpy or nonexistent benefits.” Michael Ollove, Why States Worry That 'Association Health Plans' Will Be Magnets for Scam Artists, STATELINE (May 25, 2018), http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2018/05/25/why-states-worry-thatassociation-health-plans-will-be-magnets-for-scam-artists. Alternately, at least one commentator on the proposed rule has suggested it still maintains too much regulation. See Letter from Todd Cohn, Vice President, TriNet, to Office of Regulations and Interpretations, Employee Benefits Security Administration U.S. Department of Labor (Mar. 3, 2018), https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/publiccomments/1210-AB85/00544.pdf.. Mr. Cohn expressed concern that “the rule cedes much of the oversight and final rulemaking authority to each of the 50 states, leaving the relative success or failure of AHPs up to the states.” Id. at 2. He noted that large employers, unlike small ones, have been able to rate health insurance based upon health status, and are advantaged by the fact that “w]ith the advent of the ACA, health insurance has become a more complex, regulatory-driven puzzle for both individuals and employers alike.” Id. at 6. 59
affordable options to Americans in the individual market who are getting hammered by skyrocketing premiums.”61 Medical provider advocates – including the American Medical Association – have expressed serious concerns about the risk, both financially and as to what services might be omitted from coverage, inherent in such arrangements.62 In considering what the DOL proposes, I am reminded of a colorful dissent by the late Justice Antonin Scalia, in which he accused his fellow justices of “interpretive jittery-pokery” in the interpretation of Affordable Care Act provisions.63 As attorney Alden Bianchi wrote in the National Law Review, “[t]he changes that the Department proposed will, if adopted as a final rule, up-end decades of Department of Labor advisory opinions, case law, and state regulatory precedent[.]”64 Expect a drawn-out regulatory process and legal challenges. If this regulatory objective is achieved, there will be immense opportunity, and peril, for attorneys to sort through on behalf of business clients interested in setting up, or participating in, AHPs. In a December 2017 interview, President Trump prematurely boasted: “[w]e’ve created associations, millions of people are joining associations. Millions. That were formerly in Obamacare or didn’t have insurance. Or didn’t have health care. Millions of people.”65 The president may prove to be correct, however. A February 2018 analysis from Avalere Health, a leading health care policy consulting group, predicted 3.2 million Americans will enroll in AHPs, driving up premiums in the small group and individual markets but resulting, for AHP enrollees,
61
Press Release, Sen. Lamar Alexander, United States Senate, Alexander: Proposed Health Insurance Rule Could Lower Costs for up to 11 Million Self-Employed or Small Business Employees (Jan. 4, 2018). https://www.alexander.senate.gov/public/index.cfm/pressreleases?ID=2DA8210E-6DC0-433B-A5D9E6FDDDDAA759 62 See Virgil Dickson, Association health plan rule poses financial threat for providers, MODERN HEALTHCARE (Mar. 7, 2018), http://www.modernhealthcare.com/article/20180307/NEWS/180309924. According to the Los Angeles Times, “More than 95% of healthcare groups that have commented on President Trump’s effort to weaken Obama-era health insurance rules criticized or outright opposed the proposals, according to a Times review of thousands of official comment letters filed with federal agencies.” Noam N. Levey, Trump's new insurance rules are panned by nearly every healthcare group that submitted formal comments, L.A. TIMES (May 30, 2018), http://www.latimes.com/politics/la-na-pol-trump-insurance-opposition-20180530-story.html. 63 King vs. Burwell, 135 S.Ct. 2480, 2500 (2015) (Scalia, J., dissenting). 64 Alden J. Biancia, The Department of Labor’s Proposed Association Health Plan Regulation: Who Wins, Who Loses?, NAT. LAW REV. (Jan. 22, 2018), https://www.natlawreview.com/article/department-labor-s-proposedassociation-health-plan-regulation-who-wins-who-loses. 65 Glenn Kessler, In a 30-minute interview, President Trump made 24 false or misleading claims, WASHINGTON POST (Dec. 29, 2017), https://www.washingtonpost.com/news/fact-checker/wp/2017/12/29/in-a-30-minuteinterview-president-trump-made-24-false-or-misleading-claims/?hpid=hp_hp-top-table-main_factchecker623am%3Ahomepage%2Fstory&utm_term=.8b3cb5ba65f5.
in lower premiums “largely attributable to less generous benefit offerings and healthier enrollees, due to risk selection, in the new AHPs.66 Association health plans are clearly the small business health care policy idea du jour. In Iowa’s 2018 legislative session, the Iowa Farm Bureau pushed legislation through the Republican legislature, and into a law signed by the Republican governor, giving it preferential treatment under the state’s insurance laws and actually exempting “health benefit plans” it sells, in partnership with the state’s leading insurer, from the very definition of insurance.67 The U.S. House version of a farm bill considered by Congress in 2018 also had $65 million allocated for loans and grants for the Department of Agriculture – a strange entity to be involved with health insurance – to assist in setting up such association health plans.68 Time will tell if this latest promise to small businesses works out better than has the Affordable Care Act’s69.
66
Dan Mendelson et al., Press Release, Avalere Health, Association Health Plans Projected to Enroll 3.2M Individuals (Feb. 28, 2018), http://avalere.com/expertise/managed-care/insights/association-health-plans-projectedto-enroll-3.2m-individuals 67 Amy Goldstein, Iowa tries another end run around the Affordable Care Act, WASH. POST (Apr. 2, 2018), https://www.washingtonpost.com/national/health-science/iowa-tries-another-end-run-around-the-affordable-careact/2018/04/01/cd25baec-3429-11e8-94fa-32d48460b955_story.html?utm_term=.e8225caa9ad7 68 Julie Appleby, Farm Bill Could Undo Part Of The Affordable Care Act, NAT’L PUBLIC RADIO (May 8, 2018), https://www.npr.org/sections/health-shots/2018/05/08/608566531/farm-bill-could-undo-part-of-the-affordable-careact. 69 Early indications are not promising. See Adam Cancryn, Trump promised them better, cheaper health care. It’s not happening., POLITICO (July 19, 2018) ("[T]he NFIB, which vigorously promoted association health plans for two decades, now says it won’t set one up, describing the new Trump rules as unworkable. And the NFIB isn’t the only one[.]").