Executive Order Will Destabilize Insurance Market
President Trump is expected to sign an executive order soon designed to further sabotage the Affordable Care Act, or Obamacare. This move is one among many actions his administration has taken since January to undermine the ACA. These actions have already contributed to steep premium increases for 2018 Marketplace coverage, and the new executive order, depending on the final details, is likely to further destabilize a market (that had been improving), drive up premiums, and cause insurers to flee the Marketplace.
The order is expected to allow less-comprehensive plans that can cherry-pick the healthiest enrollees and make coverage unaffordable for people with pre-existing conditions. The executive order is expected to have two pieces: allowing “association health plans” to skirt ACA requirements, and an expansion of short-term policies.
Association health plans
Association health plans allow small businesses (and possibly under the executive order or rules that will follow, self-employed individuals as well) to band together to buy coverage. These plans are currently subject to ACA requirements for small employer coverage, but the executive order is expected to undo that requirement. Association plans would no longer be subject to the ACA’s essential health benefits, which requires a standard and comprehensive level of coverage including maternity, mental health and substance use disorder care, hospitalization, ER services, etc. They would also be allowed to charge each small business premiums based on the health of the group, which is not allowed under the ACA. When the president or others talk about “allowing people to buy insurance across state lines” in the executive order, they are referring to association health plans.
One risk with association health plans is that they will create an unlevel playing field and effectively split the small employer market in two. They will siphon off the small employers, and possibly self-employed individuals, who are healthier and attracted to cheaper, bare-bones coverage. Groups who cannot get association coverage or who need comprehensive policies will stay in the ACA-compliant market, where premiums will rise and options may shrink.
Association plans pose risks for consumers, as well. Because they are subject to little oversight, association plans have had a history of fraud and insolvency, leaving consumers with unpaid medical bills.
The executive order is also expected to allow people to enroll in short-term plans—plans designed to fill temporary gaps in coverage—for long periods of time. Today, people can get coverage in short-term plans, which are not subject to any ACA consumer protections, for only 90 days. Short-term plans can deny coverage to people with pre-existing conditions or charge them higher premiums. Short-term plans often have skimpy benefits and very high deductibles that would not comply with the ACA. Letting skimpy, short-term plans become a source of primary and ongoing coverage will create inexpensive coverage options for healthy people. People with pre-existing conditions or in need of comprehensive benefits could only get coverage in the ACA-compliant market, where premiums would rise as the average status of the remaining population covered became less healthy because of the departure of healthier individuals.
Implications for Texas
Today, approximately 1.7 million Texans get their coverage in the individual market (coverage purchased directly from an insurer, not through a job, whether in or outside of the Marketplace). Roughly half of Texans in the individual market get subsidies to lower premiums in the Marketplace and the other half pay full cost, either in or outside of the Marketplace. People who qualify for premium subsidies will largely be shielded from rate hikes, but over time, if the Marketplace becomes a de facto high risk pool, insurers may stop selling Marketplace coverage. That could mean low- and moderate-income Texans enrolled in the Marketplace today would have no affordable options – subsidies are not available for coverage outside of the Marketplace. Middle-class people who pay full cost in the individual market today and who can’t switch to bare-bones plans—because they need comprehensive coverage or have a pre-existing condition and would thus be denied a short-term policy—will be hard hit as premiums rise.
Roughly another 1 million Texans are covered in policies through small employers. Firms with younger and healthier employees will likely find cheaper and skimpier association plans, but costs will rise for other firms. For reference, Texas is home to over 27 million people, and about 15 million of them are covered by private health insurance though a job or the individual market.