The president could use association health plans to badly damage the law’s markets.
With a repeal bill off the table, the Trump administration has drafted an executive order that could blow a huge hole in the Affordable Care Act, according to a source with direct knowledge of the plan.
The order would, in effect, exempt many association health plans, groups of small businesses that pool together to buy health insurance, from core Obamacare requirements like the coverage of certain essential health benefits. It would potentially allow individuals to join these plans too, which would put individual insurance marketplaces in serious peril by drawing younger and healthier people away from them.
The draft order is also said to broaden the definition of short-term insurance, which is also exempt from the law’s regulations. Together, these changes represent a serious threat to Obamacare: President Trump seems ready 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.
“This appears to be a backdoor way of undermining the Affordable Care Act,” Kevin Lucia, who studies the markets at Georgetown University, said of the alleged changes.
It’s possible that the order could change before Trump signs it, or never be signed at all, as has happened with other executive orders in the past. The details of the order as described, though, generally match up with what had been expected after Trump said he would soon issue an executive order on health care. Association health plans have been a priority for Sen. Rand Paul (R-KY), who has urged Trump to expand them.
The White House declined to comment when Vox inquired about the pending order. A senior administration official detailed the outline of the executive order to the Wall Street Journal on Saturday evening, which aligns with the description provided to Vox.
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 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. The 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, mandating 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, which had been one of the primary problems with the association health plan model before the law.
How Trump’s executive order could damage Obamacare
Requiring association health plans to follow the same rules as small businesses was one of the many ways the Affordable Care Act cracked down on skimpy health plans. Trump is now looking to roll back those changes.
Under the draft executive order as described, new regulations would allow association health plans to be considered large employers when it comes to health insurance. Large employers are not subjected 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. “We’ll be back to where we were before the Affordable Care Act.”
The draft order did not specify whether individuals would also be allowed to buy into these associations health plans, as some Republicans like Paul want. But, according to the source, the regulations resulting from the order could potentially be written to allow self-employed people to buy into the now-deregulated association market, which would be an even bigger blow to Obamacare.
The self-employed individuals likely to flee the law’s markets for association plans would probably be younger and healthier, leaving behind an older, sicker pool for the remaining Obamacare plans. 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,” Lucia said. “When you have market segmentation, it over time leads to higher premiums and it becomes less attractive to carriers.”
Trump is also eyeing short-term coverage to undercut the health law
Trump’s executive order would also 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 draft order would reverse that rule, once again allowing people to buy this non-Obamacare coverage for almost an entire year, my source said.
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.
“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.
And 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.
The ultimate impact on Obamacare will depend on the final language of the executive order Trump signs. But based on the draft described to me, Trump is readying the devastating blow to the health care law that congressional Republicans have so far failed to deliver.