How association health plans and short-term insurance could damage the health care law.
With the failure by Republicans in Congress to repeal Obamacare this year, President Trump is taking matters into his own hands, signing an executive order Thursday that targets the health care law.
Trump is asking federal agencies to look for ways to expand the use of association health plans, groups of small businesses that pool together to buy health insurance, and to broaden the definition of short-term insurance, which is exempt from the Affordable Care Act’s rules, administration officials said.
The ultimate impact will depend on any new regulations written as a result of the order, but overall, the Trump administration could make cheaper plans with skimpier benefits more available — and experts worry that will damage the ACA’s marketplaces.
“The president still firmly believes that Congress must act to repeal and replace Obamacare, but before that can be done, this administration must act to provide relief,” Andrew Bremberg, who oversees domestic policy at the White House, told reporters Thursday morning. “We expect these policy changes to potentially benefit tens of millions of Americans over time.”
Policy experts warn that together, these changes could represent a serious threat to Obamacare: Trump wants to open more loopholes for more people to buy insurance outside the health care law’s markets, which experts anticipate would destabilize the market for customers who are left behind with higher premiums and fewer insurers.
The fear is that Trump’s action could lead to many association health plans being exempted from core Obamacare requirements like the coverage of certain essential health benefits. It could also potentially allow some individuals to join these plans too, which could hurt the individual insurance marketplaces by drawing younger and healthier people away from them. In much the same way, short-term insurance could also take healthier people out of the law’s markets.
The effect won’t be immediate: Administration officials said they didn’t expect any new regulations to be implemented before the end of the year. But Trump’s order does present a long-term risk to the ACA.
“The clear intent of the executive order is to create a parallel insurance market exempt from many of the consumer protections in the Affordable Care Act,” Larry Levitt at the Kaiser Family Foundation told me. “This has the potential to siphon off healthy people with skinnier benefits and cheaper premiums, leaving behind a sicker pool of people under ACA plans.”
Association health plans, explained
An association health plan, as Vox’s Sarah Kliff has previously explained, is a way for a group of small businesses to pool together to buy insurance, giving them more purchasing power and access to cheaper premiums. A group of bakeries, for example, might form a bakers association and purchase health coverage together. The most famous examples have been farm bureaus, which allowed independent farming businesses to band together and get insurance.
Before Obamacare, national associations could pick and choose which states’ insurance rules they wanted to follow and use those rules to guide the plans they offered nationwide. The bakers association could choose to follow the rules for, say, the Alabama insurance market, which mandates coverage of relatively few benefits, for all its bakeries in New York, a state with many mandates.
The result was often health insurance that skirted state rules and was a better deal for businesses with young and healthy employees, who are likely to prefer skimpier health plans. A former insurance regulator described the situation prior to the ACA to Kliff as being “a race to the bottom, with some associations offering lower-cost plans that covered virtually nothing.”
Obamacare changed these rules. Association health plans were treated as small businesses and were therefore required to cover all of the law’s mandated benefits.
Essential health benefits, requiring that insurers cover everything from hospital care to prescription drugs to maternity care, are central to the ACA’s insurance protections: They prevent plans from crafting their coverage to attract mostly young and healthy customers at the expense of older and sicker people.
Why Trump’s executive order undercuts Obamacare
Trump is now looking to roll back those changes.
Under the executive order, new regulations would seek to expand the use of association health plans, easing federal rules that require associations be from the same state and that prevent associations from forming exclusively to provide health coverage.
The result could in many cases be that these new association health plans would be considered large employers when it comes to health insurance. Large employers are not subject to the same rules as individual or small-group plans under Obamacare. Most notably, they do not have to cover all of the law’s essential health benefits or meet the requirement that insurance cover a minimal percentage of a person’s medical bills.
If that change were made, association health plans would be freed to craft skimpier (and cheaper) health plans that appeal only to businesses with younger and healthier employees. Small businesses left in Obamacare’s marketplace would likely face higher costs and fewer options as the market became less attractive to insurers.
“It will destroy the small-group market,” Tim Jost, a law professor at Washington and Lee University who generally supports Obamacare, told me before the order was signed. “We’ll be back to where we were before the Affordable Care Act.”
The order did not specify whether individuals would also be allowed to buy into these association health plans. But according to a source familiar with their drafting, the regulations resulting from the order could be written to allow self-employed people to buy into the association market, which would be an even bigger blow to Obamacare.
“That is a question that will be considered in the rulemaking process,” a senior administration said Thursday, indicating that self-employed people could potentially be allowed to buy into association plans.
The individuals likely to flee the Obamacare markets for association plans would probably be younger and healthier, leaving behind an older, sicker pool for the remaining ACA market. That has the makings of a death spiral, with ever-increasing premiums and insurers deciding to leave the market altogether.
“The ability for individuals to purchase health insurance through an association really puts the individual market at risk and destabilizes it over the long term,” Kevin Lucia, who studies the market at Georgetown University, told me before the order had been signed. “When you have market segmentation, it over time leads to higher premiums and it becomes less attractive to carriers.”
Expanded short-term coverage could also damage the health law
Trump’s executive order also looks to expand what’s called short-term limited duration insurance. These short-term policies typically have higher out-of-pocket costs and cover fewer services than traditional insurance. They were designed for people who, for example, expect to be out of work, and therefore without insurance, for a limited period of time.
That kind of coverage is totally free from the health care law’s insurance regulations: the mandate to cover essential health benefits, the prohibition on charging sick people more than healthy people or denying people coverage based on their medical history, and so on.
Short-term insurance had previously been allowed to last as long as 364 days. The Obama administration, in an effort to curtail the use of such coverage to circumvent the health care law, shortened it to three months. Trump’s order could reverse that rule, potentially allowing people to once again buy this non-Obamacare coverage for almost an entire year.
The effect would be much the same as the changes to association health plans: Healthier people would be the consumers most likely to use this escape hatch to find cheaper, if far less comprehensive, coverage outside of Obamacare — though they would still be subject to the law’s individual mandate, as short-term insurance is not considered sufficient coverage.
“If you allow them to sell 364-day policies, or policies that are renewable, that’s just going to suck a lot of the healthy people out of the individual market,” Jost said.
Here, again, fewer healthy people in the Obamacare market means higher costs to insurers, which leads to higher premiums and possibly more insurers dropping out.
“Consumers are going to face a less stable, less competitive individual market,” Lucia said.
Congress has so far failed to repeal the ACA, but Trump still has considerable authority to undermine the law. This new executive order is the biggest threat to Obamacare yet.