Trump Can Improve Health Care Without Congress

At the moment, it appears that the Republican Congress will not be able to pass any meaningful health insurance reform legislation. I hope that assessment is too pessimistic, but in any event, President Trump doesn’t need to wait for Congress. There is a great deal he can do, administratively, to reverse the damage being caused by Obamacare and help to preserve private markets for health care.

In response to a request from the Department of Health and Human Services, Peter Nelson, my associate at Center of the American Experiment, has prepared a set of recommendations for administrative actions that the Trump administration can take. He has submitted the following memo to HHS, and it has been endorsed by a large number of state think tanks.

A common criticism of the GOP is that it is incapable of governing. Congress’s current paralysis gives credence to that view. The Trump administration has an excellent opportunity to demonstrate that conservative principles can generate practical policies that will, in this case, help to stop the inexorable slide toward socialized medicine.

RE: Request for Information: Reducing Regulatory Burdens Imposed by the Patient Protection and Affordable Care Act & Improving Health Care Choices to Empower Patients [CMS-9928-NC] RIN 0938-ZB39.

As representatives of state thinks tanks from across America, we are pleased to respond to your request for information on how the U.S. Department of Health and Human Services (HHS) can reduce regulatory burdens imposed by the Patient Protection and Affordable Care Act (ACA).

Though we all represent independent organizations, we share a common vision for what policies and what governance structure best secures freedom and prosperity for all Americans. Particularly relevant to this request for information, we believe the U.S. Constitution wisely established a balance of power between the state and federal governments. Allowing the two different levels of government to exercise power independently enhances freedom for citizens because each government acts as a check on the other if one begins to abuse its authority. We also believe state governments are often better situated than the federal government to address public policy problems because state lawmakers are closer to the problem, more responsive to citizen demands, and able to address issues more promptly with less red tape.

So, we are delighted that HHS has set out to review the regulations it issued under the ACA, guided by a goal to return regulatory authority to the states. By returning more power to the states, HHS will empower the people better situated to accomplish the other goals set out by HHS, including empowering patients, promoting consumer choice, stabilizing markets, and enhancing affordability. Every state is different and the federal government is not equipped to address the different health insurance market problems emerging across the country with the speed and sensitivity that states can provide.

With thousands of pages of new regulations under the ACA, the process of reviewing them poses a daunting task. As policy makers committed to the success of health insurance markets in each of our states, we are also committed to helping HHS identify strategies to improve the regulation of insurance in the states. This response to HHS’s request for information recommends eight actions the agency should consider taking to help meet the goals outlined by the agency.

I. Give states flexibility to define essential health benefits.

The ACA requires that health insurance sold in the individual and small group market cover a set of essential health benefits (EHB). Federal regulations implementing the EHB requirement forces health plans to sell coverage that exceeds what is truly essential and makes it very difficult for states to pare back benefits once they are deemed essential. By mandating this more generous benefit set, the federal regulation increases the price of health insurance. HHS should give states flexibility to define EHBs. If states fail to define EHBs, then HHS should establish a default EHB limited to benefits that are truly essential.

While “essential” suggests the EHB should cover only absolutely necessary benefits, the ACA further requires that the EHB cover benefits “equal to the scope of benefits provided under a typical employer plan.”

Federal rules, however, require even more than what is typical. Federal regulations set the EHB for each state based on one of four benchmark plans. States can choose their EHB from among these benchmark plans and, if a state does not choose, the default benchmark plan is the second largest small employer plan in the state.

While this default might appear to be a good proxy for a typical employer plan, the benefits offered in these plans can be anything but typical. The attachment to this letter provides a table that compares the differences in EHBs required in Idaho, Maryland, and Minnesota. The table lists only those EHBs that are covered by one state and either not covered by another state or covered at a much less generous level. Among the three states there are 57 different benefits mandated through the EHB in one state but not another. Examples of atypical benefits in these state EHBs include coverage for bariatric surgery, private-duty nursing, clinical trials, and abortion services.

On top of requiring atypical benefits, the EHB makes it harder, if not impossible for a state to pare back its own mandates. As originally set, the default EHB is based on plans sold in 2012, which incorporates any state benefit mandate in existence as of 2012. For 2017, the default EHB is based on plans sold in 2014. Because the EHB for any plan sold in 2014 is based on plans sold in 2012, the 2012-based EHB becomes a floor. State benefit mandates from 2012 continue to be incorporated in the 2017 EHB, regardless of whether a state repealed the mandate or not. Under this arrangement, benefits can only be added to the EHB in each update and never subtracted.

To address these problems, HHS should give states the flexibility to define EHBs. By allowing states to pick from among benchmark plans that were subject to state regulations in existence prior to the ACA, HHS has already acknowledged the value in giving states flexibility and also acknowledged that the benefits provided prior to the ACA were generally adequate to meet the ACA’s EHB requirement. Giving states more flexibility would help cure the problem where adding benefits to the EHB is easy, but subtracting is nearly impossible. This may be especially important in states now locked into expensive state benefit mandates that predate the ACA. Under the ACA, HHS will need to provide reports to Congress reviewing the state-defined EHBs.

If a state fails to define the EHB, HHS will need to define a default EHB for those states. Any default should be limited to what is truly essential. For a starting point, HHS should consider the current default benchmark from the state that includes the fewest benefits. However, this should just be the starting point. Even this benefit set might require more than essential coverage.

II. Rescind the guidance on State Innovation Waivers and release new guidance that more closely follows the text and intent of the ACA.

Section 1332 of the ACA allows states to apply to the Secretary of HHS for a State Innovation Waiver from several of the law’s health coverage requirements. With so many state insurance markets imploding as a result of the ACA’s requirements, the ability to waive at least some of the requirements is a critical tool states need to save their markets. Unfortunately, guidance issued in December 2015, contrary to the text and intent of the ACA, severely curtails what states can waive. This guidance should be rescinded and replaced with new guidance that gives states meaningful tools to strengthen their crumbling health insurance markets.

Under Section 1332 of the ACA, a waiver must meet four requirements, often called guardrails, to be approved. First, coverage must be at least as comprehensive as provided under the ACA. Second, coverage and cost-sharing protections must be at least as affordable as under the ACA. Third, the waiver must provide coverage to a comparable number of people as under the ACA. Fourth, the waiver must not increase the federal deficit. These guardrails already impose substantial restrictions on what can be waived, but the guidance imposes even tighter restrictions in the following ways:

* HHS retains discretion to deny a waiver even if the four guardrails are met.

* In addition to assessing whether the waiver covers a similar number of people with as comprehensive and affordable coverage on average, the guidance applies these three guardrails to subgroups, including low-income individuals, elderly individuals, people with serious health conditions or risks.

* Though the ACA requires HHS to develop a process for coordinating and consolidating State Innovation Waivers with Medicaid waivers, any savings accrued through a coordinated Medicaid waiver cannot be factored into whether the State Innovation Waiver meets deficit neutrality requirements.

* The federal government failed to develop a federally-facilitated exchange platform and IRS administrative processes that can accommodate different sets of rules in different states. Thus, states relying on the Federally-Facilitated Exchange (FFE) cannot currently waive any requirement that would require a special accommodation from the FFE and no state can waive a requirement that requires special accommodation from IRS administrative processes.

* Instead of judging the guardrails over the term of the waiver, the waiver must generally meet each guardrail in each year the waiver is in effect.

* Despite State Innovation Waivers being an existing component of the ACA, the costs associated with changes to federal administrative processes are a factor in calculating deficit neutrality.

In practical terms, these tighter restrictions on granting waivers curtail most states from altering how people receive coverage in the individual market in any significant way. This includes waivers that significantly alter requirements related to essential health benefits, qualified health plans, exchange marketplace rules, cost-sharing reductions, premium tax credits, and individual and employer coverage mandates. The tightness of these restrictions undermines the intent and the text behind the ACA’s State Innovation Waiver provision. For instance, the ACA clearly intended to allow states to waive the EHB, but the guidance for all practical purposes makes this impossible.

To better honor the intent and the text underlying Section 1332 of the ACA, HHS should rescind the State Innovation Waiver guidance and introduce new guidance that includes the following provisions:

* Guarantee that states will be granted a waiver so long as they meet the four guardrails.

* In applying the guardrails, assess whether the waiver covers a similar number of people with as comprehensive and affordable coverage based on a statewide average. States are better positioned to balance the impact of a waiver on various subgroups to improve health coverage for everyone.

* Judge how the waiver impacts the guardrails over the entire term of the waiver. States may need to sacrifice certain guardrails in the first year or two of the waiver, especially the deficit neutrality requirement, to accomplish long-term results that satisfy the guardrails.

* Allow any savings from moving people in Medicaid or the Children’s Health Insurance Program into private insurance coverage to be a factor in calculating deficit neutrality.

* Allow savings from moving people off other federal transfer programs—e.g., Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families—to count when calculating deficit neutrality.

* Do not count federal administrative costs to implement waivers when determining deficit neutrality. From the outset, administering State Innovation Waivers should have been built into the architecture of the FFE and the IRS administrative processes using the federal allotments for these programs. The fact that HHS and the IRS may now have to spend federal dollars to add functionality that they failed to provide in order to make the ACA ready for waivers in 2017 should not be a factor in calculating deficit neutrality.

III. Issue guidance providing advice and examples to states on how they can use a State Innovation Waiver to stabilize individual health insurance markets.

Many state lawmakers and policy personnel are now in the midst of investigating how to stabilize their individual health insurance markets through a State Innovation Waiver. As HHS reported in May, average premiums in state individual insurance markets doubled between 2013 and 2017, and more than tripled in three states. Moreover, as more and more insurers signal they will not participate in the insurance market next year, residents in hundreds of counties across the country face the possibility of not having access to insurance coverage.

Alaska, one of the three states where premiums tripled, stepped forward with the first State Innovation Waiver request to create a new program to moderate premium increases. In 2016 Alaska created a state fund to reinsure certain high-cost enrollees with state funding. By using state funds to pay a portion of claims for high-cost enrollees, the state keeps premiums lower for everyone else. However, by lowering premiums for everyone else, Alaska would receive less federal funding for tax credits because tax credits are tied to the price of a premium. Alaska is now applying for a State Innovation Waiver to receive federal funds to support the reinsurance program that would have otherwise gone to fund tax credits for Alaskans.

Many states are considering a similar reinsurance program. But there are other possible approaches for states using a State Innovation Waiver. What works for Alaska may not be the best approach for another state. There are pros and cons to any approach. For instance, reinsurance will reduce an insurer’s incentive to control the costs that are covered by reinsurance. Prior to the ACA, states used to cover high cost people through high risk pools. A benefit of high risk pools is that insurers prospectively determine risk when people enroll, and then provide insurance based on that expected risk. This approach more closely follows how a normal insurance market operates.

HHS has already issued a helpful checklist to help states apply for State Innovation Waivers to lower premiums, improve market stability, and increase consumer choice. However, given the immediate need for relief and the complications states face in crafting new programs to stabilize insurance markets, states would greatly benefit from further guidance that provides (1) information on the various approaches states are now considering, (2) advice on what factors states should consider in designing a new program, and (3) guidance on what approaches are likely to be approved by HHS. This would be similar to guidance HHS has provided on state development of Medicaid waivers, such as guidance issued in 2013 on establishing and implementing Medicaid managed long-term services and supports programs. In developing this guidance, HHS would benefit from issuing another “request for information” to gather the most up-to-date information on what states are considering or should be considering.

IV. Provide presumptive approval for certain Medicaid state plan amendments and waiver requests.

Year after year the cost of Medicaid consumes ever larger shares of state budgets, crowding out funds for other priorities like education and transportation. At the same time, there are growing concerns over the Medicaid program’s effectiveness in improving health, providing adequate access to doctors, engaging patients, reducing dependency, and detecting fraud and abuse. All of these concerns have led to substantial interest from states to fundamentally reform the Medicaid program. In the past, states ran into frustrating roadblocks with their federal partner in pursuit of even modest reforms proposed through state plan amendments or waiver requests.

To guarantee the sustainability and effectiveness of the Medicaid program, it’s time for the federal government to become a more equal partner with states in administering the program. That means giving states more flexibility, collaboration, and certainty in granting state plan amendments and waivers. As a starting point to improve the partnership between the federal government and the states, HHS should begin by giving presumptive approval for certain Medicaid state plan amendments and waiver requests.

There are certain Medicaid reforms that states have a common interest in pursuing. Examples include funding health savings accounts to encourage savings and patient engagement, offering commercial insurance coverage alternatives, providing incentives for healthy behaviors, allowing states to not provide retroactive eligibility, increasing premiums or copays to encourage financial responsibility, and adopting work requirements to help move people from dependency.

In cases where multiple states are making similar state plan amendment and waiver requests for Medicaid reforms, HHS should define and approve templates for these reforms in consultation with the states. A state wishing to adopt any approved template should be granted presumptive approval of their request. Not only will this speed the approval process, it will also promote more effective state planning by giving states more certainty over elements of their plan.

V. Offer states the option of a State Partnership Exchange in which the federal government provides, at a minimum, the services necessary to facilitate direct enrollment in a qualified health plan through brokers or health plans.

After the ACA passed and many states began considering what type of insurance exchange to implement, every exchange model presumed people must be able to directly enroll in coverage through the exchange. Every exchange model— save for a single-payer model considered in Vermont—presumed an exchange must become a marketplace that, in effect, replicated services that already existed in the private marketplace. Yet, the ACA nowhere explicitly requires an exchange to directly sell QHPs and replicate existing health insurance markets. Instead of replicating the existing health insurance market, HHS should give states the option of a State Partnership Exchange that minimally facilitates direct enrollment in QHPs through brokers or health plans.

The ACA requires an Exchange to facilitate the purchase of a QHP. It further requires an exchange to “make available” QHPs to qualified individuals and employers. But “facilitate” and “make available” do not necessarily mean directly sell insurance to the public. In common parlance, a facilitator is someone who helps and assists. Notably, the functions the ACA requires for each exchange generally fall into the helper/assister category and no function requires an exchange to directly sell insurance. Thus, from the beginning, states should have had the option of creating exchanges that only facilitated—i.e., helped—people in the process of buying coverage through traditional sales outlets. The fact is, with exchange enrollment consistently missing targets across the country, relying on existing, experienced sales outlets may have been far more effective.

Unfortunately, this more modest, and possibly more effective approach to a state exchange never materialized and, at this point, it is highly unlikely any state would attempt to build a new facilitator model exchange from scratch. There are states, however, that may be interested in partnering with the federal government to rethink and redesign how an exchange operates. HHS already allows State Partnership Exchanges in which states basically pick and choose which exchange functions are provided by the federal government and which functions are provided by the state. HHS should provide for a new partnership model where the federal government offers only the direct enrollment services already provided through the FFE. This approach will give states the maximum freedom to administer exchange functions, while letting states rely on the federal government for the task that was always federal, determining eligibility for tax credits.

VI. Revisit regulations restricting employers from contributing to individual health insurance market premiums and consider alternative regulatory approaches that give employers more flexibility to offer defined-contribution health plans while maintaining stable markets.

After the ACA passed, some legal professionals believed the law created new opportunities for employers to offer defined-contribution (DC) health plans in which employees receive a defined cash contribution to purchase coverage in the individual health insurance market. Many employers might prefer this type of health plan because it gives employers better control over their health care spending and gives employees choice, ownership, and security in a portable health plan they can keep when they leave their job.

Prior to the ACA, DC health plans were difficult to administer due to differences between how the individual and group markets were regulated. The ACA largely eliminated the regulatory differences that posed an obstacle to DC health plans and appeared to open the way for these plans. However, HHS regulations issued in 2015 incorporate prior 2013 guidance that effectively bans employers from offering DC health plans. Because the legal rationale for this regulation is so thin, HHS should revisit the regulation and consider whether any alternative regulatory approaches can better satisfy the agencies’ legal and policy concerns.

The regulation specifically holds that funding individual market health insurance through a group health plan violates the ACA’s annual dollar limit prohibition and the preventive services requirements. According to the guidance, these provisions are violated because individual market coverage cannot be integrated with a group health plan. Thus, two health plan requirements effectively change the tax treatment of employer contributions to individual coverage, not any change to the tax code.

The legal rationale for this regulation is very thin. Legally, the regulation is largely undermined by the fact that the two ACA requirements apply to both the individual and group markets equally. Therefore, whether an employer funds individual or group coverage, their employees will ultimately be covered by plans that meet the two requirements. The regulation fails to explain why a violation exists only in the context of integrating individual market coverage with a group health plan. Moreover, the regulation contradicts prior federal court and agency holdings that found individual coverage could integrate with group coverage. It also conflicts with provisions in the ACA that show Congress intended to continue allowing employers to fund individual premiums pre-tax.

The policy rationale supporting the regulation is stronger. Though the regulation and the prior guidance never explains the policy reasons, the Obama administration did discuss the policy behind the guidance privately with representatives of the U.S. Chamber of Commerce. The Chamber cites two reasons. First, the administration was concerned that large employers would dump sicker employees into the individual market. Second, the administration worried that some people might be able to double dip on both tax credits in the exchange and tax-free premium contributions from their employer.

Without a strong legal basis for the regulation, HHS should revisit it and consider whether there are more appropriate ways to address the policy concerns without undermining the option for employers to offer DC health plans. While there is a risk that large employers might dump sicker populations, DC health plans could also grow and stabilize individual health insurance markets with a more balanced pool. States are in a position to assess whether DC health plans are harming the market and have the power to limit DC health plans if problems emerge.

Congress already started the job of revisiting the regulation when it passed the 21st Century Cures Act last year. The Act allows small employers to establish small employer health reimbursement arrangements (HRA) to help finance individual health insurance premiums for their employers. This is a solid start, but more can be done to broaden access to DC health plans if HHS agrees to revisit the regulation.

VII. Establish special enrollment periods for small employer health reimbursement arrangements.

While the creation of Small Employer HRAs creates important new opportunities for employers to offer DC health plans, the 21st Century Cures Act failed to address how this new arrangement with individual coverage coordinates with the market’s enrollment period. Without any further action, this creates two main issues. First, a new employee hired outside the open enrollment period may not be able to sign up for coverage if they don’t qualify for some other special enrollment period (SEP). Second, a company that does not currently offer coverage and wants to start offering a Small Employer HRA needs to wait until open enrollment to set one up. A possible third issue might arise if an employer already operates a group health plan and wants to switch. If the group health contract ends outside the open enrollment period, then ending the group plan will presumably create a SEP for every employee covered, but any employee not covered probably wouldn’t qualify for the SEP, and would need to wait until the open enrollment period to get coverage.

To address these enrollment issues, HHS should establish or issue guidance on how states can establish SEPs to allow an employer to begin offering a Small Employer HRA at any time during the year and to allow new hires to sign up for individual coverage at any time during the year. The SEP created for new hires is an especially important tool to make sure the Small Employer HRA provides a similar incentive to a prospective hire as a traditional group health plan.

VIII. Work with the Department of Labor to clarify whether the Employee Retirement Income and Security Act (ERISA) preempts states from funding insurance market stability programs through fees on third-party administrators (TPA) of self-funded health plans.

While the request for information specifically requests information for actions within HHS’s authority, there is an important issue under the authority of the Department of Labor that impacts how states establish high risk pool/state-operated reinsurance programs through a State Innovation Waiver. A critical component to any successful program will be for states to establish a stream of revenue to provide the state’s portion of funding to support the program. However, there is legal uncertainty as to whether ERISA preempts fees imposed on TPAs that service self-funded health plans. HHS should work with the Department of Labor to clarify ERISA does not preempt states from assessing fees on TPAs.

Ideally, the funding source for insurance market stability programs would be both broad-based and reliable. The funding should be broad-based because the high risks that make their way into the individual market—the source of the individual market’s higher risk profile—come from all over. Some high risks were already in the individual market pool, but many others made their way from employer-sponsored group plans. Insurers also need a reliable, stable funding source they can count on from year to year. If states want insurers to come to the market and stay in the market, the insurer needs to be confident that the funding won’t drop away in the state’s next budget crisis.

The ACA recognized funding for its transitional reinsurance program should be broad-based and so the law applied a reinsurance fee to all commercial health insurance carriers and self-funded major medical plans. Federal law does not allow states to do the same. ERISA preempts states from assessing fees on self-funded plans, which represents a majority of group health plans.

Prior to the ACA, many states assessed fees on TPAs that service self-funded plans to fund state health care programs as an alternative approach to directly assessing fees on self-funded plans. However, the legality of assessing TPAs remains unclear. Back in 1991, the Fifth Circuit, in E-Systems v. Pogue, preempted a Texas tax on TPAs who received service fees to administer self-funded health plans. In 2016, however, the Sixth Circuit, in Self-Insurance Institute of America v. Snyder, affirmed a Michigan assessment on claims paid by carriers and TPAs to fund Medicaid. The Sixth Circuit case sets a stronger precedent than E-Systems because it relies on a landmark ERISA opinion the U.S. Supreme Court issued shortly after E-Systems was decided. Nonetheless, legal uncertainty remains.

HHS should work with the Department of Labor to clarify whether states are free to assess TPAs servicing self-funded plans. While any guidance or rules issued on the matter would be under the jurisdiction of the Department of Labor, the resolution of this issue is important to the success of the insurance market stability programs states are now creating through State Innovation Waivers under the authority of HHS. Because programs under the authority of HHS have a stake in the outcome, it is appropriate for HHS to take steps to encourage the Department of Labor and, if appropriate, to work with the Department of Labor to help give states more legal certainty on this question.

major medical plans. Federal law does not allow states to do the same. ERISA preempts states from assessing fees on self-funded plans, which represents a majority of group health plans.

Prior to the ACA, many states assessed fees on TPAs that service self-funded plans to fund state health care programs as an alternative approach to directly assessing fees on self-funded plans. However, the legality of assessing TPAs remains unclear. Back in 1991, the Fifth Circuit, in E-Systems v. Pogue, preempted a Texas tax on TPAs who received service fees to administer self-funded health plans. In 2016, however, the Sixth Circuit, in Self-Insurance Institute of America v. Snyder, affirmed a Michigan assessment on claims paid by carriers and TPAs to fund Medicaid. The Sixth Circuit case sets a stronger precedent than E-Systems because it relies on a landmark ERISA opinion the U.S. Supreme Court issued shortly after E-Systems was decided. Nonetheless, legal uncertainty remains.

HHS should work with the Department of Labor to clarify whether states are free to assess TPAs servicing self-funded plans. While any guidance or rules issued on the matter would be under the jurisdiction of the Department of Labor, the resolution of this issue is important to the success of the insurance market stability programs states are now creating through State Innovation Waivers under the authority of HHS. Because programs under the authority of HHS have a stake in the outcome, it is appropriate for HHS to take steps to encourage the Department of Labor and, if appropriate, to work with the Department of Labor to help give states more legal certainty on this question.



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