Major developments, events and headlines are affecting the evolution of the health insurance regulatory environment at both the federal and state level. The implementation of the Patient Protection and Affordable Care Act (ACA) seems to require an unending amount of clarification and has a huge impact on employers as primary facilitators of health insurance coverage in the U.S. There’s also a renewed interest in regulatory oversight of self-insurance, captives and private exchange models, as private employers seek alternative ways to provide employees with health insurance and other benefits. In addition, cybersecurity threats, such as that experienced by Anthem, demand some sort of regulatory response, and the federal government is getting into the business of insurance licensing.
Here, we break down a few of these regulatory trends.
The greatest expansion of federal intrusion into the insurance industry is, as some would say, PPACA. Following its enactment, employers began searching for alternative ways to provide employee benefits within the constraints of the new regulatory environment. Ironically, this has led to further legislative and regulatory action.
For example, self-insurance products began to be marketed to smaller employers as concerns grew over the impact of modified community rating and other market reforms. Self-insured plans are generally exempt from state insurance laws under ERISA; however, state insurance departments have been finding ways to indirectly regulate self-insured plans through the stop-loss market.
For the remainder of 2015, we’ll continue to see new regulations and guidance released regarding the implementation of PPACA. Watch for:
- Application of Code 105(h) nondiscrimination laws to fully insured plans
- Guidance on designing a compliant wellness program
- Proposed rules for the Cadillac tax or repeal of the tax
- Further clarification of the employer shared responsibility and associated employer reporting
However, the most interesting event to watch will be the U.S. Supreme Court’s ruling in King v. Burwell and its aftermath. Depending on the outcome, we may see Congress scrambling to propose an alternate strategy.
King v. Burwell
At the time of this writing, the Supreme Court has heard oral arguments for King v. Burwell, but no decision has been reached. In this case, the plaintiffs challenged the offering of premium tax subsidies through federally established health insurance exchanges. Specifically, the statute authorizes premium tax credits for insurance purchased on an exchange “established by the State under section 1311” but doesn’t explicitly authorize such credits for insurance purchased on an exchange established by the federal government. The question is whether premium tax subsidies can be offered by the IRS through the federally established exchange (adopted in 34 states).
The tension is between a literal interpretation of the statutory language and an interpretation that looks to the overall intent of the statute. There are legal arguments that support both interpretations. What’s interesting, however, is what was publicly stated by one of the leading PPACA architects, MIT economist Jonathan Gruber.
In a public presentation in January 2012, Gruber stated, “I think what’s important to remember politically about this, is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits. But your citizens still pay the taxes that support this bill. So you’re essentially saying to your citizens, ‘you’re going to pay all the taxes to help all the other states in the country.’ I hope that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges, and that they’ll do it.”
If Gruber correctly voiced congressional intent to place pressure on states to establish their own exchanges, the plain reading of the statute is the right outcome. But Gruber’s comments, while informative, will not be determinative of the outcome.
Overall, the Supreme Court will decide the fate of premium subsidies in the 34 states with federal health insurance marketplaces. The ruling may result in political backlash for both parties in Congress. Democrats’ desire to expand access may push them to find another source for the premium tax credits, while the Republicans may seek a market-driven resolution. One can only hope for a bipartisan solution.
It seems rational to propose legislation that would enable premium subsidies to be offered through alternative sources, such as private exchanges or employer-sponsored coverage. This would enable both parties to claim victory — but I wouldn’t hold my breath. Whatever the outcome, the King v. Burwell decision has the potential to greatly alter the health insurance landscape.
Perhaps reacting to the many restrictions associated with PPACA, employers are increasingly looking at self-insuring their health benefit offerings. Companies that self-insure often purchase stop-loss insurance to protect against large claims in the aggregate or on a per claimant basis. Since stop-loss insurance is generally regulated by states, its purchase enables the state insurance regulators to get a foot in the door for oversight.