ACA Gobbles Up Self-Insurance Marketplace One Bite at a Time

This week’s announcement that the ACA’s employer-mandate provision has been postponed has understandably gotten a lot of attention.  It’s a big deal for sure, but while federal regulators punted on this high profile provision, they demonstrated no such caution with the release of two sets of final rules over the past week that will have the likely effect of eroding the self-insurance marketplace.

So while everyone is talking about the employer-mandate development, it’s important to interject some exclusive reporting and commentary regarding separate finalized ACA rules related to contraceptive coverage and student health plans to demonstrate how self-insurance options are being quietly restricted in certain market segments.

The rule-making process for contraceptive coverage has certainly attracted much attention over the past two years, but this blog is agnostic regarding the ongoing religious liberty debate that dominates the headlines.   We have, however, been very interested in how the final rules will affect self-insured religious organizations, of which there are many.

As some may recall, when the controversy originally erupted over the prospect of religious organizations being forced to provide coverage for contraceptive coverage, Obama’s political operatives quickly hatched a plan: insurance companies would be required to include this coverage at no cost to the religious organizations.

Notwithstanding the fact that this accommodation failed to satisfy religious liberty objections, the White House overlooked the fact that a large percentage of religious organizations operate self-insured group health plans, so the suggested insurance company fix would not apply to these plans.

Faced with this realization, regulators have floated various proposals during the rule-making process on how self-insured religious organizations can comply with the law.  Most of these proposals have been variations on the theme of forcing third party administrators to take responsibility for coordinating such coverage. 

For good measure, regulators offered a closing comment in the proposed rules essentially saying that such organizations can always convert to fully-insured arrangements if self-insurance is no longer viable.  You have to appreciate such bureaucratic thoughtfulness.

Based on the final rules released last week, it appears that the viability of self-insured plans will be significantly compromised.  At issue is that regulators are forcing TPAs to serve as plan fiduciaries solely for the purpose of arranging separate contraceptive coverage for plan participants.

Industry stakeholders have raised numerous concerns that such an approach is legally questionable and would expose TPAs to a variety of legal liability scenarios.  But the regulators flatly rejected these comments, asserting that “the Department of Labor’s view that is has the legal authority to require the third party administrator to become the plan administrator under ERISA section 3(16) for the sole purpose of providing payments for contraceptive services if the third party administrator agrees to enter into or remain in a contractual relationship with the eligible organization to provide administrative services for the plan.”  

Already acutely sensitive to potential fiduciary designations outside of the ACA context, it’s a reasonable conclusion that at least some TPAs will consider the new rules to be a tipping point, forcing them to part ways with their religious organization clients, which in turn will make it more difficult for such organizations to maintain their self-insured plans.

In separate news, CMS published the final rule last week clarifying exemptions to the individual mandate requirement in as provided for in the ACA.  As part of this, the rule also contained the final language on which "non-insurance” programs will be considered minimum essential coverage (MEC) for purposes of satisfying the mandate.

The earlier, proposed version of the rule had included self-funded student health plans in the list of allowable MECs.  Under the final version of the rule, however, self-funded student plans will only be considered MEC for plan years beginning before December 31, 2014.  After that date, such plans will have to apply to CMS to maintain the exemption.

Given the explicit goal of the Administration to steer as many young and healthy individuals into the exchanges as possible, this blog is highly skeptical that such exemptions will be forthcoming.  And of course, the real effect of this rule won’t be felt until after the 2014 elections. 

We’ll concede the fact that student health plans and religious organizations do not represent major segments of the overall self-insurance marketplace, but they are viable segments that are being quietly gobbled up by the bureaucracy.    So while everyone understandably is now talking about the employer-mandate delay, much of the real action continues to be in the details of the highly technical ACA implementation rules that cannot be easily distilled by the media nor understood by most health care reform observers.

 

 

 

Health Care Claims Tax to Live on in Michigan

Some fresh reporting from Michigan indicates that there is still quite a bit of certainty ahead for a health care tax scheme with big ERISA preemption considerations as it ropes in self-insured group health plans.  (See 11/23/12 blog post for prior reporting on this subject.)

While industry observers wait on a federal appeals court to rule on whether the state state’s Health Insurance Claims Act (HICA) violates federal law, there is one open question that appears to be settled, which is that the tax will not sunset at the end of the year as originally intended.

Governor Snyder is expected to sign legislation (SB 335) as early as this week that will extend the sunset provision for four years.  So this “temporary” tax sure has a permanent feel to it.

A proposal to hike the one percent tax was stripped from the legislation but that does not necessarily mean that it not going happen.  That’s because the Legislature has finalized the state’s 2013-2014 budget assuming $400 million in revenue coming from the HICA tax. 

The problem is that number likely overestimates revenue by at least $130 million based on the current year’s tax receipts.  Legislators hope to fill this revenue gap by tweaking the state’s no fault auto insurance system and related new vehicle fees, but if this is not done by October, they will be forced to pass what is known as a “negative supplemental appropriates bill” and the heat with again be on again to increase the HICA tax.

 And keep in mind that there is a two-to-one match from the federal government for all state revenue raise through the HICA tax, so a multiplier effect is in play, which further intensifies the pressure to maintain and increase the tax.  That said, It is sometimes easy to tune out when reading about predictable legislative maneuvering and lose focus on the real world implications, so let’s do that quickly now.

Last year, this blog spoke to a major multi-self-insured employer based on Michigan to gage how they have adapted to the HICA tax.   The response regarding the economic affect was largely expected – essentially that it raised the cost of doing business but that it has not prompted them to reconsider being self-insured.

 Their response regarding the compliance administrative burden was more telling.  While they have been able to figure how to comply with the law, if similar tax schemes pop up in other states the administrative burden will not grow incrementally, but rather exponentially and will force them to take another look at whether self-insurance is still the best option for them.  That’s compelling.

Absence intervention by a federal appeals court, it will be interesting to see whether this ERISA preemption assault can be quarantined with the Michigan state lines. 

Labor Department Pick Signals New Concern for Self-Insurance Industry

The announcement today that President Obama has nominated Tom Perez as the next Secretary of Labor arguably sets the stage for a strong federal push to restrict the ability of thousands of employers nationwide from sponsoring self-insured group health plans.

This provocative conclusion requires the connection of several dots, so we’ll lay them out for your consideration.

As this blog has reported previously, federal regulators have been asking lots of questions about self-insured group plans since the passage of the ACA.  More specifically, they are trying to determine whether smaller self-insured employers that purchase stop-loss insurance with “low” attachment points constitute a “loophole” to the health care law and that these employers are somehow “gaming” the system.

We’ve methodically discredited these assertions multiple times, but it’s important to set the stage as new developments are reported and additional context is provided.

Since insurance is largely regulated at the state level, the obvious question arises regarding how the feds can regulate stop-loss insurance should they wish to do so?  This can clearly be done through federal legislation or potentially through regulation. 

The regulatory route is more complicated as the ACA does not provide any explicit statutory authority for such action.  But regulators can be a creative bunch, especially under the current Administration.

The creative theory is that federal agencies with jurisdiction over the Public Health Services Act (PHSA) and the Employee Retirement Income Security Act (ERISA) may rely on the their general rule-making authority given to them under their respective laws to argue that the federal government may indeed need to regulate stop-loss insurance and re-characterize stop-loss policies with “low” attachment points as “health insurance” through regulations separate and apart from the new law. 

While this action would be controversial and subject to challenge by Congress and private citizens, it is possible that a rule-making process could be initiated to achieve this policy objective.

Based on discussion with key regulators as recently as last week, such a rule-making process is unlikely to occur this year.  This blog speculates that the primary consideration for inaction at this point is that regulators are simply overwhelmed with finalizing all of the rules and related guidance required for full ACA implementation at the end of this year.

Once these deadlines pass, however, the regulators will have more bandwidth to circle back on ancillary areas of interest.  Here’s where we connect the dot with Mr. Perez’ name on it.

While the career professional staffers within DOL (non-political appointees) are competent and at least reasonably objective in most cases, the new agency head is anything but.

Mr. Perez comes with baggage from his tenure within the Justin Department where evidence strongly suggests that at least some of his civil rights enforcement decisions were influenced by political considerations.   In short, he a “social justice” guy who fits nicely into the Administration’s template for policy-making.

His resume also includes a stint with HHS under the Clinton Administration and a senior staff position with the late Senator Ted Kennedy.  Rounding out his big government pedigree, he is a graduate of Harvard Law School and the George Washington Public School of Health.

All of this background suggests that Mr. Perez will be inclined to position DOL as a more activist agency with regard to health care reform issues, including stop-loss insurance regulation.   This motivation will likely be particularly acute if the SHOP exchanges run into early problems with lack of enrollment as many experts predict.

For the sake of discussion, let’s assume this analysis is correct.  In this case, then Secretary Perez could push for a rule-making process as described earlier, or perhaps lead an effort to close the self-insurance “loophole” through federal legislation.  Let’s connect another dot.

As a technical matter this would a “cleaner” approach and not subject to legal challenge.   Congress could simply enact legislation amending the definition of “health insurance” under the PHSA, ERISA and the Code to include, for example stop-loss policies with a “low” attachment point.

Given that Republicans control the House right now and are generally supportive of self-insurance, the politics do not support this potential strategy.   But if you believe recent public commentaries that the Administration’s grand political plan is focused on the objective of Democrats winning back control of the House in 2014, the legislative pathway becomes clearer. 

Und this scenario, it’s hard to imagine that a Secretary Perez would not push for a legislative “fix.”  After all, it’s not fair that some citizens are saved from the exchanges in favor of receiving quality health benefits from their employers, right?   Social justice, indeed. 

And the last dot is connected.

 

 

Michigan Health Care Claims Tax Fight -- Additional Rounds Ahead

It’s been a tough fight thus far in opposition to the Michigan Health Insurance Claims Assessment Act, which imposes a one percent (1%) assessment on all health care payers, including self-insured employers and certain business partners, for medical services rendered to Michigan residents in the state of Michigan.

As this blog has previously reported, business groups in Michigan signed off on the legislation last year noting it was part of a larger budget deal that was not as bad as possible alternatives.   ERISA preemption concerns were outweighed by the belief that self-insured employers could absorb the new tax without much disruption. 

Then in August of this year, a federal district court in Michigan dismissed an ERISA preemption lawsuit, which contended that the administrative obligations imposed by the Act are unlawful.    

Game over?  Well, not exactly.

An appeal of the District’s court ruling has just by filed with the Sixth Circuit Court Appeals and incorporates some very strong arguments to justify a reversal.  And this time, the self-insurance industry will have an unlikely ally in this legal fight – organized labor. 

What has not been widely recognized is that the tax applies to self-insured Taft-Hartley plans and the ERISA preemption argument is even stronger as it relates to these plans.   So it is a positive development that at least two Taft-Hartley plans are expected file amicus briefs next week. 

But while more pressure is being applied in Federal Court, things are heating back up in the Michigan State Legislature to make the tax significantly more onerous.

The Act was structured based on the assumption that it would raise $400 in annual revenue from all payers.   Of course, government budgeting is often suspect and Michigan bureaucrats have lived up to this reputation.  Through the first half of 2012, the state collected only $109 million from the health claims tax, which means the annualized estimate is short nearly $200 million.

So it should not come as any surprise that the Michigan Legislature is now considering a proposal during a lame duck session to significantly hike the tax.  SB 1359, introduced earlier this month, would allow for an unlimited and variable rate on the claims tax so that it would float up and down to ensure that the tax generates $400 million annually.  The bill would also eliminate the proportional credit/refund provision should the tax collect more than the $400 million target amount.

Interestingly, state business groups who provided tacit approval to the tax last year have now launched an aggressive lobbying effort to defeat the proposed 2.0 version.   We’ll see if labor groups join the cause. 

While it’s certainly encouraging that there is strong push back against SB 1359, the opposition remains focused on the economic argument.    Yes, this is clearly important but arguably not as important as the ERISA preemption issue.

We’ll concede that the most self-insured employers in Michigan have figured out how to comply with this new tax obligation, but multi-state employers will also tell you that if other states implement a similar tax scheme this would greatly complicate compliance efforts.  In turn, this could make the self-insurance option much less attractive – a particularly troubling development in the post-ACA world where self-insurance offers a critical safe harbor.

Look around.  Most states have budget challenges, especially as it relates to health care obligations.  If the Michigan tax withstands legal and legislative challenges then we should not be surprised if other states attempt the same approach.

So the stakes are high in Michigan as it is now ground zero in the ERISA preemption fight.

Captives & Dodd-Frank -- Hitting the Right Target

The recent announcement of an industry coalition to push for federal legislation clarifying that the Nonadmitted and Reinsurance Reform Act (NRRA), included as part of the Dodd-Frank law, does not apply to captive insurance companies certainly sounds like a positive initiative.  But despite good intentions, this blog is skeptical that it will acheive the desired result.

We have actually been tracking this issue for some time and is aware of discussions that have taken place with key congressional sources regarding the viability of a possible legislative fix (two conversations as recent as yesterday).  The consensus is that it could be done technically, but DC politics dictate that such an effort would be a heavy lift.

The political reality is that neither Democrats nor Republicans have the appetite to open up the Dodd-Frank Law for any changes at this point. 

Truth be told, congressional Republicans don’t want to do anything to help the law actually work, as this was a highly partisan piece of legislation, much like the Patient Protection and Affordable Care Act.  The only way Republicans would be motivated to even consider amending the legislation is if such action would substantively lessen the administrative burdens on the banking industry and provide certainty to the business community, especially small business.

 Democrats, for their part, will be resistant to “technical amendment” legislation even if they support it in principle for fear that it would become a legislative vehicle where additional amendments would be grafted on with the intent of watering down the law.

And neither party wants to come back under fire from the powerful financial services industry lobby, which would surely happen if Dodd-Frank is opened back up – even for so-called technical fixes.   

But just for the sake of argument, let’s assume that legislation is introduced and some co-sponsors are lined up.  Does that mean success is any more likely?  Probably not.  To understand this assessment, we need to talk about the relative political power of interest groups in DC. 

While many of the larger lobbying organizations active in DC have the ability to block and/or shape legislation, there are far fewer who have enough political juice to get their own special interest legislation passed through Congress, no matter how limited. To be blunt, the captive insurance industry simply does not fit into this latter, more exclusive group.   

Finally, the country’s biggest captive domiciles simply do not have powerful congressional delegations with regard to insurance-related issues, which could potentially offset the deficiencies and complications described above.  That is not to say these members of Congress would not be forceful advocates, they simply are not positioned to move legislation envisioned by proponents of this approach.

So does all this mean that there will never be clarity relative to whether the NRRA applies to captives?  Well, it may not to come from Congress for the reasons we just explained, but it may come from federal regulators as part of the Dodd-Frank rule-making process. 

In fact, this avenue is now being actively explored by self-insurance industry lobbyists.   This strategy can best be described as a “surgical strike,” as opposed to an expensive and pro-longed “land war,” which the congressional route would surely become. 

We’ll see if the political operatives now engaged with the regulators can hit the target.  But at least an arguably clearer path has been identified.

 

 

 

 

 

 

Packaging Health Plan Fee Details for a Post-Election Launch

Self-insured employers have been waking up in recent weeks and months to the reality that they will soon be hit with new fees to finance a transitional reinsurance program provided for the in the Affordable Care Act (ACA).  But they are likely going to have to wait on the details until after the November elections.

As a quick refresher, the fees will be earmarked to capitalize reinsurance facilities in each state that serve as financial backstops for health insurance companies which offer individual coverage plans through public health insurance exchanges slated to come on-line in 2014.  Health insurance companies will also be subject to this fee.

What has caused some confusion is that the statute and a pre-curser rule finalized earlier this year references that third party administratorson behalf of self-insured plans will be responsible for paying the fee.   In private meetings over the summer, regulators clarified that it was not the intent that TPAs be financially liable for these fee, but rather they will be expected to assist in the collection of these fees from their clients.  Those details, along with the specific fee amounts, are still under wraps.

This blog has learned that an increasing number of large self-insured employers have been complaining directly to senior White House officials that the fee is fundamentally unfair because it helps to support the profitability health insurance companies, with no direct benefit for employers.  Responses have ranged from “we hear you but there is nothing we can do” to “there should be no complaining now because you (the employer community) signed off on this ACA provision during the legislative process.”

The former response is expected, but the latter response deserves some fact checking.

According to a source directly involved with drafting this section of the ACA, there is an interesting back story that is not widely known.  When legislative language was being developed, Democratic drafters did not understand the difference between independent TPAs with insurance company owned ASOs and did not understand that ASOs are typically separate business entities from their insurance company parents.

The reason why this is important is because ACA legislative drafters recognized that it did not make sense to impose fees on self-insured plans to subsidize insurance companies but they figured by referencing TPAs they would exclusively tap the fully-insured marketplace on the assumption that all TPAs were owned by insurance companies.

Only later in the legislative drafting process did they come to understand that many self-insured employers had no insurance company connection.  But by that time there was no turning back and there was no alternative to collecting the necessary revenue – all self-insured employers were going to have to pay.  No wonder that that the regulators have been slow with details on how this is all going to work.

So this brings back to the timing of when these details will be published.  Clearly if the Administration thought that employer community was going to be happy with the new rules, they would be released prior to Election Day.  But the best intel suggests that the proposed are done and are sitting right now at the Office of Management & Budget (OMB) awaiting a green light for release, likely shortly after election day.

The one positive detail is that the rules will be coming out in proposed form, so there will be an opportunity for formal stakeholder input -- just another thing to look forward to as we enter the holiday season.

Michigan Health Care Claims Tax May Just Be The Opening Bid

This blog has previously reported about the one percent health care claims tax that the state of Michigan has imposed on all payers, including self-insured group health plans.  We have also commented on the refusal of most within the employer community to support a legal challenge to the law, which should be preempted by the Employee Retirement Income Security Act (ERISA).

While one prominent Michigan employer has privately been a big financial supporter of this self-insurance legal defense initiative, the state’s largest employer organizations, as well as at least one major national association focused on ERISA preemption issues have been on the sidelines.

Now, it’s probably unrealistic to expect that the average self-insured employer will take the time to think about the longer term implications of ERISA preemption erosions.  Significant as these implications are, those employers are more concerned about the immediate financial implications.

 Fair enough.  Let’s talk about this shorter term perspective. 

 We have just learned from a very reliable source that the revenue collected so far this from health claims tax is much lower than projected -- so much lower, in fact, that the state Legislature will likely consider a proposal to raise it early next year.

 For employers who ran the numbers and determined that they could absorb a one percent tax, they should get ready to do a new set of calculations, perhaps on a yearly basis going forward, should a federal appeals court not strike down the law.  At some point it would seem that this health care tax could become an important factor as employers consider whether self-insurance is as cost effective as it otherwise would be,

 And in case you think this issue is contained to Michigan, think again.  Other cash-strapped states are watching how things play out in Michigan and at least some are likely to follow-suit if they believe such action will go unchallenged.

 When a camel gets its nose under the tent the occupants should not be surprised that the damage often cannot be contained.  For self-insured employers with workers in Michigan, they may soon learn this important lesson.