August 9, 2016 Submitted Electronically Via Federal Rulemaking Portal: www.regulations.gov Attention: CC:PA:LPDD:PR REG-135702-15 Internal Revenue Service P.O. Box 7604 Ben Franklin Station Washington, DC 20044 RE: Proposed Rule on Expatriate Health Plans, Expatriate Health Plan Issuers, and Qualified Expatriates; Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited Duration Insurance To Whom It May Concern: The U.S. Chamber of Commerce (the Chamber ) submits these comments in response to the Proposed Rule on Expatriate Health Plans, Expatriate Health Plan Issuers, and Qualified Expatriates; Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited Duration Insurance ( Proposed Rule ) issued by the Department of Treasury, the Department of Labor, and the Department of Health and Human Services ( the Departments ). As requested, these written comments are being submitted to the Department of Treasury with the understanding that they will be shared with the other Departments. 1 This Proposed Rule applies to expatriate health plans, expatriate health plan issuers, and qualified expatriates under the Expatriate Health Coverage Clarification Act of 2014 (EHCCA) as enacted as Division M of the Consolidated and Further Continuing Appropriations Act of 2015 and offers conforming amendments to certain regulations to implement the provisions of the EHCCA. 2 Further, the Proposed Rule offers standards for travel insurance and supplemental health insurance coverage to be considered excepted benefits and revisions to the definition of short-term, limited duration insurance for purposes of the exclusion from the definition of individual health insurance coverage. 1 Proposed Rule, 81 Fed. Reg. 38020-38048 (June 10, 2016)(to be codified at 26 CFR Parts 1, 46 et al) [hereinafter referred to as the Proposed Rule ] https://www.gpo.gov/fdsys/pkg/fr-2016-06-10/pdf/2016-13583.pdf. 2 Consolidated and Further Continuing Appropriations Act, 2015, Section 2, Division M, Pub. L. No. 113-235 (2014) [hereinafter referred to as the Expatriate Health Coverage Clarification Act or EHCCA ]. https://www.congress.gov/113/plaws/publ235/plaw-113publ235.pdf. 1
The Proposed Rule affects expatriates with health coverage under expatriate health plans and sponsors, issuers and administrators of expatriate health plans, individuals with and plan sponsors of travel insurance and supplemental health insurance coverage, and individuals with short-term, limited-duration insurance. In addition, the Proposed Rule amends a reference in the final regulations relating to prohibitions on lifetime and annual dollar limits and requires that a notice be provided in connection with hospital indemnity and other fixed indemnity insurance in the group health insurance market for it to be considered excepted benefits. The Chamber is the world s largest business federation, representing the interests of more than three million businesses and organizations of every size, sector and region, with substantial membership in all 50 states. More than 96 percent of the Chamber s members are small businesses with 100 or fewer employees, 70 percent of which have 10 or fewer employees. Yet, virtually all of the nation s largest companies are also active members. Therefore, we are particularly cognizant of the problems of smaller businesses, as well as issues facing the business community at large. Besides representing a cross-section of the American business community in terms of number of employees, the Chamber represents a wide management spectrum by type of business and location. Each major classification of American business manufacturing, retailing, services, construction, wholesaling, and finance is represented. These comments have been developed with the input of member companies with an interest in improving the health care system. OVERVIEW The purpose behind the enactment of the EHCCA is well documented in the law s Sense of Congress. Congress believed that American expatriate health insurance companies should be permitted to compete on a level playing field in the global marketplace; that global competitiveness of American companies should be encouraged and the importance of recognizing the unique and multinational features of expatriate health plans. EHCCA was enacted to encourage global competitiveness and providing these plans flexibility is critical. For these reasons, we urge the Departments to instead adopt greater flexibility in regulating these plans and caution against regulatory overreach by adding additional hurdles that were not intended or contemplated by the statute. There are five particular elements discussed in the Proposed Rule that are problematic and overly prescriptive. If finalized, these regulatory proposals would render an overly narrow and restrictive application of the flexibility that the EHCCA was designed to provide: the compliance deadline or effective date; the new regulatory definition of substantially all; the new notice requirement for electronic furnishing of statements; the truncated term for short-term, limited duration insurance; and travel requirements for expatriates. The Chamber has discrete concerns regarding each of these sections and recommends substantive changes for these provisions in the Final Rule. Untenable Proposed Effective Date The Proposed Rule includes an effective date of January 1, 2017, for plan years beginning on or after that date. This affords only five months which is insufficient. Plans have already begun to renew for coverage effective January 1, 2017, and later dates and we urge the Departments to 2
instead include an effective date of January 1, 2018, in the final rule for plan years beginning on or after that date. Arbitrary Statistic Imposed to Satisfy Substantially All Requirement The EHCCA defines an expatriate health plan to mean a group health plan, health insurance coverage offered in connection with a group health plan or health insurance coverage offered to a group [in which] substantially all of the primary enrollees are qualified expatriates. 3 With respect to U.S. employees, a qualified expatriate means an individual that is a national of the United States who is working outside the United States for at least 180 days in a consecutive 12- month period that overlaps with a single plan year, or across two consecutive plan years. The Proposed Rule further provides that an expatriate plan satisfies the substantially all enrollment requirement if, on the first day of the plan year, less than 5 percent of the primary enrollees are not qualified expatriates (effectively a 95 percent threshold). 4 The Chamber disputes this proposed arbitrary and highly restrictive requirement both on the timing the first day of the plan year and the exceedingly high statistic 95 percent, as well as the purported need for this prescriptive approach. Instead, we urge the Departments to permit the flexibility that the EHCCA was enacted to provide. As proposed, the requirements for measuring the number of qualified expatriates on the first day of the plan year are difficult to understand. For instance, should someone covered under an expatriate plan on January 1, 2017, be counted as a qualified expatriate if he or she is a U.S. national hired on August 1, 2016, and sent abroad for a 6-month service project on September 1, 2016? Or, must someone have already satisfied the criteria on the first day of the plan year? Instead, an expected to be standard is more practical and should be adopted. Under such a standard, any person covered under the plan as of the first day of the plan year who has been or is expected to be working outside of the U.S. for at least 180 days in the relevant time period, can be treated as a qualified expatriate. Secondly, instead of creating an arbitrary and exceedingly high numeric threshold where none exists in statute, the Departments should allow insurers to make a good faith effort to meet the requirements that are included in the statute. Had the legislators intended to provide a statistical threshold, they would have included it in the statute. None is included and it is not the Departments role to fabricate one in order to protect against theoretical potential abuses which have yet to be identified as occurring. Eviscerated Deemed Consent for Electronic Delivery In an effort to provide additional flexibility, the EHCCA creates a special exception for applicable large employers with regard to Section 6055 of the Internal Revenue Code or Sections 4980H and 6056. This provision states that the primary insured shall be deemed to have consent to receive the statements in electronic form. 5 3 Expatriate Health Coverage Clarification Act, Section 2, Division M, Section 3(d)(2)(A), Pub. L. No. 113-235 (2014) https://www.congress.gov/113/plaws/publ235/plaw-113publ235.pdf. 4 Proposed Rule, 81 Fed. Reg. at 38,026. 5 Expatriate Health Coverage Clarification Act, Section 2, Division M, Section 3(b)(2), Pub. L. No. 113-235 (2014). 3
The Chamber is not only concerned with the Proposed Rule s categorization of this exemption, but more importantly disputes the proposal requiring notice to be provided for consent to have been received. The Proposed Rule restates the EHCCA exception improperly before even proposing this new notice requirement by categorizing it as permitting the use of electronic media to provide the statements required under sections 6055 and 6056 of the Code to individuals for coverage under an expatriate health plan. 6 The EHCCA does not merely permit the use of electronic media which is allowed under the Affordable Care Act (ACA) itself, instead it creates an exception and affirmatively states that primary insureds shall be deemed to have consented. The entire purpose of this exception in EHCCA is to allow applicable large employers to transmit via electronic media the statements that are required under Sections 6055 and 6056. Instead, the Proposed Rule creates an additional notice requirement by misreading this statutory exception. For the recipient to be treated as having consented under this special rule, the furnisher must provide a notice in compliance with the general disclosure requirements under sections 6055 and 6056 that informs the recipient that the statement will be furnished electronically unless the recipient explicitly refuses to consent to receive the statement in electronic form. The notice must be provided to the recipient at least 30 days prior to the due date for furnishing of the first statement the furnisher intends to furnish electronically to the recipient. Absent receipt of this notice, a recipient will not be treated as having consented to electronic furnishing of statements. 7 While the EHCCA statute created an exception that deems the insured s consent, the Proposed Rule is creating a new notice requirement for applicable large employers. This not only eviscerates the statutory exception that the EHCCA enacted, but imposes an additional burden on employers despite efforts to level the playing field in the global marketplace and encourage global competitiveness. We urge the Departments to eliminate this new unlawful notice requirement in the final rule. Arbitrary New Limitations Restrict Choice and Curtail Flexibility The Departments create several new limitations that will improperly and unnecessarily hinder the ability of individuals to purchase and obtain coverage that is lawful. By imposing a three-month durational limit on short-term, limited duration insurance coverage, and by restricting the type of coverage that can be provided under hospital indemnity or other fixed indemnity insurance, the Departments are legislating by regulation. The Chamber urges the Departments to eliminate the proposals to limit the duration of short-term coverage to three months. Most states permit longer coverage periods for these plans, and as discussed below, limiting the duration of short term coverage does not effectively curb the 6 Proposed Rule, 81 Fed. Reg. at 38,030. 7 Proposed Rule, 81 Fed. Reg. at 38,030. 4
abuses that CMS seeks to address. Similarly, the Departments should not finalize the proposed requirements that carriers can only vary the benefits under fixed or hospital indemnity coverage based on the number of days, rather than the number or type of services. The Chamber urges the Departments to eliminate proposals to limit the number of diseases that a fixed indemnity plan can cover. Not only are they permitted by states, but they exist in the market today and are valued options. Many carriers combine different diseases in these plans as a trigger event and restricting this would make coverage more expensive should individuals then be required to purchase separate coverage for each disease. Short-Term Limited Duration Insurance Coverage Short-term coverage serves an important purpose for consumers who may need to bridge a gap that may occur during a coverage transition (e.g., the gap in coverage that occurs when an individual changes jobs and loses coverage with its previous employer prior to the effective date of coverage with the individual s new employer). The Chamber recognizes that there has been some inappropriate use of short-term limited duration coverage, with more and more individuals relying on these products, reducing the number of people purchasing minimum essential coverage (MEC) which poses a threat to the long-term health of the ACA marketplace risk pool. However, the Chamber does not believe that the proposal to impose a three-month durational limit on short-term limited duration insurance coverage is an appropriate way to address the problem. Limiting a short-term limited duration product to a period of less than three months does not prevent a consumer from buying multiple products from different insurers and further, is not a restriction that is based in statute. The Chamber believes that the abuses in this market would be better addressed through disclosures to consumers explaining the nature of the coverage, that it does not constitute (MEC), and making consumers aware of the availability of subsidies and cost-sharing reductions to assist in the purchase of MEC. Travel Requirements There are a variety of travel requirements included in the Proposed Rule that should be eliminated. With regard to Category A qualified expatriates, we urge the Departments to eliminate a categorical rule that an individual does not need expatriate coverage unless he/she travels outside the U.S. at least once per year. This type of coverage may be needed for other reasons and the rule cannot be administered as proposed since neither the insurer nor the employer can know the individual s travel habits. With regard to Category B qualified expatriates, we urge the Departments to eliminate the requirement that this category only applies to an individual who is a U.S. national. There is no statutory basis for this regulatorily created restriction and it would mean that third-country nationals working outside the U.S. would not qualify, and also not be able to be counted for purposes of the substantially all calculation. Many expatriate health plans cover individuals that are not U.S. nationals. The nationality of the individual should make no difference as to whether they can be covered on an expatriate health plan so long as they meet the travel requirement. 5
The Category C qualified expatriate travel rule should also be eliminated. The purpose of this category is to assist students and missionaries who are in the U.S. for their course of study or assignment. Requiring these individuals to travel or reside in the U.S. for no more than 12 months, and requiring these individuals to travel outside the US at least once in a twelve-month period, is unnecessarily restrictive. These two travel requirements relating to Category C qualified expatriates should be replaced instead with a temporary and specific purpose standard to better reflect the reason that these individuals are in the U.S. and to improve the ability of these individuals to obtain appropriate health coverage. Inadequate Economic Impact and Regulatory Flexibility Analyses The Proposed Rule in fact addresses several distinct policy issues, complicating any discussion of cost or benefit impacts. It is confusing and burdensome to the public to be asked to comment on a rulemaking proposal that is a hodge-podge of unrelated matters. The Departments have not provided any meaningful regulatory impact analysis in response to the requirements of Executive Orders 12866 and 13563, of the Regulatory Flexibility Act, the Paperwork Reduction Act or the Unfunded Mandates Act. The Departments claim, without any quantitative evidence, that the Proposed Rule does not impose an economically significant ($100 million annual cost) burden. Further, the Proposed Rule incorrectly asserts that a Regulatory Impact Analysis under the Executive Orders is not required for rules that are not are not economically significant. 8 The actual requirement of Executive Order 12688 is that economically significant status triggers the requirement to submit the regulatory impact analysis to OMB for independent review. There is no exemption from the general requirement that the regulating agencies examine and quantify the costs and benefits of the Proposed Rule approach and of alternative approaches. Indeed, the determination that a Proposed Rule is not economically significant cannot be made without some quantitative or qualitative regulatory impact analysis to determine what the actual cost may be. The rulemaking record is further deficient because it wholly lacks any consideration of alternative approaches. The duty of the Departments under the Executive Orders is to select a regulatory approach that is best among an array of alternatives (including the alternative of no regulation). Best in this context means the alternative that yields the greatest benefit in excess of cost, or that provides a given benefit at the least cost. Without the presentation and analysis of regulatory alternatives, the approach proposed appears to be arbitrary and not in compliance with the Executive Orders. The part of the proposal that addresses expatriate health plans appears to exempt such plans from rules that would otherwise impose compliance cost burdens. To the extent that it creates or clarifies exemptions, the Proposed Rule may actually reduce cost burdens on plan sponsors or insurance issuers compared to the status quo. However, the Departments failed to discuss any alternative formulations of the expatriate plan exemptions that might have broadened such exemptions. For example, what would be the impact of a less stringent enrollment threshold than the proposed requirement that less than five percent of the primary enrollees are not qualified 8 Proposed Rule, 81 Fed. Reg. at 38,034. 6
expatriates? The Departments do not present a reasoned analysis to support the selection of the benchmark proposed. What are the trade-offs in terms of cost impact on plan sponsors and issuers associated with other threshold alternatives? Why include a specific percentage benchmark at all? The lack of discussion of alternatives means that the public cannot readily comment on whether the proposed formulation, even if it does reduce costs, is the best approach and grants the greatest cost relief in relation to putative benefits. The failure to consider alternatives extends to other elements of the expatriate rule, including: (1) selection of the effective date, and; (2) proposed restrictions on the application of the statutory deemed consent provision for electronic delivery of statements. In these instances, the Departments also failed to demonstrate that they analyzed the cost of the proposed approach and compared it to available alternatives so as to select the one that yielded least cost or maximum net benefit. Distinct from the proposal regarding expatriate plans, the Proposed Rule offers numerous new or revised prescriptive rules regarding standards for travel insurance and supplemental health insurance coverage to be considered excepted benefits and revisions to the definition of shortterm, limited duration insurance for purposes of the exclusion from the definition of individual health insurance coverage. Each of these elements has its own associated costs and benefits, and these should be examined individually to demonstrate that the approach selected is the least costly or yields the greatest net benefit compared to available alternatives. Each separate rule element should be analyzed individually, not as a conglomeration of disparate rules. The Departments are statutorily required to assess the cost impact of the proposed rules on small entities. The discussion presented under Section V.D., Regulatory Flexibility Act of the Proposed Rule does not meet the minimum standards for a meaningful and credible analysis as required under the Regulatory Flexibility Act. 9 The Departments have not identified the number of small entities that may reasonably be affected. The Departments have not estimated the cost burdens that will be imposed on typical small entities that may be affected or on characteristic categories of such small entities. The Departments have not examined in any meaningful way the size of potential cost impacts relative to the revenues or profits of affected small entities. The Departments have not examined the impact of the Proposed Rule on the competitiveness of small entities within the affected industries. Because this Proposed Rule combines several distinct components, the regulatory flexibility analysis should be presented separately for each component. In Section V.E. of the Proposed Rule, Special Analysis Department of the Treasury, the Departments assert that Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866. 10 Exemptions to the requirements of Executive Order 12866 are delimited in Section 3(d) of the Order. There is no explicit exemption for IRS regulations listed. Section (3)(d)(4) grants to the OIRA Administrator the authority to exempt other categories of regulations, but a search of the OIRA website found no notice or memorandum listing any such supplemental exemptions. The IRS should provide further information to substantiate this claim of exemption. 9 Proposed Rule, 81 Fed. Reg. at 38035. 10 Proposed Rule, 81 Fed. Reg. at 38036. 7
CONCLUSION We encourage the Departments to continue to work carefully, pragmatically and cooperatively with the numerous stakeholders to minimize unnecessary costs for, and burdens on, employers and provide flexibility as employers work to comply with the law. We look forward to continuing to work together in the future. Sincerely, Randel K. Johnson Senior Vice President Labor, Immigration, & Employee Benefits U.S. Chamber of Commerce Katie Mahoney Executive Director Health Policy U.S. Chamber of Commerce 8