Beware of Sales Pitches for the New "Association Healthcare Plans" in California

Almost immediately after the new Trump Administration regulation on Association Healthcare Plans (AHPs) was released, a number of brokerages and advisors were out touting the new plans as a way employers can save money.  While this may be true in many states, the Republic of California is a different story.   

This is an excellent summary from Katrina Veldkamp at Boutwell Fay LLP: 

The DOL acknowledged that AHPs will be MEWAs and that states will retain their existing authority related to MEWA regulation and enforcement. Fully insured MEWAs are subject to state laws that regulate the maintenance of specific contribution and reserve levels. Self-insured MEWAs are subject to state law to the extent not inconsistent with ERISA. Since many states, including California, have substantially limited the establishment of MEWAs – particularly self-insured MEWAs – in order to avoid abuse, it is unclear whether the expanded availability on AHPs under the new regulations will even be feasible in some states. In fact, the California Insurance Commissioner made a statement on the day the AHP regulations were issued that California law prohibits the formation of any new MEWAs and cautioned against AHP fiscal insolvency and fraud. (Note: California prohibits new self-insured MEWAs but does not explicitly prohibit fully insured MEWAs; however, it is unclear whether a fully insured AHP would be able to form under current California law.)

Another hurdle for AHPs will be state mandates and definitions for small and large group insurance. AHPs remain subject to state and federal laws mandating the provision of certain benefits (other than essential health benefits). The DOL declined to rule on whether state laws that differ from the AHP rules regarding group size calculation would be upheld. For example, California’s definition of “small employer” for small group status has different criteria than the AHP regulations and does not reference working owners. Since the DOL specified that the AHP regulations do not modify existing state authority, it is not clear whether state laws would be superseded by the AHP regulations. 

The regulations also result in differing treatment of AHPs under various federal laws. For example, the DOL states in the preamble that size of an employer for purposes of determining applicability of the Mental Health Parity and Addiction Equity Act (“MHPAEA”) should be determined based on the aggregate number of employees of all employer members in an AHP. On the other hand, the number of employees for purposes of determining whether an employer member is an “applicable large employer” under the employer shared responsibility rules of Internal Revenue Code Section 4980H is based on each individual employer member.  This means that employers with 50 or more full time employees may be subject to tax if they are members of an AHP that does not provide minimum value coverage. The DOL declined to provide guidance on how COBRA would apply to an AHP and its employer members because COBRA is within the interpretive jurisdiction of the Treasury and IRS, but it intends to provide further guidance after consulting with the Treasury and IRS. 

AHPs will be subject to all applicable ERISA requirements, including fiduciary duties and reporting and disclosure, such as Form 5500 and M-1. 

  

Big Brother the Insurer - Health Insurers Are Vacuuming Up Alarmingly Private Details About You

Incredibly alarming trend in our industry expounded on by Marshall Allen at Pro Publica / NPR:

Without any public scrutiny, insurers and data brokers are predicting your health costs based on data about things like race, marital status, how much TV you watch, whether you pay your bills on time or even buy plus-size clothing. ... 

With little public scrutiny, the health insurance industry has joined forces with data brokers to vacuum up personal details about hundreds of millions of Americans, including, odds are, many readers of this story. The companies are tracking your race, education level, TV habits, marital status, net worth. They’re collecting what you post on social media, whether you’re behind on your bills, what you order online. Then they feed this information into complicated computer algorithms that spit out predictions about how much your health care could cost them.

Are you a woman who recently changed your name? You could be newly married and have a pricey pregnancy pending. Or maybe you’re stressed and anxious from a recent divorce. That, too, the computer models predict, may run up your medical bills.

Are you a woman who’s purchased plus-size clothing? You’re considered at risk of depression. Mental health care can be expensive.

Low-income and a minority? That means, the data brokers say, you are more likely to live in a dilapidated and dangerous neighborhood, increasing your health risks.  ...

The industry has a history of boosting profits by signing up healthy people and finding ways to avoid sick people — called “cherry-picking” and “lemon-dropping,” experts say. Among the classic examples: A company was accused of putting its enrollment office on the third floor of a building without an elevator, so only healthy patients could make the trek to sign up. Another tried to appeal to spry seniors by holding square dances. ... 

Robert Greenwald, faculty director of Harvard Law School’s Center for Health Law and Policy Innovation, said insurance companies still cherry-pick, but now they’re subtler. The center analyzes health insurance plans to see if they discriminate. He said insurers will do things like failing to include enough information about which drugs a plan covers — which pushes sick people who need specific medications elsewhere. Or they may change the things a plan covers, or how much a patient has to pay for a type of care, after a patient has enrolled. Or, Greenwald added, they might exclude or limit certain types of providers from their networks — like those who have skill caring for patients with HIV or hepatitis C. ...

The full story is absolutely worth your time to read. 
 

Why Insurers Are Not Fighting to Eliminate PPACA

No, insurers aren't fighting to eliminate PPACA, why would they? Big business loves big government.

House Passes Bill Greatly Expanding HSAs

From EBN: 

[The proposed legislation would allow for] dollar caps on first-dollar coverage for newly includable health services. [Those caps] would be $250 for an employee with individual coverage, and $500 for an employee with family coverage.

Other liberalizations under the measures include allowing employees to use HSA dollars for certain over-the-counter health-related items, including menstrual care products. Another provision would deem qualified “physical activity, fitness, and exercise” related services, including sports activities, as qualified medical expenses, allowing coverage for up to $500 of qualified sports and fitness expenses ($1,000 for family coverage).

The bill also would increase employee HSA contribution limits substantially — to $6,900 (from today’s $3,450) for individual coverage, and to $13,300 (from $6,900) for families. …  

If the measure ultimately becomes law, employers would have to opt to take advantage of the liberalized provisions; they would not otherwise be available to employees.

Full story here.  

'Medicare for All' Plan Would Cost Federal Government $32 Trillion

Not Even Doubling All Federal Individual and Corporate Incomes Taxes Would Fully Fund the Proposal

From Chad Reese at Mercatus:

A “Medicare for all” proposal would cost the federal government more than $32 trillion over the course of ten years. That’s according to a new study by Charles Blahous, Mercatus Center senior research strategist and former public trustee for Social Security and Medicare. 

Dr. Blahous analyzed the “Medicare for All Act” (M4A), legislation introduced by Senator Bernie Sanders (I-VT) last September, in an effort to determine how much such a proposal would cost the federal government. 

Here are the numbers:

• M4A total cost over its first ten years: $32.6 trillion
• Federal spending on healthcare by 2031: 12.7 percent of all economic activity in the United States

Other studies aimed at estimating the cost of providing Medicare-like coverage to all Americans had similar findings. 

• A 2016 Center for Health and Economy (CHE) study of the same proposal estimated more than $27 trillion more in federal budget deficits
• Kenneth Thorpe, a professor with Emory University, also estimated that the proposal would require nearly $25 trillion in federal financing
• If you consider the same time frame and the same set of benefits, the estimates in these studies are similar to Dr. Blahous’s results

Financing such a massive cost increase would be extremely challenging. Even doubling all federal individual and corporate income tax collections would fall short of fully funding the plan. 

You can find the full study here.

 

How Socialized Medicine Creates Dependence

From David Henderson:

"A few years ago, an acquaintance who moved here from Canada told me that under Canadian’s single-payer system, his wife was in a years-long queue to get her foot operated on. This was a big deal because one of his and his wife’s regular pleasures was to go walking together after dinner and her foot problem made that difficult. 

Once they arrived here, he got good health insurance from his employer and his wife quickly got the surgery. The surgery worked, and he and his wife started doing their evening walks again. And their out-of-pocket expense for the surgery, which cost a couple of thousand dollars, was a little over $200. 

All good news, right? That’s what I would have thought. Can you see what’s coming? His wife complained bitterly about the $200." 

Full story. 

HHS Audits Reveal Critical HIPAA Compliance Gaps

DOL Finalizes Rule to Expand Associated Health Plans

On June 19, 2018, the Department of Labor (DOL) released a final rule that provides greater flexibility for small businesses to join together to form Association Health Plans (AHPs). The final rule largely, but not entirely, adopts the provisions of a proposed rule issued in January of this year. DOL received over 900 comments on the proposed rule. A summary of the final rule is below and more detail can be found in our Legislative Alert.

Health coverage through associations and similar groups has actually been in existence for years in the form of Multiple Employer Welfare Associations (MEWAs). Under existing rules, however, DOL and other regulatory agencies treated participating employers in these MEWAs as if each employer sponsored its own plan. Under the Affordable Care Act (ACA) this meant that many employer members of the MEWA would be treated as if they were in the small group market and subject to those rules for rating purposes as well as the requirement that small group market policies provide essential health benefits (EHBs). Under these rules, in order for an association plan to be considered a single large group plan with respect to its employer members, there were a number of requirements including: that self-employed individuals could not participate; a very strict community of interest standard; and operational as well as structural rules for the association sponsoring the plan. Prior DOL guidance referred to these entities sponsoring “plan level” MEWAs as “bona fide” employer groups or associations.

The final rule relaxes many of those requirements for AHPs and provides an additional mechanism for an association sponsored MEWA to be treated as a single large group plan. The community of interest standard was modified so that AHPs can be formed on the basis of either:

Employers being in the same trade/industry/line of business/profession or
Employers having the principal place of business in a single State, part of a State (such as a city or county) or in the same metropolitan area even if the metropolitan area includes more than one State.

Conceivably, under the final rule, a local chamber of commerce could sponsor an AHP for employers in a specific city.

Also AHPs will be open to the self-employed (working owners) if they meet certain hours worked requirements or have a level of income from self-employment that supports the cost of the individual’s coverage. The proposed rule would have allowed an AHP to simply accept the certification of the working owner that he/she met those qualifications. The final rule, however, deleted this provision and in its place offers flexibility while at the same time making it clear that AHP fiduciaries have a duty to reasonably determine and monitor that working owners meet the final rule’s conditions for coverage.

In another change from the proposed rule, the final rule requires that the group or association have at least one substantial business purpose unrelated to offering health coverage even if the primary purpose of the AHP was to provide such coverage. The proposed rule provided that the sole purpose of the AHP could be to provide such coverage. The final rule states that a business purpose includes promoting common business or economic interests of the members of the AHP. DOL also provided a safe harbor that “substantial business purpose is considered to exist if the group or association would be a viable entity in the absence of sponsoring an employee benefit plan.”

While not limited to small employers, the primary benefits of participating in an AHP are the ability to offer benefits under the ACA large group market rules and to avoid the small group market rating rules and EHB requirements. Large employers already have these advantages but could enjoy any increased buying power that an AHP might bring.

How AHPs do (or do not) develop will be determined by a number of factors. First, the final rule has non-discrimination requirements where an AHP cannot discriminate among employers for eligibility, benefits, or premiums based on the health status of the employer’s employees or their claims experience. This could present a challenge for insurers in underwriting AHP coverage. Second, nothing in the final rule affects the ability of States, under existing rules, to regulate AHPs as MEWAs. In the proposed rule DOL solicited public comments on whether to exempt self-insured MEWAs from certain State regulations but ultimately took no action in the final rule on limiting the regulatory power of the States. Significantly, many states have very strict rules on self-funded MEWAs that would severely limit or even prohibit the formation of self-funded AHPs. So, formation of self-insured AHPs may be limited. State regulation of fully-insured AHPs is more restricted (although States can still regulate the terms of the underlying insurance policies).

Our Legislative Alert contains more information on the final rule including: action steps, a summary of the requirements and conditions applicable to AHPs and an explanation of the final rule’s staggered applicability dates based on whether an AHP is a new or existing plan and whether the AHP is fully insured or self-insured.

On Armstrong and Getty Today re: Current State of U.S. Healthcare

Where To Hear Armstrong & Getty

Where are we now with American Healthcare? 

• We’ve passed more laws and regulations on healthcare in the last 8 years than in the prior 50, combined.   
• Employee benefits are the 2nd or 3rd largest expense for every US Business behind rent and payroll.  
• PPACA itself is 2,400 pages in laws and another 40,000 in regulations so far.  It will likely be 80K to 100K pages when done.   
• PPACA still set to cost just under $2T. However when government bean counters projected the cost of Medicare and Medicaid into the future (20 years out) they missed by a factor of nine ($12B vs. $107B).  
• Taxpayers in California now fund 70% of all healthcare via Medicare, Medicaid, CHIP, the VA, Tricare, County/Local Health Programs, PPACA Exchanges and state, local and fed gov’t employees.  Other states are generally 60% to 65%.   
• PPACA was passed without being read and instead of enforcing all of the “pay fors” in the law, politicians in both parties have worked to erode all of the vegetable eating required by the ACA.  Some of the 21 taxes, mandates and penalties have been suspended, repealed or eroded significantly.  For this reason, I suspect the law will cost more like $2.5 or $3T 10 years out.   

On cost and government efficiency in healthcare, from the Hill:

When the Obama administration restructured private individual insurance, it created bloated policies that people would not voluntarily purchase. Not counting the money spent on state and federal exchanges, the federal government spent $341 billion from 2014 through 2016 on subsidizing individual coverage so that people would buy it. 

All this spending managed to increase private coverage by just 1.7 million people, slightly less than half of the natural increase in the civilian labor force. That’s $200,000 per person. The feds could have saved money by closing the exchanges and giving people who qualified for subsidies a check for $50,000 for each of the three years. Those people could then have paid $20,000 for their own unsubsidized policy and used the rest to either cover their out-of-pocket costs or buy a nice used car.

See also:

• No, Your Insurer Doesn't Care if You Have High Claims. In Fact, They Like It That Way
• Oregon Study: Medicaid 'Had No Significant Effect' On Health Outcomes vs. Being Uninsured
• 'Medicare at 55' now on Dianne Feinstein's agenda

  

Dine and Dash Healthcare: Approximately Half of PPACA Enrollees Dropped coverage by the End of Their Plan Year - Many After One Month

From BenefitsPro: 

A new analysis raises concerns about the survival of the Affordable Care Act marketplace due to people strategically enrolling and dropping out of ACA plans.  A paper by Stanford University researchers finds evidence that people are buying plans to address a health concern or discretionary care and then ditching the plan. 

“Our analysis shows that many consumers are strategically signing up for insurance to help defray the costs of non-chronic, potentially discretionary, health care needs and then dropping coverage once they have satisfied these needs,” says Rebecca Diamond, a Stanford professor of economics. 

The paper examined over 100,000 households that enrolled in ACA plans during the first year of the ACA marketplace, in 2014. It found that a large percentage of enrollees of all income levels stopped paying premiums during that year. In California, according to their research, in 2014 and 2015, approximately half of enrollees had dropped coverage by the end of the year, with many dropping after just one month. 

Those with the lowest incomes were most likely to drop coverage. 

“Among 2014 open enrollment households with less than $20K of income, approximately 35 percent drop coverage by July 2014,” the authors write. “The rates of drop-out among high income households were similarly high, around 30 percent. By the end of 2014, approximately 50 percent of lower income households stop paying their premiums. The drop-out rates of the highest income households are only slightly lower.” ...

The Obama administration also sought to discourage people from going without insurance or dropping their plans by raising the tax penalty for being uninsured. Those efforts, however, were undone at the end of last year, when President Trump signed tax legislation that repealed the individual insurance mandate entirely. ...

Astounding Story of Fraud and Dysfunction in Our Healthcare System

This is, "Anthem Blue Cross lawsuit accuses Sebastopol hospital of fraudulent billing" from the Press Democrat:  

Health insurance giant Anthem Blue Cross has filed suit against Sonoma West Medical Center, accusing the Sebastopol hospital of conspiring with an out-of-state medical laboratory in a billing scheme that Anthem claims defrauded it and its members of $16 million. 

The lawsuit, filed June 1 in U.S. District Court, alleges that Sonoma West Medical Center knowingly allowed Florida-based Reliance Labs to use it as a drug testing front. Reliance allegedly used the hospital provider’s credentials to bill for testing on urine samples taken from Anthem members who were not local patients and had never visited the Sebastopol facility, according to the lawsuit. 

Billing through the hospital allowed the “co-conspirators” — Reliance and Sonoma West Medical Center — to increase insurance payments for each drug test by 100-fold, the lawsuit said. 

“With that simple deception, they could transform a $32 claim into a $3,500 claim, because hospitals were paid as a function of their billed charges,” the lawsuit claims. ...

Full story here, absolutely worth the time to read. 

23.3% of Premium Spending Goes Towards Prescription Drugs, an Amount That Even Astonished Researchers

From FierceHealthcare:

Prescription drugs make up nearly a quarter of health insurance premium costs, with doctor visits not far behind, according to new research. 

A report (PDF) released on Tuesday by America's Health Insurance Plans (AHIP) found that a hefty 23.3% of premium spending goes towards prescription drugs, an amount that even astonished researchers. ...

The study also found that about 22.2% of premium dollars go to physicians and doctors. An additional 20.2% goes towards other office or clinic costs, including nurses' salaries and equipment and supplies, while hospital stays make up 16.1%. 

The research was conducted using data between 2014 and 2016 from five for-profit and 25 nonprofit insurer plans, which Burns said is representative of the sector as a whole.

A separate report by Altarum pointed to hospital spending and drugs as some of the main drivers of healthcare price growth, which is currently at a record high 2.2% compared to last year. ...

Operating costs and taxes make up 15.9% of premium costs, the AHIP research found. Meanwhile, MACPAC has pinned operational spending under Medicaid to less than a third that, at about 5%.