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A federal court recently invalidated significant parts of a Trump administration rule affecting the Affordable Care Act (ACA). What this decision means and how it could impact your business, are discussed below.
In 2018, the city governments of Columbus, Baltimore, Cincinnati, Chicago, and Philadelphia joined together to sue President Trump in his official capacity, along with Department of Health and Human Services (HHS), HHS Secretary Alex Azar, the Centers for Medicare and Medicaid Services (CMS), and the CMS director.
These major U.S. metropolises took issue with a final rule promulgated by CMS and HHS–the Notice of Benefit and Payment Parameters for 2019 (2019 Final Rule). Despite its mundane-sounding name, the final rule, the cities claimed, was designed to have, and actually did have a disastrous effect on state and federal health exchanges, another term for the health insurance marketplaces created by the ACA. In particular, the cities identified nine ways in which the 2019 Final Rule negatively impacted insurance marketplaces and coverage rates (including driving up uninsurance rates) within their geographic areas, in violation of U.S. law.
Many of the problems with the 2019 Final Rule identified by Columbus, Baltimore, Cincinnati, Chicago, and Philadelphia sound highly technical, but have concrete real-world effects. To take one example, the 2019 Final Rule eliminated the idea of “Standardized Options” for 2019. Standardized Options, as described by the court, as “qualified health plans offering different levels of coverage and price, but with a standard cost-sharing structure specified by HHS that makes it easier for consumers to compare plans.” In other words, Standardized Options (previously called “Simple Choice” plans) allow healthcare consumers to more easily compare costs across coverage options on the website healthcare.gov. The website Verywellhealth succinctly described why the elimination of Standardized Options was problematic:
“When consumers logged onto Healthcare.gov to shop for 2017 and 2018 plans, they saw the Simple Choice plans displayed prominently among the available options; the federally-run exchange had committed to making it easy for people to determine which plans were standardized and which were not.
But in the Benefit and Payment Parameters for 2019, HHS noted that in an effort to “maximize innovation by issuers in designing and offering a wide range of plans to consumers,” the federal government would no longer define any specific parameters for standardized plans (in other words, there would no longer be a standardized plan design at the federal level) and would no longer differentially display standardized plans when consumers shopped for plans on HealthCare.gov.”
(Emphasis in the original). Without an accessible way to compare plans, the cities argued consumers would face “choice paralysis” and fail to enroll altogether, driving down insurance coverage rates and driving up costs. The court agreed with Columbus, Baltimore, Cincinnati, Chicago, and Philadelphia that the Trump administration’s decision to eliminate Standardized Options was “arbitrary and capricious,” a legal standard that requires a rational explanation for government rulemaking. The 2019 Final Rule could not meet this standard.
Three other provisions of the 2019 Final Rule were struck down as well, including a federal review of network adequacy, income verification, and medical loss ratio.
What emerges from this summary is a major check from the judicial system on the Trump administration’s attempts to weaken the ACA. The Biden administration has made bolstering the ACA a top priority and more rollbacks on Trump-era ACA regulations, like this case, should continue. Employers would be wise to revisit their ACA compliance processes too as Biden has also made it a priority for the IRS to increase its enforcement efforts for ACA non-compliance.
Since ACA reporting was first required from employers in 2015, the IRS has been strengthening and refining its process for identifying non-compliance. It should come as no surprise that as time progresses, the agency is becoming more efficient in the way that it assesses ACA penalties and identifies non-compliance triggers. The ACA Compliance Validation (ACV) System too should become more robust with the additional funding that Biden is requesting for FY 2022.
If your business needs assistance complying with the ACA’s Employer Mandate, download the 2021 ACA Essential Guide to understand what is expected of your organization and leverage best practices to minimize IRS risk.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.