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Per EmployeeBenefitNews:

CVS’s reported bid for Aetna would give the drugstore chain a strong position in the pharmacy benefits management market. It would also add to a series of moves CVS has been making in pharma, healthcare and health analytics.

In many respects, the deal with Aetna makes sense. CVS has expanded dramatically beyond its retail pharmacy roots since it got into the PBM business with its $21 billion purchase of Caremark in 2007. Aetna is already a client. Then, in 2015, CVS acquired the nursing home pharmacy operator Omnicare for $12.9 billion and Target’s pharmacies and clinics for $1.9 billion.

Buying Aetna would enable CVS to direct enrollees and clients to a variety of CVS-controlled services, bolster its PBM’s leverage with drug makers and give the combined business a cost and data advantage. Of the more than 300 PBMs operating in the U.S., the top three — Express Scripts, CVS Caremark and Optum — already dispense more than three-quarters of prescriptions in the country, according to PBM consultant Gary Becker, CEO of ScriptSourcing, LLC.

A PBM is a third-party prescription drug administrator that contracts with health insurers, self-insured employers and others to manage a formulary, negotiate rebates and discounts with drug manufacturers, and process and pay prescription drug claims.

A CVS-Aetna combo would have an excellent role model in UnitedHealthcare, which has outgrown other large health insurers largely due to investment in Optum. That unit encompasses pharmacy benefit management, healthcare analytics and even ambulatory surgery centers. It has both directly driven growth and helped UnitedHealthcare’s insurance unit lower medical costs.

CVS-Aetna would be strong competition for UnitedHealth Group. And it could also protect CVS if Amazon decides to enter the PBM business by adding diversification and a captive client base.

“They’re trying to do something similar as UnitedHealthcare; having a marriage with a PBM and keeping the money in-house, rather than sharing all that profit with another entity,” Becker says.

CVS is said to be offering more than $200 a share to purchase Aetna. CVS has a market value of about $75 billion; Aetna was valued at about $53 billion before surging on a report about the deal in The Wall Street Journal, which broke the news.

Spokesmen for Aetna and CVS declined to comment.

Healthcare activity
In addition to bulking up its pharmacy business, CVS has been making moves in the healthcare space.

CVS has long been operating MinuteClinic, a walk-in clinic found inside many retail locations that offers diagnosis and treatment of minor illnesses, injuries and skin conditions; administration of vaccinations, injections and health screenings.

CVS and electronic health record company Epic earlier this month said they are working on a strategic initiative intended to present clinicians with options for prescribing drugs that are less expensive and offer better opportunities for improved outcomes. Epic has a widely installed electronic health records system. Under the collaborative effort, CVS will use Epic’s Healthy Planet population health and analytics platform to generate insights around dispensing patterns and behaviors involving medication adherence.

CVS also teamed up two years ago with IBM to use predictive analytics and IBM’s Watson supercomputer to enable healthcare providers and insurers to better manage care for patients with chronic diseases. That partnership was designed to bring together IBM’s Watson Health Cloud and cognitive computing capabilities with both companies expertise in predictive analytics and patient engagement and help individuals stay on track with their care and health goals. It was unclear at press time where that effort stood.

But, there are a number of obstacles to a CVS-Aetna deal. The insurers would be the largest purchase CVS has ever attempted, by a significant margin. CVS only has about $2.2 billion in cash, and already has $26.8 billion in total debt. This deal would add a whole lot of leverage.

And running a health insurer would be a very different business for CVS. While the company does work with clients to bring down healthcare costs, it currently mostly deals with drugs and doesn’t directly take on health risks as an insurer does. Insurers have a huge regulatory burden from both the federal government and states, as well as a great deal of political uncertainty from Republican efforts to reform insurance markets.

Bloomberg News contributed to this report

Note: In addition to the changes discussed below, Anthem has also been making formulary changes, particularly in the small group fully insured market.  Indiana employers currently covered with Anthem should review pharmacy coverage before making any plan changes.

Per The Bureau of National Affairs, Inc.:

Anthem Inc. is aiming to have its own pharmacy benefit manager in 2020, and that could lead to more integrated medical and pharmacy benefits for employers, health-care practitioners told Bloomberg Law.

Anthem, the nation’s second largest health insurer, announced Oct. 18 that it’s partnering with CVS Health to launch its pharmacy benefit manager IngenioRx in 2020. Once the new PBM launches, employers using Anthem’s affiliated health plans will have the same options for selecting a PBM, plus a new in-house option, Leslie Porras, Anthem’s senior public relations director, told Bloomberg Law in an email.

This change could mean “better integration of the clinical and pharma product,” Alden J. Bianchi, a member at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo PC in Boston, told Bloomberg Law. “I don’t see a downside for employers,” he said. Bianchi is the practice group leader of the firm’s Employee Benefits & Executive Compensation Practice.

Lower Cost?

“Anthem is going to say they’re lowering the cost, but we don’t know yet,” an attorney who represents multiple players in the health-care industry told Bloomberg Law.But at least for those employers contracting with Anthem, it removes additional layers and allows a more direct relationship with one entity doing both, she said.

“It has the potential of giving employers more control of medical and pharmacy benefits,” the attorney, who asked not to be identified, said.

One thing employers can do when faced with this new option is ask for a guarantee that they will see a cost savings if they go with Anthem and its in-house PBM, David Dross, national practice leader of Mercer’s managed pharmacy practice in Houston, told Bloomberg Law.

“They’ve indicated that they’ll do a better job if they can manage everything,” he said. “We don’t want a theoretical idea, we want a specific financial guarantee connected with that.”

Better Together

Employers usually sign a contract with a health insurer who subcontracts with a PBM. It can be easier to deal with one company for two services that are related; although they can sign the contracts separately, the unnamed attorney said.

Anthem’s move shows a trend of larger insurers taking the PBM capabilities in house, instead of contracting with PBMs separately, something that can help when it comes to managing costs. If the insurer and the PBM have the same medical and pharmaceutical data, they can also streamline services for things like specialty pharmacy, a cost that continues to rise. About 80 percent of employers cite specialty pharmacy as one of the top three health-care cost drivers, according to a 2017 survey by the National Business Group on Health.

It could make it easier to have specialty care managed under one umbrella. If an employer contracts with a separate PBM, “you have your PBM managing specialty one way and your insurer doing it another way,” which can cause some issues for disease management, Dross said.

The nation’s largest health insurer, UnitedHealth, also runs its own pharmacy-benefits management business called OptumRx. That unit brought in $16 billion in revenue in the third quarter, UnitedHealth said in its earnings report.

Anthem: Transparency Needed on Pricing

IngenioRx would offer competitive pricing for employers, Anthem said in touting the plan.

There’s potential for more transparency over pricing, but only time will tell, the unnamed attorney said.

“In the PBM industry, the number one thing employers want, is transparency in terms of pricing,” she said.

CareMark, CVS’s in-house PBM, is also one of the largest PBMs in the industry. CVS will manage claims processing and handle and deliver drugs, but Anthem will take on much of the medical work. This includes deciding which drugs to cover and under what terms, as well as making sure patients take them appropriately, according to Bloomberg.

According to the New York Times:

Despite President Trump’s pronouncements, not only is Obamacare not dead, there are signs that his administration is keeping it alive.

In the latest signal that the Affordable Care Act is still law, the Internal Revenue Service said this week that it is taking steps to enforce the most controversial provision: the tax penalty people face if they refuse to obtain health insurance.

Next year, for the first time, the I.R.S. will reject your tax return when filed electronically if you do not complete the information required about whether you have coverage, including whether you are exempt from the so-called individual mandate or will pay the penalty. If you file your tax return on paper, the agency said it could suspend processing of the return and delay any refund you might be owed.

The agency’s new guidance for tax professionals seems to contradict Mr. Trump’s first executive order, on Inauguration Day, which broadly instructed various agencies to scale back the regulatory reach of the federal health care law.

As part of his promise to overturn the law, the executive order hinted that the new administration could stop enforcing the mandate that people have insurance or pay a tax penalty, which proponents have long argued is critical to the law’s success by requiring young and healthy people to enroll.

The I.R.S.’s guidance makes it clear that taxpayers cannot simply ignore the Affordable Care Act. While the penalty applies only to people without insurance, all taxpayers are required to say whether they have coverage.

Legal experts say the I.R.S. has been clear that the law was in effect, despite repeated efforts by Mr. Trump and Republican lawmakers to repeal it. Congress would have to specifically repeal the mandate, they say, even if the administration has significant leeway over how aggressively it enforces it.

“This guidance should put to rest speculation that the I.R.S. is no longer enforcing the individual mandate and improve compliance,” wrote Timothy Jost, an emeritus law professor at Washington and Lee University in a recent analysis.

But there has been substantial confusion among taxpayers and insurers. Many insurance companies raised their rates for next year’s plans because they were worried the administration would essentially stop penalizing people who refused to buy coverage, leading to fewer enrollments, said Sabrina Corlette, a research professor at Georgetown University.

People may have also mistakenly believed they did not have to comply with the law’s reporting requirements. The new guidance suggests taxpayers will now face a sharp reminder that they need to provide this information, when they go to file a return electronically or submit the appropriate paperwork to get any refund they are due.

Under the law, an individual who does not have insurance can face a penalty of $695 a year for an individual, up to a maximum of $2,085 for a family or 2.5 percent of your adjusted gross income, whichever is higher. People are exempt from the penalty if they have too little income or if the lowest-priced coverage available costs them more than 8.16 percent of their household income.

The I.R.S. had initially held off rejecting returns because the law was new, but then it delayed its plans to assess the effect of the executive order, said Nicole M. Elliott, a tax lawyer for Holland & Knight and a former I.R.S. official involved in putting into effect the Affordable Care Act.

“It is curious, given the executive order,” Ms. Elliott said. “It’s a little unclear where the agencies are going and how heavy-handed they will be in enforcing it.”

In evaluating its stance, the agency may have decided the requirement eases the burden on taxpayers by making it clear they need not worry if they have insurance or are exempt from the penalty, she said.

But the I.R.S. may still decide not to actively enforce the mandate, Ms. Elliott added. While the agency is taking steps to be sure it collects all the information necessary to levy the penalty, it could also take a very lenient view of how aggressively it goes after anyone who does not sign up. “It’s dangerous to read too much into this,” she said.

The White House declined to comment.

The I.R.S.’s decision to actively prepare to enforce the mandate only adds to the uncertainty about where the president stands about the future of the law. Just this month, he issued a second executive order aimed at allowing the sale of skimpier plans to both individuals and small businesses, the same day he announced he would abruptly stop funding subsidies for low-income individuals. He has abruptly switched positions on a new bipartisan proposal aimed at providing short-term stability to the insurance marketplaces under the law.

The proposed bill, drafted by Senators Lamar Alexander, Republican of Tennessee, and Patty Murray, Democrat of Washington, would restore the government subsidies called cost-sharing reductions for two years. While the draft legislation is unlikely to reduce insurance premium prices for 2018, it could serve to reassure jittery insurance companies that the law has a future beyond next year. On Friday, a group of health plans, hospitals and doctors, as well as the U.S. Chamber of Commerce, came out in support of the proposal.

The I.R.S. action does make it easier to see who should be buying coverage under the law, said Gary Claxton, an executive with the Kaiser Family Foundation. “This was the best way to enforce the mandate,” he said.

But much still depends on what happens next. As part of the second executive order he issued, Mr. Trump seemed to raise the possibility that the A.C.A. market could be further disrupted by the introduction of new plans that would not have to comply with the law. These plans, short-term policies sold to individuals and association plans sold to employers, would be much cheaper and offer far less coverage. If those plans were widely available, younger and healthier individuals and groups could buy them, causing turmoil on the exchanges and soaring prices for A.C.A. plans.

“That would be a bigger deal than this,” Mr. Claxton said.

As published by Law360.com on October 19, 2017:

On Oct. 12 President Donald Trump issued an executive order regarding the federal laws governing health care and insurance. The executive order itself does not change the existing rules. Rather, it instructs the applicable federal agencies — the U.S. Departments of Treasury, Labor, and Health and Human Services — to “consider proposing regulations or revising guidance” in accordance with the guidelines in the executive order. Those guidelines relate to three different aspects of health insurance:

1. The order instructs the DOL to consider loosening the requirements for employers to band together and form “association health plans” (within 60 days). These plans are arguably not subject to the Affordable Care Act’s individual and small-group requirements if they have at least 50 members.
2. It also instructs the DOL, Treasury and HHS to consider expanding (within 60 days) the availability of short-term, limited duration insurance, which is a type of individual insurance not subject to ACA market reform requirements.
3. Lastly, the order instructs the DOL, Treasury and HHS to consider expanding (within 120 days) access to and availability to health reimbursement arrangements (HRAs), including rules to “allow HRAs to be used in conjunction with nongroup coverage.” Presumably, this guidance would also extend to “employer payment plans” (EPPs), a similar arrangement that only reimburses premiums (and not other cost-sharing).

Any guidance issued in accordance with items one and two above would likely have a relatively small impact on employer-sponsored health insurance (ESI) plans of large employers. But new guidance consistent with item three could fundamentally transform how employers provide ESI — the source of coverage for over 170 million Americans — upending the traditional ESI structure that has been commonplace since ESI’s inception during the World War II era. This transformation would occur to the extent employers replace their traditional ESI plans (e.g., health maintenance organizations (HMOs) and preferred provider organizations (PPOs)) with HRAs or EPPs that pay for individual insurance coverage on the ACA exchanges or a private exchange (generally referred to as “stand-alone HRAs”).

The key unanswered question, however, is just how many of 170 million or so Americans with traditional ESI will employers send to the individual market?

Before the ACA, Stand-Alone HRAs and EPPs Were Permitted, Albeit Inviable

Stand-alone HRAs and EPPs are not a new concept; rather, they were permitted before the ACA was enacted. Yet employers rarely utilized those plans — in large part, because the lack of individual market protections made stand-alone HRAs and EPPs impractical for many employees. But because the ACA imposes guaranteed issue, community rating and other substantive insurance protections, stand-alone HRAs and EPPs are arguably a viable alternative to traditional ESI plans — and would still provide significant tax benefits to employers and employees.¹

How HRAs and EPPs Operate

An HRA is an account-based plan that an employer can use to reimburse, tax-free, an employee for out-of-pocket medical expenses and health insurance premiums paid by the employee, the employee’s spouse or the employee’s eligible dependent children (to the extent the employee did not originally pay those amounts on a pretax basis). Unused HRA amounts may carry over for use by the employee in future years. Similarly, an EPP allows an employer to reimburse an employee tax-free for an insurance premium, but not other medical expenses.

Agency Guidance Currently Prohibits Most Stand-Alone HRAs and EPPs

A number of the ACA’s market reform requirements apply to “group health plans.” HRAs and (arguably) EPPs are group health plans for this purpose. As such, they must comply with all applicable ACA requirements. Since 2013 the agencies have taken the position that stand-alone HRAs and EPPs (i.e., that are used solely to pay for individual insurance coverage) violate two ACA requirements for group health plans:

1. Required Coverage of Preventive Health Services: The ACA requires non-grandfathered group health plans to provide certain preventive services (e.g., contraceptives) without imposing any cost-sharing requirements for these services. The agencies have taken the position that because HRAs and EPPs contain reimbursement limits, they violate this requirement.
2. Prohibition of Annual and Lifetime Limits on Essential Health Benefits (EHBs): The ACA also prohibits group health plans (including grandfathered plans) from imposing annual or lifetime limits on EHBs. The agencies similarly view HRAs and EPPs as violating these requirements because those plans do not provide for unlimited reimbursements of EHBs.²

Some have argued that EPPs do not violate these ACA requirements because they only reimburse premiums, which are not a type of EHB. The agencies have expressly rejected that argument.

The penalties for a stand-alone HRA that violates these ACA rules are hefty. The Internal Revenue Code, for example, imposes excise taxes under Section 4980D of up to $100 per day per plan participant.

Narrow Statutory Exemptions Exist for Certain Stand-Alone HRAs and EPPs

There are a few limited exceptions where stand-alone HRAs or EPPs can be used without violating the ACA’s market reform rules:

1. Plans That Cover No More Than One Current Employee: The ACA’s market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year (e.g., a retiree-only HRA). Separate stand-alone HRAs and EPPs are generally aggregated for this purpose, so an employer cannot establish separate plans to rely on this exemption.
2. Limited-Scope Plans: The ACA’s market reforms similarly do not apply to HRAs that only reimburse “excepted benefits” (e.g., dental and vision expenses or premiums).
3. Qualified Small Employer HRAs: Lastly, the ACA does not apply to “Qualified Small Employer Health Reimbursement Arrangements” (QSEHRAs). QSEHRAs are specifically authorized by statute as a result of the 21st Century Cures Act, which was enacted on December 13, 2016. QSEHRAs are only available to an employer that employs fewer than 50 full-time employees (including full-time equivalent employees) in the previous year (determined using the counting method under the ACA’s employer mandate rules). QSEHRAs are also subject to a number of other substantive requirements and limitations. For example, the QSEHRA must limit annual reimbursements to $4,950 for employee-only coverage and $10,000 for family coverage.

Will Employers Terminate their Traditional ESI Plans?

When compared to the “hands off” approach of simply paying for employees’ individual insurance premiums via a stand-alone HRA or EPP, sponsoring a major medical ESI plan (particularly a self-funded plan) is costlier with regard to administration and legal compliance.3 But legal and administrative costs aside, not every employer would likely take advantage of the opportunity to replace their current ESI coverage with a stand-alone HRA or EPP.Rather, employers would likely take into account a number of factors, such as:

• Collective Bargaining Concerns: For employers with unionized populations, many of their collective bargaining agreements may require the employer to offer specific coverage. Replacing that ESI coverage with a stand-alone HRA or EPPs would almost certainly violate those collective bargaining agreements. (Similarly, replacing non-union employees’ ESI coverage with stand-alone HRAs or EPPs might cause those employees to considering joining their co-worker’s union.)
• Size, Nature and Diversity of Workforce: Depending on the make-up of the employer’s workforce, offering traditional ESI coverage might be a competitive necessity. Around 60 percent of large employers sponsor a self-funded ESI, which allows for greater control over plan design and benefits. If an employer opts to use a stand-alone HRA or EPP, however, employees will be limited to choosing from whichever options are available on the individual market. For example, employers with large populations of highly skilled workers (e.g., tech companies) might find it difficult to attract the necessary talent without a traditional ESI plan.
• Stability of the Individual Insurance Market: Over the past nine months, state individual insurance markets have become increasingly unstable, with premiums set to increase substantially in a number of states. The Trump administration’s announcement last week to eliminate cost-sharing reduction payments to insurers will certainly increase market instability — causing at least a 20-percent premium spike for certain plans in 2018 alone, according to the Congressional Budget Office. Both employers and employees are unlikely to see much value in stand-alone HRAs and EPPs unless there is viable coverage to purchase in the individual market.

According to a recent survey from the benefits consulting firm Mercer, 16 percent of surveyed employers said they would consider using a stand-alone HRA for all eligible employees if it were legal; 8 percent said they would consider it for part-time or some other subset of employees; 21 percent said they might consider it depending on the strength of the individual market; 42 percent said they might consider it, but that their decision depends on whether adequate funding is allowed; and 34 percent said they would not consider using a stand-alone HRA regardless of legality.

Would Agency Guidance Allowing Stand-Alone HRAs and EPPs Survive a Court Challenge?

A challenge to any guidance implemented by the agencies in accordance with the executive order’s instructions seems inevitable—especially with the prospect of employees losing their ESI coverage and being sent to the insurance exchanges with HRAs or EPPs. Such a case would seem to (at least in part) center on the interpretation of (1) the ACA statutes regarding preventive care and annual and lifetime limits; and (2) with regard to EPPs, potentially the statutory definition of “group health plan”.

One obstacle for the administration, for example, could include that in 2016 Congress statutorily exempted QSEHRAs from the ACA’s market reform rules. Does that legislation effectively validate the agencies’ positions that stand-alone HRAs and EPPs otherwise violate the ACA? Or was the legislation simply the product of necessity given that there was a Democratic president at the time? The latter argument is arguably a difficult one to defend because Congress passed the 21st Century Cures Act in December 2016 — after Trump won the election.

Could Employers Use Stand-Alone HRAs and EPPs to Send their Sick Employees to the Exchanges?

When the ACA was passed in 2010, the Obama administration expressed concern that because the ACA required guaranteed issue and community rating in the individual market, employers would “dump” their sicker employees on the exchange. The possibility of stand-alone HRAs and EPPs has renewed those concerns among healthcare economists and policy experts — that is, whether employers could selectively offer stand-alone HRAs and EPPs to their sicker employees, while maintaining traditional ESI for other employees.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) specifically prohibits this approach:

A group health plan, and a health insurance issuer offering health insurance coverage in connection with a group health plan, may not establish any rule for eligibility (including continued eligibility) of any individual to enroll for benefits under the terms of the plan or group health insurance coverage that discriminates based on any health factor that relates to that individual or a dependent of that individual.⁴

But even with these HIPAA protections, the risk of health-status discrimination is arguably higher when employers have the option of stand-alone HRAs and EPPs. Employers arguably could offer both stand-alone plans and traditional ESI and impose indirect and less transparent restrictions on the ESI plan to entice sicker employees to opt for exchange coverage (e.g., eliminating coverage for certain benefits and reducing the number of specialists in the plan’s provider network). And although such restrictions arguably still violate HIPAA when their purpose is to discriminate against sicker workers, it would be up to the executive agencies to detect and police those violations — or for participants to challenge the discriminatory practices in federal court.

Similar discrimination issues could arise for employers that adopt stand-alone HRAs or EPPs to pay for active employees’ Medicare Part B or D premiums and expenses — particularly if active employees are given a choice between traditional ESI coverage and more generous HRA or EPP coverage. The Medicare secondary payer (MSP) rules generally prohibit employers from offering Medicare-eligible individuals “financial or other benefits as incentives not to enroll in, or to terminate enrollment in, a GHP that is, or would be, primary to Medicare.” The applicable regulation specifically prohibits offering “an alternative to the employer primary plan (for example, coverage of prescription drugs) unless the beneficiary has primary coverage other than Medicare.” Stand-alone HRAs or EPPs that are designed to entice Medicare-eligible employees to switch from traditional ESI coverage to Medicare would arguably violate this requirement. One type of problematic arrangement, for example, would be where the employer offers all employees (for optics purposes) a choice between (1) a high-deductible, self-funded ESI plan, or (2) a stand-alone EPP that can only be used to pay for eligible Medicare expenses.⁵

What Lies Ahead

As stated above, the executive order does not actually change the law. So although it seems likely that the agencies will issue guidance expanding the availability of stand-alone HRAs and EPPs, the specifics of that guidance — and its specific impact — remain elusive. And given that the order instructs to agencies to propose “rules,” which are subject to a number of procedural and timing requirements under the Administrative Procedure Act, it is highly unlikely that such agency guidance will be released before the end of this year. But once formal guidance on this topic is issued, it could lead to a new era of ESI — unless the guidance is successfully challenged in court.

_____________

¹  The federal tax exclusion for payments to and benefits under ESI coverage is the largest tax “expenditure” in the United States, which saves about $250 billion in income taxes (employees) and FICA taxes (both employees and employers) annually.

²  The agencies do not prohibit HRAs and EPPs that are properly “integrated” with ACA-compliant ESI coverage, such as an HMO that does not place annual or lifetime limits on EHBs and meets the ACA’s preventive care and other requirements. A number of requirements must be met for the HRA or EPP to be considered integrated for this purpose, but the general premise behind integration is that the HRA and other ESI plan are essentially treated as a single, ACA-compliant plan.

³  HRAs and EPPs are “minimum essential coverage” for purposes of the ACA’s employer mandate rules, so absent contrary guidance, employers that replace their traditional ESI plans with stand-alone HRAs and EPPs can do so without risking exposure to employer mandate penalties.

⁴  Treas. Reg. §54.9802-1(b)(1)(i); DOL Reg. §2590.702(b)(1)(i); HHS Reg. §146.121(b)(1)(i).

⁵  In theory, a Medicare-reimbursement EPP might be permissible if it were the only ESI plan offered to active employees, but it would be completely impractical for an employer offer such an arrangement as the only ESI available to employees.

The Executive Order has three main points, each directing a different organization to revisit restrictions of the Affordable Care Act.

“The order directs the Secretary of Labor to consider expanding access to Association Health Plans (AHPs), which could potentially allow American employers to form groups across State lines.”

If the DOL allowed a broader interpretation of (or changes to) the Employee Retirement Income Security Act, organizations with similar functions could collaborate to purchase insurance at a lower rate. These types of plans would be exempt from many rules governing ACA marketplaces.

“The order directs the Departments of the Treasury, Labor, and Health and Human Services to consider expanding coverage through low cost short-term limited duration insurance (STLDI).”

STLDI is not subject to the majority of ACA provisions and, as such, is generally much less expensive. It is meant to provide gap coverage for participants between jobs or help individuals who missed the open enrollment window. Because STLDI is not subject to ACA consumer protection rules, plans do not cover preexisting conditions and may not cover treatments participants need. The executive order seeks to expand the maximum duration of short-term health insurance, giving those without preexisting conditions a cheaper alternative to marketplace plans.

“The order directs the Departments of the Treasury, Labor, and Health and Human Services to consider changes to Health Reimbursement Arrangements (HRAs) so employers can make better use of them for their employees.”

The executive order seeks to further extend the use of HRAs for small businesses to more easily provide health insurance to employees. HRAs do not count as taxable income under the IRS, and they allow small employers who could not otherwise afford to offer health insurance a means to reimburse employees for premiums and deductibles. However, limitations on HRAs can make this option less attractive to employers.

It’s important to remember that executive orders are a way of showing the administration’s intention and directing agencies to consider making adjustments – this order does not change the Affordable Care Act, which remains in effect.

LIMRA Secure Retirement Institute finds many retirees underestimate their retirement expenses in the areas of basic living expenses, health care and long-term care expenses, and discretionary expenses with the biggest disparity in the area of health care and long-term care expenses.*

The Institute finds more than 40 percent of retirees find their health care and long-term care costs in retirement are higher than they planned or estimated. This is true across all demographics, income and asset levels.

About a quarter experienced higher than anticipated basic living expenses, and 23 percent had higher than planned discretionary expenses. Additionally, 15 percent of retirees who had higher than expected basic living expenses also gave health care cost as their reason for having higher than expected basic living expenses.

While some discretionary spending can be controlled and adjusted by the retiree, underestimating basic living expenses and health and long-term care expenses can undermine the retiree’s quality of life.

LIMRA Secure Retirement Institute research shows, on average, about 13 percent of a retiree’s income is spent on health and long-term care expenses. For example, if a retiree’s spending equaled their income and their income was $80,000, about $10,400 would be spent on health care and long-term care expenses.

Having a formal plan for retirement didn’t prove to completely solve the problem of underestimating the costs of health and long-term care. Forty-three percent of those with a retirement plan still underestimated these costs. Advisors need to educate their clients on health care cost risks as an important component for retirement planning.

Planning ahead can help. Health savings accounts (HSAs) are a great way save for health care expenses prior to your retirement years. Since HSA funds do not have to be used in the year they are saved, they can remain in the account and used to help offset higher than expected healthcare costs. Additional LIMRA Secure Retirement Institute research showed that 74 percent of consumers participating in an HSA indicated that HSAs are a part of their retirement strategy.

* LIMRA Secure Retirement Institute conducted the survey in early 2017. More than 2,000 U.S. consumers ages 50–79 who a) retired at least one year earlier, b) were involved in the household’s financial decisions, and c) had annual household incomes of at least $35,000 participated. The results were weighted to demographic characteristics to ensure the results represented the U.S. population.

The Internal Revenue Service has released Revenue Procedure 2017-36 to implement index adjustments in 2018 for certain Affordable Care Act (“ACA”) contribution percentages used for purposes of determining affordability under the employer shared responsibility mandate.

Background: Under the ACA, contribution percentages are used to determine: (i) whether an Applicable Large Employer (“ALE”) is subject to the ACA’s employer shared responsibility penalty for failing to provide affordable coverage that provides minimum value to a full-time employee, (ii) whether an individual is exempt from the ACA’s individual mandate penalty due to lack of access to affordable coverage, and (iii) the amount of an eligible taxpayer’s ACA premium tax credit.

NOTE: ALEs are employers that had 50 or more full-time equivalent employees during the preceding calendar year.

The ACA’s employer shared responsibility rules require ALEs to offer affordable, minimum value health coverage to full-time employees. The ACA provides that an ALE’s coverage is affordable if the employee’s required contribution for self-only coverage does not exceed a certain percentage of the employee’s household income for that tax year. ALEs that fail to provide affordable coverage are liable for a penalty of $3,000 per year per each full-time employee who receives a premium tax credit through an Exchange.

Revenue Procedure 2017-26. For 2018, the required contribution percentage has decreased to 9.56% (from 9.69% in 2017). This means that if an employee’s share of the premium for employer-provided coverage (in 2018) is more than 9.56% of his or her household income, the coverage is not considered affordable for that employee and the ALE may be liable for a penalty if that employee obtains a premium tax credit through an Exchange.

Revenue Procedure 2017-36 is available at: https://www.irs.gov/pub/irs-drop/rp-17-36.pdf