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New Rule Allows Employers to Pay Workers to Buy Their Own Health Coverage

The Trump administration has issued new rules that would allow employers to provide workers with funds in health reimbursement accounts (HRAs) that can be used to purchase health insurance on the individual market.

The rule reverses a long-standing part of the Affordable Care Act that carried hefty fines of up to $36,500 a year per employee for applicable large employers that are caught providing funds to workers so they can buy insurance.

The rule was put in place to keep employers from shunting unhealthy or older workers from their group health plans into private insurance and government-run marketplaces.

Under the rules issued by the Departments of Health and Human Services, Labor and Treasury, employers would be authorized to fund, on a pre-tax basis, health reimbursement funds that to buy ACA-compliant plans. The new rules take effect Jan. 1, 2020.

With the final rules written in a way to keep employers from trying to reduce their group benefit costs by sending sicker and older workers into the individual market, HHS noted in a press release announcing the rule that it would closely monitor employers to make sure this type of adverse selection doesn’t occur.

Typically, HRAs have only been allowed to be used to reimburse workers for out-of-pocket medical expenses. This rule allows them to also be used to pay for health insurance premiums for coverage that a worker may secure on their own.

’Integration’ conditions

The regulation permits an HRA to be “integrated” with certain qualifying individual health plan coverage. In order to be integrated with individual market coverage, the HRA must meet several conditions:

Any individual covered by the HRA must be enrolled in health insurance coverage purchased in the individual market, and must substantiate and verify that they have such coverage;
The employer may not offer the same class of individuals both an HRA and a “traditional group health plan”;
The employer must offer the HRA on the same terms to all employees in a “class”;
Employees must have the ability to opt out of receiving the HRA;
Employers must provide a detailed notice to employees on how the HRAs work;
Employers may not create a class of employees younger than age 25, whom they might want to keep in their group plan because they’re healthier.
For employers with one to 100 employees, a class cannot have less than 10 employees; for employers with 100 to 200 employees, the minimum class size is 10% of the workforce; and for employers with 200 or more employees, the minimum class size is 20 employees.

While the HRA money can be used mostly for buying plans that meet ACA requirements, employers under the rule can establish a special type of “excepted benefit” HRA for employees who want to buy less expensive short-term plans that do not comply with the ACA. The contribution for such plans would be capped at $1,800 a year.

Under the ACA, employers with 50 or more full-time workers (applicable large employers) must provide their employees with health insurance that covers 10 essential minimum benefits and must be “affordable.”

Under the new rule, an applicable large employer could meet their obligation if they provide adequate HRA contributions for employees to buy individual coverage.

New Cost-Sharing Limits Set for ACA-Compliant Plans

The Department of Health and Human Services has released the 2020 cost-sharing limits for non-grandfathered plans that comply with the Affordable Care Act.

HHS is charged with setting the premium adjustment percentage, and it changed the formula for calculating cost-sharing limits this year. The agency says this will result in a higher maximum annual limitation on cost-sharing – and possibly higher employer shared responsibility penalties. The latter amounts have to be approved by the IRS.

The final 2020 maximum cost-sharing values are:

$8,150 for self-only coverage, up from $7,900 this year, and
$16,300 for other than self-only coverage, up from $15,800 this year.

Penalties

As you will know, the ACA also includes a provision called the “Employer Shared Responsibility” penalty, which is levied on applicable large employers who fail to offer coverage to a sufficient amount of their workers or fail to offer coverage that does not provide minimum value or is not affordable, as per ACA regulations.

The penalties proposed for 2020 are as follows:

$2,570 per full-time employee (minus the first 30) for failing to offer coverage to a sufficient number of full-time employees.
$3,860 per full time employee if the employer offers coverage to a sufficient number of full-time employees, but the coverage either doesn’t provide minimum value or is not affordable.

The latter penalty only applies to full-time employees who have received a premium tax credit for health insurance they have purchased on a government-run health insurance exchange.

Please note that these amounts have not yet been finalized. The IRS must approve the new penalty levels before they take effect.

The Costliest Claims for Catastrophic Conditions and the Drugs Used to Treat Them

A new report by Sun Life Insurance Co. highlights the top high-cost claim conditions that plague the U.S. health care system and account for more than half of all catastrophic or unpredictable claims costs.

The top 10 costliest claim conditions comprised over half (51.8%) of the $3 billion that Sun Life reimbursed to stop-loss policyholders from 2014 to 2017.

Stop-loss insurance (also known as excess insurance) is a product that provides protection against high-cost claims. It is purchased by employers that self-fund their own health plans, but do not want to assume 100% of the liability for losses arising from the plans.

The “2018 Stop-Loss Research Report,” which Sun Life has been publishing annually for the past six years, provides a glimpse into the kinds of claims that can have an outsized effect on both insured and self-insured employers’ health plans, and can drive overall expenditures.

Here are some of the other main highlights from the study:

Cancer treatment costs comprised 27% of all stop-loss claim reimbursements between 2014 and 2017.
The number of health plan enrollees that had claims costing more than $1 million increased by 87% during the four-year study period. In 2017, this group comprised 2.1% of claims but accounted for 20% of all stop-loss claims reimbursements.
The aggregate costs of injectable drugs that were part of claims that cost more than $1 million grew 80% from 2014 to 2017.

The most expensive catastrophic claims and the amounts Sun Life paid out in the aggregate between 2014 and 2017 are as follows:

Malignant neoplasm (cancer) – Total paid out: $564 million (a portion of total catastrophic claims: 19%)
Leukemia, lymphoma, and/or multiple myeloma (cancers) – $235 million (8%)
Chronic/end-stage renal disease (kidneys) – $153 million (5%)
Congenital anomalies (conditions present at birth) – $115 million (4%)
Transplant – $103 million (3.5%)
Septicemia (infection) – $88.5 million (3%)
Complications of surgical and medical care – $78 million (2.5%)
Disorders relating to short gestation and low birth weight (premature birth) – $74 million (2.5%)
Liveborn (short gestation/low birth rate, and congenital anomalies) – $69 million (2%)
Hemophilia/bleeding disorder – $68 million (2%)

Injectable drug costs

Injectable drugs (which include those delivered by IV or that are self-administered injectable medications) accounted for 8.5% of the total paid out for high-cost claims.

But that’s just the average for the four-year period. Injectable drugs are accounting for a greater share of overall catastrophic claims costs, reaching 9.3% in 2017.

In 2017 alone, 418 drugs contributed to the total $186.3 million that was spent on injectable medications for high-cost claims. But, 62% (or $114.7 million) of the cost was attributed to the top 20. The top five medications accounted for nearly 30%.

Please note that the injectable drugs on the high-cost list are there for different reasons. Some are on the list because of the frequency (how often they are used and how many patients are given the drugs) that they are administered, and others are there because their cost is extremely high.

As an example, the report points to the two top injectable treatments – cancer drugs Yervoy and Neulasta.

Neulasta (used to reduce the chance of infection in patients undergoing chemotherapy) was administered to 354 patients and cost on average $33,800 per dose.

On the other hand, Yervoy, used to treat melanoma that has spread or cannot be removed by surgery, was administered to just 43 patients, but the cost per dose was $323,000.

New Health Savings Account, HDHP limits for 2020

The IRS has announced new health savings account contribution maximums for the 2020 health insurance plan year.

Employees who have an HSA linked to a high-deductible health plan (HDHP) will be able to contribute to their HSA up to a certain level to help pay for health care and pharmaceutical expenses.

Funds going into your employees’ HSA accounts are deducted before taxes during each paycheck and the balance can be carried over from year to year.

Many HSAs also allow employees to invest the funds like they would with a 401(k). Because of this, HSAs have become a savings vehicle of sorts for people who are saving for health care expenses they are expecting in retirement.

HSAs can only be offered with an attached HDHP.

If you as an employer also contribute or partially match your employees’ contributions, they benefit even more, especially when compounding investment returns build up in the long term.

The IRS adjusts contribution limits for HSAs yearly based on inflation. For 2020, those limits will be:

$3,550 for individual coverage under an attached HDHP (up $50 from 2019).
$7,100 for family coverage (up $100 from 2019).

Also, remember that individuals who are 55 or older can make an additional $1,000 in catch-up contributions.

Besides the contribution maximum increasing, the deductible requirement for an attached HDHP will also climb for 2020:

For individual HDHPs, the deductible amount must be between $1,400 and $6,900. That’s compared with $1,350 and $6,750 in 2019.
For families, the range is $2,800 to $13,800. That’s up from $2,700 and $13,600 in 2019.

Long-term benefits

One of the best benefits from an HSA is the long-term advantage of being able to carry over balances year after year and let it build up for medical expenses in retirement. But, one of the key points that your employees should know is that if they use the funds in their HSAs for purposes other than qualified medical expenses, they have to pay a 20% penalty.

The website Investopedia recommends that your employees:

Max out their HSA contribution each year. If they do so, the amount they can save over the long term only grows through compounding.
Hold off on spending contributions now, and try to not use HSA funds for current medical expenses.
Make sure they only use the money for qualified medical expenses, so they don’t have to pay penalties of 20% plus regular income tax on their withdrawals.
Invest contributions for the long run. For example, if you’re currently invested in a mix of 80% stocks and 20% bonds, you should probably invest your HSA that way, too.
Use the account once they’re 65 or older. An added benefit to waiting until you’re at least 65 to spend your HSA balance is that the 20% penalty for withdrawing funds for purposes other than qualified medical expenses doesn’t apply. But, you will have to pay income tax if you don’t use the funds for qualified medical expenses.

40 States Sue Generic Drug Makers for Collusion

The heat is growing on the pharmaceutical industry after more than 40 US states filed a lawsuit accusing generic drug makers of engaging in a massive price-fixing scheme.

The lawsuit accuses 20 companies of conspiring to fix prices of more than 100 generic drugs, including some that are used to treat cancer and diabetes. The defendants include the largest producer of generic medicine in the world: Teva Pharmaceuticals.

The new lawsuit comes after a five-year investigation that uncovered a scheme through which “coordinated price hikes on identical generic drugs became almost routine,” according to an investigative report by the Washington Post. The suit covers the period from July 2013 to January 2015.

The companies and executives would “routinely communicate with one another directly, divvy up customers to create an artificial equilibrium in the market” to keep generic drug prices artificially high, the lawsuit says.

The scale of the alleged collusion was summed up by Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut, whose office has taken the lead in the investigation: “This is most likely the largest cartel in the history of the United States,” he told the Washington Post last December.

In announcing the recent lawsuit, he cited e-mails, text messages, telephone records and testimony from former company executives that indicate a “multi-year conspiracy to fix prices and divide market share for huge numbers of generic drugs.”

This is not the only litigation. Pharmacies and other businesses have filed their own lawsuits against the generic drug makers. One such suit documents huge price hikes – like a 3,400% increase in the price of an anti-asthma medication – and investigators believe that generic drug producers colluded to raise prices in tandem or not make their products available in some markets or through specific pharmacy chains.

Significance of the states’ suit

The multi-state lawsuit is important because generics account for 90% of pharmaceutical spending in the U.S. Despite that, they only account for 23% of the total drug spend in the country, according to the Association for Accessible Medicines.

With so many prescriptions being written, the savings to consumers could be huge if the drug makers are found to have fixed pricing and they subsequently change their ways. What’s not clear, though, is whether it would actually spur changes in pricing by the companies.

According to the lawsuit, the drug companies allegedly conspired to manipulate prices on dozens of medicines between July 2013 and January 2015.

It accuses Teva and others of “embarking on one of the most egregious and damaging price-fixing conspiracies in the history of the United States.”

Connecticut Attorney General William Tong, who filed the suit, said the investigation had exposed why the cost of health care and prescription drugs was so high in the U.S.

Congress, Administration Serious About Tackling Health Care Costs

As more people struggle with their medical bills, Congress has been introducing a raft of new legislation aimed at cutting costs and making pricing more transparent.

The multi-pronged, bipartisan effort targets the lack of transparency in pricing particularly for pharmaceuticals, as well as surprise medical bills that have left many Americans reeling, and there are also other efforts aimed at reducing the cost burden on payers: the general public and employers.

And since consumers are affected regardless of their political affiliation, congresspersons are reaching across the aisle to push through legislation to address this crushing problem.

There are several draft proposals, but word is a number of bills are expected to be introduced soon.

Surprise medical bills

One of the top priorities seems to be surprise medical bills, which are in the administration’s crosshairs. President Trump in January 2019 hosted a roundtable to air the problems people face when hit with what are often financially devastating surprise bills after they venture out of their network for medical services for both emergency and scheduled medical visits.

After the roundtable, he directed a bipartisan group of lawmakers to create legislation that would provide relief. The House Energy and Commerce Committee in May responded by introducing draft legislation that aims to ban surprise medical bills.

Also, Sen. Maggie Hassan (D-N.H.) and Sen. Bill Cassidy (R-La.) have said they hope to introduce legislation to end the practice of surprise bills. With the White House and both sides of the aisle talking the talk, observers say that there are a number of ways legislation could tackle these surprise bills. That could include:

Setting caps on how much hospitals and service providers can charge, or
Requiring hospitals and service providers to turn to the insurance company (and not the patient) when they are seeking additional reimbursement.
Requiring the insurer to share more of the cost burden for the out-of-network services.

At this point legislation is still being formulated, but chances are good that we could see a bipartisan push to fix this problem. The biggest issue will be how to calculate what are “reasonable” costs for out-of-network services.

Pharmaceutical costs, transparency

The Trump administration has also made it a priority to reduce the costs of medications and tackle pricing transparency in the system.

While both Republicans and Democrats have decried the skyrocketing costs of prescription medications, the inflation for which is outpacing all other forms of medical care, so far there has been only one piece of legislation introduced tackling transparency.

Unfortunately, it’s part of a larger bill that aims to preserve the Affordable Care Act and reverse some recent policy decisions by the Trump administration, so the chances of that measure going anywhere in the Senate are slim to none.

The good news is that members from both parties have been talking about cooperating on legislation, and political observers say the chances are good some type of measure will be introduced this summer.

Other costs

Sen. Ron Wyden (D-Ore.) in February introduced legislation that would require insurers to tell people what they would have to pay out of pocket for any in-network treatment or prescription drug.

On top of that, the Senate Health Committee will soon introduce a number of bills aimed at reducing frictional costs in the system.

In addition, the Senate Finance and Judiciary committees are both in the process of formulating measures aimed at reducing health care costs, as well as prescription drug prices.

Insurers Will Pay Record Amount of Rebates to Small Group Plans

While most businesses rarely get rebate checks from their group health insurer, this year may be different as insurance companies are expected to pay back record excess premiums, as required by the Affordable Care Act.

The landmark insurance law requires that insurers spend at least 80% of their premium income on medical care and medications, but expected payouts in 2018 came in way below expectations. That means they have to pay out rebates for the overcharge.

Analysts expect that insurers will pay out $1.4 billion in rebates, $600 million of which would be paid to small and large group health plans, according to a report by the Kaiser Family Foundation.

The reason for the sizeable expected rebate is that insurers raised rates substantially for 2018, which was right after Congress had passed a law that eliminated the individual mandate penalty, as well as uncertainty about the law after the Trump administration introduced regulations to expand the use of short-term health plans and association plans.

As mentioned, plans must spend 80% of premiums they collect on medical claims or quality improvements if they are in the individual or small group market. The threshold is 85% in the large group market. The rest can be spent on claims administration, marketing and other overhead, as well as set aside for profit.

Rebates to small group plan and large group plan members have typically overshadowed rebates to those who purchase plans individually on government-run exchanges. In 2017, according to the Centers for Medicare and Medicaid Services, insurers paid out nearly $707 million in ACA rebates, as follows:

$132.5 million to individual market enrollees.
$309.4 million to small group market enrollees.
$264.8 million to large group market enrollees.

But this year, rebates to the individual market are expected to be $800 million, while the remaining $600 million would be paid to enrollees in group plans.

The premium increases that many insurers pushed through led to much higher rates – benchmark premiums were up 34% going into 2018 – because of market uncertainties, such as:

In October 2017, the Trump administration ceased payments for cost-sharing subsidies, which led some insurers to exit the market or request larger premium increases than they would have otherwise.
The administration reduced funding for advertising and outreach.
Congress repealed the individual mandate penalty, effective for 2019.
The administration introduced regulations extending the time people could be on short-term plans, and also introduced association health plans as an alternative for the small group market.

But the insurers’ fears didn’t materialize. Despite payments per enrollee growing 26% to $559 in 2017 on exchanges, per person claims increased only 7% to $392 year over year.

Also, the repeal of the penalties and increased premiums did not drive younger, healthier consumers out of the marketplace as had been expected.

How to disburse rebates

If you are one of the employers whose health plan gets to receive a rebate, the big question that always comes up is “how do you distribute the funds?”

ACA regulations require insurers to pay rebates directly to the group health plan policyholder, who will be responsible for ensuring that employees benefit from the rebates to the extent they contributed to the cost of coverage.

But remember, since you as the employer also contributed to the premiums, you are entitled to your portion of the rebate. Your take should be in the same proportion as the premium you pay compared to your employees.

The way that you disburse the rebate is up to you, but whatever you do, it must be in accordance with ERISA’s general standards of fiduciary conduct.

Typically, if the rebate works out to be small for each participant, it would likely not be worth your time to cut each employee a check.

The preferred method in most cases is to provide the rebate in the form of a premium reduction or discount to all employees participating in the plan at the time the rebate is distributed.

New Rule Allows Employers to Pay Workers to Buy Their Own Health Coverage

The rule was put in place to keep employers from shunting unhealthy or older workers from their group health plans into private insurance and government-run marketplaces.

’Integration’ conditions

Any individual covered by the HRA must be enrolled in health insurance coverage purchased in the individual market, and must substantiate and verify that they have such coverage;
The employer may not offer the same class of individuals both an HRA and a “traditional group health plan”;
The employer must offer the HRA on the same terms to all employees in a “class”;
Employees must have the ability to opt out of receiving the HRA;
Employers must provide a detailed notice to employees on how the HRAs work;
Employers may not create a class of employees younger than age 25, whom they might want to keep in their group plan because they’re healthier.
For employers with one to 100 employees, a class cannot have less than 10 employees; for employers with 100 to 200 employees, the minimum class size is 10% of the workforce; and for employers with 200 or more employees, the minimum class size is 20 employees.

Under the new rule, an applicable large employer could meet their obligation if they provide adequate HRA contributions for employees to buy individual coverage.

DOJ Files Brief Asking Court to Throw Out ACA

The stakes for the future of the Affordable Care Act just got higher after the U.S. Department of Justice filed a brief with a federal appeals court to strike down every facet of the landmark legislation.

The DOJ’s filing in the case states that the law is unconstitutional in its entirety and should be struck down. The filing concerns a case that had been brought by Texas and other Republican-led states that challenged the constitutionality of the law.

The trial judge in the case had ruled the entire law had been nullified after Congress in December 2017 passed legislation that jettisoned the individual penalties for not securing health coverage.

A group of 21 Democratic-led states, headed by California, immediately appealed the judge’s ruling. The appeal will be heard by the Fifth Circuit Court of Appeals in New Orleans. The DOJ’s brief urges the Fifth Circuit to uphold the trial judge’s ruling.

U.S. District Judge Reed O’Connor of the Northern District of Texas ruled in December 2018 that a congressional tax law passed in 2017 – which zeroed out the penalty imposed by the ACA’s individual mandate – rendered the entire health care law unconstitutional. The ACA remains in effect pending the outcome of the appeal.

Most legal pundits expect that the lower court’s ruling will be overturned. The decision not to appeal the ruling by the Trump administration had been foreshadowed, but still had many legal observers surprised that the DOJ would choose not to defend the law of the land.

Others have pointed out that if Congress’s intent had been to nullify the ACA when it got rid of the penalties for individuals who don’t abide by the individual mandate, it would have written that into the legislation. But the only part of the ACA that was addressed in the tax bill was the individual mandate penalty, and not any other parts of the law.

So what’s likely to happen?

It’s too early to know how this will all shake out. But even if the Fifth Circuit upholds the lower court verdict, the ruling would be appealed to the Supreme Court. If the Fifth Circuit overturns the lower court’s ruling, the Supreme Court may not even take up the case since it has already ruled twice before in favor of the ACA.

There are also widespread concerns over any sudden overturning the law. The effects would be widespread, especially in the individual market, and uncertain for many employees who now get coverage from their jobs thanks to the employer mandate portion of the law.

Judge Shoots Down Association Plans

A federal judge has rejected the Trump administration’s rules for association plans, saying they are an attempt to allow employers to skirt their obligations under the Affordable Care Act.

The rules that the Department of Labor finalized last year allow employers to band together as “associations” for no other purpose than to purchase health insurance for their employees.

And under those rules, the plans do not have to comply with many of the ACA’s provisions, including providing plans that are “affordable” and offer a set of minimum essential benefits.

Judge John Bates of the U.S. District Court for the District of Columbia wrote in his decision that the DOL’s final rule goes beyond the department’s authority under the Employee Retirement Income Security Act (ERISA) of 1974.

The judge particularly homed in on the fact that the associations would become the de facto employer for members to allow them to band together for the sole purpose of having access to lower rates.

To date, about 30 association plans have been formed around the country in response to the regulations, which took effect last year. The association plans are reportedly not up and running, but have been gearing up to start Jan. 1, 2020.

Under the rule, employers in the same industry can form a plan across state lines, as can any businesses in a specific geographic area. Sole proprietors can also join, along with small businesses, and obtain coverage for themselves and their families.

By banding together to form a pool with more than 100 workers, the employers would be considered a “large” employer under the ACA. While employee health plans for companies with fewer than 100 workers must abide by all of the ACA’s provisions, including covering 10 essential benefits, large plans do not have the same constraints.

This means that sole proprietors who may be purchasing their health plans on a state exchange would suddenly have the purchasing power of a large employer in the health insurance market.

The judge homed in on the part of the regulation that adopted a new definition of “employer” under ERISA, for purposes of determining when employers can join together to form an association health plan that is treated as a group health plan under that law. The new definition of employer includes sole proprietors with no employees.

The judge did not issue a stay on the start of these plans, but the ruling could create difficulties for those that have already been formed and are ready to launch in 2020.

The Trump administration is likely to appeal the ruling, but the judge has made it difficult since he struck down the linchpin of the regulation, which had changed the definition of what constitutes an employer and employee (“the association has become the employer and sole proprietors the association’s employees for the purpose of purchasing coverage at large group rates.”)

Existing association plans

Interestingly, the fears that many observers had expressed about association health plans have not come to bear. Many had predicted that these plans would be stripped-down health plans devoid of many of the protections offered by the ACA, particularly being able to keep your children on your plan until they are 26 as well as coverage of 10 essential benefits.

A report by the trade publication Modern Healthcare found that association plans it had analyzed actually had not pared back benefits to enrollees. The analysis found that the plans it examined covered all of the 10 essential benefits as required by the ACA, and also at comparable costs, premiums, deductibles, and out-of-pocket requirements.

While the plans that have already been set up are slated to start on Jan. 1, 2020, for now, it’s likely they will continue planning for a 2020 start, but whether they actually get off the ground will depend on the courts going forward.

For the time being, employers that are interested in joining an association health plan may want to take a pause and consider other options if the appeals process drags on.

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