Thursday, October 12, 2017

Can blue states protect their health insurance markets from Trump's executive order?

Can a state that wants to preserve ACA consumer protections protect itself from the executive order Trump signed today, which opens paths to segmenting the risk pools in the individual and small group markets? Consider the case of New Jersey, which had guaranteed issue (and, with no individual mandate, sky-high premiums) pre-ACA.

The Trump EO instructs Treasury, DOL and HHS to expand availability of short-term insurance, allowing it "to cover longer periods and be renewed by the consumer."  That's understood to mean allowing coverage for up to a year -- and so, via renewal, indefinitely, though subject to medical underwriting at renewal as well as at first purchase.  Short-term plans are not subject to ACA coverage rules.

At present, plan duration is limited to three months. Since  that rule only went into effect this April, extending the term to up to a year is not a radical shift from the ACA status quo.  But combined with weak enforcement of the individual mandate, and more exemptions from the mandate stemming from rising premiums, temporary plans available continuously are likely to weaken the ACA risk pool.

Temporary plans are subject to state regulation, however, and health law scholar Nicholas Bagley expects that to continue:
Temporary plans are banned in New Jersey, because the state bans medical underwriting in all plans. Thus the state individual market would seem to be unaffected by the EO -- unless newly drafted rules allow association health plans to market to individuals. The language of the EO seems to indicate, however, that intended expanded access to association plan for "employers" only.

Expanded association plan access is aimed at small employers. The intent is to make it easier for association plans to be deemed large group plans, and so escape the ACA's consumer protections for small group plans, which match the core protections of the individual market. The focal point is whether the association itself can be deemed an employer and so reach large group status. At present, that is very difficult. According to current DOL interpretation of the Public Health Services Act, the group that maintains the plan has to be "tied to the employer and employees that participate in the plan by some common economic or representation interest or genuine organization relationship unrelated to the provision of benefits." The EO seeks to loosen that standard:
To the extent permitted by law and supported by sound policy, the Secretary should consider expanding the conditions that satisfy the commonality‑of-interest requirements under current Department of Labor advisory opinions interpreting the definition of an "employer" under section 3(5) of the Employee Retirement Income Security Act of 1974. The Secretary of Labor should also consider ways to promote AHP formation on the basis of common geography or industry.
New Jersey currently exerts tight control over association plans. They are regulated as small group plans and subject to all the state's coverage rules for small groups -- even if they're self-funded. At present, while self-funded plans generally are subject to federal oversight under ERISA, which preempts state law, there is an exception for association plans (technically multiple employer welfare arrangements, or MEWAs, that is, plans that cover the employees of two or more unrelated employers).

States may treat MEWAs as insurance companies, and subject them to most of their insurance regulations. New Jersey requires that MEWAs comply with "all applicable small employer health benefits laws and financial requirements" and decrees:

If new DOL regulations enable association plans to obtain employer status, that could impair New Jersey's ability to regulate them as small group plans, according to health law scholar Timothy Jost's analysis of the EO:
ERISA does allow the Secretary of Labor to preempt some state regulatory authority with respect to specific plans or classes of MEWAs involving ERISA plans, something the administration seems to be considering, but even under this authority DOL cannot preempt state solvency requirements, or licensing or reporting authority with respect to solvency issues.
On the other hand, Jost does not see the EO as undermining state authority to regulate MEWAs entirely:
These association plans would still involve multiple employers and thus still be MEWAs. They would thus be subject to state regulation. They could not be sold across state lines free from any state oversight. Only if states decided not to exercise their regulatory authority or if the administration found some way to preempt state MEWA regulation, would sale across state lines exempt from state regulation be possible. 
At present, New Jersey is home to just two association plans, or MEWAs. One, the Association Master Trust (AMT), began life 72 years ago as the New Jersey Fuel Merchants Association, gradually took in other industry associations, and now provides services to 17 groups and (as of 2014), has 18,000 members. It covers all state-mandated benefits, as MEWAs in the state must, and uses a Horizon Blue Cross network (or networks; it offers members some 40 plans). 

It might be said that the Trump EO aims to enable states to segment their individual market risk pools (by giving free reign to temporary plans, or rather acquiescing to free align accorded by the federal government), and to use federal preemption to segment states' small group risk pools, will they or nil they.  Phil Murphy, New Jersey's Democratic candidate for governor, has an opportunity to affirm that he will preserve the integrity of the state's individual market, by maintaining the ban on temporary plans, and that he will fight to preserve the state's effective regulation of its small group market, by challenging any Trump administration attempts to expand ERISA preemption. May Murphy seize that opportunity -- soon.

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