What A Biden Win Could Mean For Employer Health Insurance

Law360 (October 2, 2020, 2:43 PM EDT) --
Eric Schillinger
Eric Schillinger
Anne Hall
Anne Hall
Over 155 million Americans — nearly half of the country's entire population — are covered by employer-sponsored health insurance. During his campaign, Democratic presidential nominee Joe Biden has proposed numerous significant changes to the U.S. health care system.

Although many of those proposals relate to Medicare, Medicaid and the individual insurance market and would require legislation by Congress, a Biden administration could also use the powers of the executive branch to make significant changes to the rules governing employer-sponsored insurance in the group market — e.g., by directing agencies to issue regulations and subregulatory guidance.

Below is a summary of potential regulatory and subregulatory guidance that a Biden administration might issue regarding employer-sponsored health insurance, as well as other legislative and related efforts, based on Biden's health care proposals and campaign statements. Such guidance, legislation and other actions might include, among others:

  • Expanding the health care nondiscrimination rules under Section 1557 of the Patient Protection and Affordable Care Act;

  • Withdrawing the rules for association health plans issued by the Trump administration, which are currently under dispute in the federal court system;

  • Issuing regulations implementing the tax nondiscrimination rules for insured group health plans added by the ACA;

  • Expanding the mental health parity requirements for group health plans regarding the coverage of mental health and substance use benefits on similar terms as medical and surgical benefits;

  • Introducing legislation expanding the scope and availability of ACA subsidies — referred to as premium tax credits — for individual plans on the federal and state ACA health insurance exchanges; and

  • Restoring the ACA's individual mandate penalty to protect the ACA from potentially being struck down in the upcoming consolidated U.S. Supreme Court cases, California v. Texas and Texas v. California, if Democrats gain control of the Senate and retain their house majority.

Expansion of the Health Care Nondiscrimination Rules Under ACA Section 1557

Under ACA Section 1557, individuals may not be denied, canceled, limited or refused health coverage on the basis of race, color, national origin, sex, age or disability. Those rules apply to, among other health care arrangements, certain group health plans that receive federal funding (e.g., Medicare Part D subsidy).

Under the original rules issued in 2016 during the Obama administration, ACA Section 1557 imposed, among other requirements, notice and disclosure obligations regarding individuals with limited English proficiency and a protection against discrimination on the basis of gender identity, sex stereotyping and termination of pregnancy. 

After a court challenge regarding certain aspects of those rules, new regulations were issued in 2020 that repealed and replaced major portions of the 2016 regulations. But shortly before those revised regulations were set to take effect, a federal trial court blocked enforcement of the provisions in the regulations that removed general identity and sex stereotyping from the protections.[1]

Litigation over these issues in the regulations continues, and it is reasonable to assume that based on Biden's campaign statements regarding gender, sex and other aspects of equality, that a Biden administration would take a significantly different position than the Trump administration as to the application of ACA Section 1557.

For example, it seems likely that a Biden administration would not challenge the court's decision and would instead revise the regulations to extend to gender identity and sex stereotyping. A Biden administration might also direct the U.S. Department of Health and Human Services, the branch responsible for enforcement of Section 1557, to explore other possibilities for expanding the application of Section 1557 — for example, to be closer to the broader protections that were included in the 2016 regulations issued during then-President Barack Obama's term.

Trump's Association Health Plan Rules: Possible Withdrawal

In 2017, President Donald Trump issued Executive Order 13813 titled "Promoting Healthcare Choice and Competition Across the United States." Among taking other actions, it directed the secretary of labor to "consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form [association health plans]."

In response to Trump's executive order, the U.S. Department of Labor issued regulations in 2018 that expanded the ability for unrelated employers to band together to purchase a group health insurance plan. Prior to this guidance, such employer associations had to meet, among other requirements, a rule that required a commonality of interests among the employers, a standard that could not be met if the purpose of the association was merely to purchase health insurance. 

These expanded association health plan rules allowed the association health plan to more easily be considered a single plan for purposes of the Employee Retirement Income Security Act and the ACA — rather than being treated as separate plans for each participating employer in the association. Importantly, this single-plan treatment applies for purposes of determining whether the arrangement covers 50 or more participants and, therefore, is exempt from the ACA's small-group health insurance rules — e.g., the requirement to cover essential health benefits.[2]

The Trump administration's association health plan rules were successfully challenged in federal court in 2019, and the U.S. District Court for the District of Columbia vacated certain key provisions in those rules — for example, the expanded definition of a qualifying association to include employers related only by common geography. The DOL is appealing the lower court's decision, but in the interim, the expanded association health plan rules have limited application.

Given Biden's position on the ACA, it is possible that a Biden administration may direct the DOL to withdraw the expanded association health plan rules entirely — or at least refrain from defending the rules in court. The impact of such a decision by a Biden administration would be a return to the previous, stricter rules for such plans — i.e., the narrower commonality of interest test — rather than pursuit of a potentially successful appeal of the court decision partially striking down the Trump administration's regulations.

ACA's Tax Nondiscrimination Rules: Implementation for Insured Group Health Plans

Under Section 105(b) of the Internal Revenue Code, amounts received by an employee (or the employee's spouse or dependent) through an employer-sponsored accident or health plan are nontaxable if those amounts are paid, directly or indirectly, for medical care expenses incurred by the employee, spouse or dependent.

Code Section 105(h) sets forth nondiscrimination rules that apply to self-funded group health plans and make the Code Section 105(b) tax exclusion for highly compensated individuals — officers, more-than-10% shareholders and the highest-paid 25% of nonexcludable employees — contingent on the plan not discriminating in favor of highly compensated individuals regarding plan eligibility or benefits.[3] 

The ACA added a statute providing that fully insured group health plans must satisfy nondiscrimination requirements similar to the Code Section 105(h) rules for self-funded plans. These rules initially required compliance for insured plan years beginning on or after Sept. 23, 2010, but the IRS announced in 2011 that that the rules will not become effective until regulations are issued; to date, no such regulations have been issued, and the rules have yet to become applicable to employers.

Given Trump's stance on the ACA, it is not surprising that his administration has refrained from issuing implementing regulations for these rules. And although Biden has not specifically commented on these rules or suggested that implementing them would be a priority under his administration, his strong support for the ACA and tax policies may be a harbinger of his intent to implement these nondiscrimination rules. 

Expanded Mental Health Parity Enforcement

The mental health parity rules require group health plans to cover mental health and substance use services comparably to medical and surgical care. These rules apply for purposes of quantitative factors — e.g., plan reimbursement amounts and visit limits — as well as nonquantitative treatment limitations — e.g., prior authorization requirements. For example, a group health plan might violate the mental health parity rules if it provides general coverage of services at a skilled nursing facility but excludes coverage of substance use treatment at a residential facility.

On his campaign website Biden has stated that as president he would redouble his efforts "to ensure enforcement of mental health parity laws." Although it is unclear what specific guidance a Biden administration might issue for this purpose, it is possible that the administration might direct the DOL to further prioritize enforcement of mental health parity compliance by group health plans — for example, more frequent use of the DOL's investigatory and enforcement tools. 

Legislation Expanding Scope and Availability of ACA Subsidies and Addition of Public Option

Under the ACA, an individual can be eligible for a premium tax credit to subsidize the purchase of individual health insurance on a federal or state ACA exchange if he or she has a household income that falls within a certain range, is not enrolled in employer-sponsored major medical coverage, is not offered employer-sponsored coverage that is both affordable and minimum value, and meets certain other requirements. Biden has proposed a significant expansion of ACA subsidies and coverage, including changes such as:

  • Making the ACA subsidy more generous by basing the subsidy amount on the richer gold plan (rather than the silver plan) on the ACA exchange;

  • Lowering the affordability threshold used to determine subsidy eligibility and amounts, which is based on a percentage of the individual's household income;

  • Removing the prohibition of those who are offered affordable, minimum-value employer-sponsored coverage from receiving ACA subsidies;

  • Allowing Medicare to directly negotiate drug prices; 

  • Allowing the importation of prescription drugs from abroad; and

  • The creation of a public option as another source of health care for Americans — sometimes referred to as "Medicare for all who want it" — which would also be available to those with employer-sponsored coverage. 

The potential impact of these health care changes on the employer-sponsored health insurance market could be significant. Putting aside the increase in government spending — and possible increases to employer taxes — some analysts have speculated that these ACA changes could have a meaningful effect of the stability of the group insurance market: the result of possibly over 20 million Americans dropping employer coverage for the public option or ACA plans. That's roughly one-seventh of the total population enrolled in employer-sponsored health insurance.

It is likely that Biden will leave intact the employer mandate, so most businesses would presumably continue to offer insurance to employees for not only compliance but competitive reasons. But smaller employers that are not subject to the employer mandate might be more inclined to stop offering health insurance altogether. 

These changes would certainly require legislation by Congress — i.e., they could not be implemented through regulatory or subregulatory guidance by the executive agencies. Republican support for these proposals from Biden has been essentially nonexistent. 

And even if Democrats gain control of the Senate during this election cycle, the likelihood of such legislation being passed is unclear; these particular laws would be subject to Senate filibuster, requiring 60 votes for passage. Democrats are not expected to gain control of at least 60 Senate seats in the upcoming election. 

The Fate of the ACA in the U.S. Supreme Court

The ACA has survived several court challenges since its enactment, including a 2012 Supreme Court lawsuit that contested, among other aspects of the ACA, the constitutionality of the ACA's individual mandate — with the court holding that the mandate was constitutional as a tax.[4] But the reduction of the individual mandate penalty to $0 by the 2017 Tax Cuts and Jobs Act prompted another challenge to the individual mandate, which was upheld by the U.S. Court of Appeals for the Fifth Circuit.[5]

The Fifth Circuit held that because the Tax Cuts and Jobs Act reduced the individual mandate penalty to $0, the mandate could no longer be construed as a tax and, therefore, was unconstitutional. On March 2, 2020, the Supreme Court accepted an appeal of the Fifth Circuit's decision by 21 state attorneys general.[6]

The Trump administration has refused to defend the ACA since Trump's election, and the administration has joined Republican attorneys general of 18 states in asking the Supreme Court to strike down the entire ACA on the basis that the individual mandate is now unconstitutional and not severable from the rest of the ACA.[7] Oral arguments before the Supreme Court are scheduled for Nov. 10, one week after the election.

A Biden administration would certainly seek to defend the ACA, though oral arguments — and a likely confirmation of Trump's Supreme Court nominee, Amy Coney Barrett, to replace the late Justice Ruth Bader Ginsburg will take place before Biden, if he wins the election, would be sworn into office. It is unclear how the Supreme Court will decide on the matter, and a 4-4 tie (if the court decides with eight justices) would leave the lower court's ruling intact — striking down the ACA. 

If the Supreme Court upholds the individual mandate or determines that it is unconstitutional but severable from the remainder of the ACA, the impact on the ACA would be immaterial because the mandate penalty is already $0. But if the court were to determine that the individual mandate was unconstitutional and inseverable from some or all ACA provisions, the impact on the U.S. health care system would be significant. 

ACA provisions that closely interact with the individual mandate — for example, guaranteed issue and community rating — are arguably more at risk of being treated as inseverable and struck down.[8] Importantly, a ruling from the Supreme Court is not expected until the spring of 2021. So if Democrats win the presidential election and gain control of the Senate, they could protect the ACA by restoring the individual mandate's tax penalty — thus making the mandate constitutional as a tax — before the Supreme Court issues a ruling.

Takeaways for Employers

As with any presidential election, the stakes for employers — not only regarding employee benefits but in all aspects of U.S. business — are high. And given the highly polarized political state of the country and strongly divergent positions of both candidates, this election could have a major impact on the market for employer-sponsored health insurance, the largest single source of health insurance for Americans.

If Trump is reelected, significant changes to the market are less likely during his second term. But if Biden wins the election, employers may see executive action that significantly impacts employer-sponsored health benefits. Employers should pay close attention to the coming months after the election to evaluate what changes might be forthcoming.

Eric Schillinger is senior compliance counsel and Anne Tyler Hall is founder and principal at Hall Benefits Law.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] The court's basis for blocking those provisions was that the Supreme Court's 2020 decision in Bostock v. Clayton County, Ga that discrimination based on sex for purposes of Title VII of the Civil Rights Act includes discrimination based on sexual orientation and gender identity.

[2] Therefore, the expanded association health plan rules would allow a group of employers that each had fewer than 50 employees to avoid the ACA's small group rules by forming an association health plan if, in aggregate, the total covered employees of the association exceeds 50. 

[3] If a self-funded group health plan violates the Code Section 105(h) rules, HCIs are taxed on their "excess reimbursements" (amounts that differ depending on whether the plan discriminates in eligibility versus benefits).

[4] Nat'l Fed'n of Indep. Bus. v. Sebelius , 567 U.S. 519, 538 (2012).

[5] Texas v. United States , No. 19-10011 (5th Cir. 2019).

[6] California v. Texas (Docket No. 19-840).

[7] The district court held that the individual mandate was unconstitutional and inseverable from the ACA, thus rendering the entire ACA invalid. The Fifth Circuit agreed that the ACA's individual mandate was unconstitutional but remanded the case back to the district court to determine whether and to what extent the rest of the ACA is severable from the individual mandate. The issue of severability is essentially a question of whether Congress would have passed the law even without the invalidated provision (e.g., the ACA without the individual mandate). If not, the entire law must be struck down with the invalidated provision. 

[8] One key purpose of the individual mandate was to prevent "adverse selection" (essentially where healthy individuals opt to go without health insurance), which has resulted in some state insurance markets that previously had guaranteed issue and community rating requirements without a mandate to ensure that the risk pool is not comprised largely of sicker individuals. 

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