Much ink has been spent in the past months, during the Presidential campaign and the largely surprising outcome, on the fate of the Affordable Care Act (ACA). Republicans campaigning for U.S. House and Senate seats, as well as President Trump himself, made the repeal and replacement of the ACA a centerpiece of their campaigns.
On January 20, within hours of taking the oath of office, President Trump signed an Executive Order widely viewed as the first step toward ACA repeal. Reports of its impact on the current landscape vary widely, particularly for employer health plans, which are not specifically mentioned in the order. So where does that leave employers wondering what this means for their health plan designs and obligations?
Much of the landscape is still uncertain as Congress begins grappling with the issues, but there are some things we do know.
1. The ACA is still in effect, and employers should continue administering their plans accordingly. The Executive Order directs “the Secretary of Health and Human Services and the heads of all other executive departments and agencies with authorities and responsibilities” for administration of the ACA to exercise “all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.” This language is very broad and somewhat vague, but the Order, on its own, cannot override enacted legislation or regulations adopted through the formal rulemaking process. Instead, only provisions of the law over which the various agencies have “discretion” are affected by this order. This could include, for example, softening the burden on employers and individuals by waiving or granting individual exemptions from the employer mandate penalty, or by further deferring reporting and compliance obligations, much as was done for 2014 and 2015 by the prior administration.
2. The agency heads subject to this order have not yet been confirmed by Congress. Until this happens, none of these individuals can take any action to implement its terms.
3. The initial impact is expected to be primarily to the individual insurance mandate. Although the agencies cannot override the ACA’s requirement for individuals to purchase individual health insurance, HHS does have significant discretion to grant hardship exemptions to the individual insurance requirement. It is possible that the standards for granting these exemptions will be significantly relaxed. However, hopefully caution will be exercised, as the mandate is a lynchpin of the current system under the Exchanges.
4. The IRS could reduce the reporting burden. The IRS may also act to delay the employer reporting requirements, as it has already done for 2015 and 2016 under the prior administration. In November 2016, the IRS extended the “good faith” standard for reporting it had adopted for 2015, under which it will not impose noncompliance penalties for incorrect filings, as long as employers make a good faith attempt to file correctly. As noted above, until the IRS acts, employers should assume the existing reporting deadlines and requirements remain in place, and act accordingly.
5. The Order could lessen or end some taxes and reporting obligations, but cannot end the employer health insurance mandate or penalty without Congressional action. The discretion referenced in the Order could include, for example, ending the PCORI fees payable by insurers and self-insured employers July 31 through 2019, which are currently approximately $2 per enrollee; further delaying reporting deadlines; and relieving self-insured employers and insurance companies of the obligation to make the second installment of the final reinsurance payment of $5.40 per enrollee, which would otherwise be payable on November 15, 2017. However, many of the obligations and requirements of the employer mandate are either included in the text of the ACA or the subject of formal regulations. These can only be changed by Congressional action or through the formal rulemaking process, which can take significant time.
The ACA is federal law. Fully insured health plans are also subject to state law requirements, which may differ from state to state. Some states have already begun to act to impose certain coverage requirements on insurance policies issued in their states which are currently mandated by the ACA, but may be repealed or revised in future by Congress. These include coverage for mental illness, medically necessary abortions, contraceptive coverage, and preventative care. Employers which are self-insured, however, may have significantly more flexibility to design their plan coverage - and therefore, to provide superior coverage which could be used as a tool to attract and retain a high-quality workforce and to differentiate themselves from other employers. Until the ACA is repealed or replaced, however, employers should be aware that, even if the Trump administration chooses not to enforce certain of the coverage mandates (such as contraceptive coverage), employees may still be able to file suit under the theory that federal law requires plans to honor the coverage requirements and a failure to do so is a breach of fiduciary duty. Such cases could result in personal liability.
With respect to the ACA’s requirements, as has been the case since the election, employers must play the waiting game. Congress can be expected to consider President Trump’s nominees for Secretaries of HHS, Department of Labor, and Department of Treasury in the near future. Once these appointees are confirmed, they can begin work on interpreting and implementing the Executive Order in earnest. Shortly thereafter, employers may begin to expect short-term guidance on relief available under the terms of the Order. Until that time, employers should continue administering their plans in accordance with the existing law and guidance, which includes the preparation and distribution of 2016 reporting for ACA health coverage and payment of any taxes and fees which are currently due.
In the meantime, we believe employers should pursue changes only with extreme caution. In addition, due to the potential personal liability associated with fiduciary duty breaches, employers should ensure that they (and their affected employees) are covered by sufficient ERISA fiduciary liability insurance to protect against possible employee lawsuits related to any plan coverage changes, and carefully consider whether such changes are worth the litigation risk which may result. We will continue to keep a close eye on developments as they occur.