My 6-year-old daughter is a My Little Pony fanatic, which means I am also a fanatic. Well, a fan. I haven’t gone full-on Brony yet but there’s still time. For the uninitiated, the subtitle of My Little Pony is “friendship is magic” and every episode revolves around the pony friends solving problems through teamwork, critical thinking and perseverance — valuable lessons for all ages.
On the flip-side of these lessons stands Discord, a crudely drawn part-horse, part-dragon, part-lots-of-other-things whose mission is to live up to his namesake with sarcastic villainy. For Discord, chaos is magic, not friendship, and he constantly tries to sow the seeds of jealousy and bitterness in the pony friends and then sit back and watch the anarchy he has wrought.
To this point in his term, President Trump’s approach to policy-making has been policy-undoing. From civil rights and immigration to the military to international treaties, Trump has largely focused on rolling back work forged in previous administrations as opposed to championing signature policies of his own — “the wall” notwithstanding.
And so it was on October 12, as Trump announced an executive order meant to roll back key components of the Affordable Care Act, AKA Obamacare. The order went directly after numerous points of contention that Republicans have had with Obamacare, as well as promoting GOP ideas for healthcare reform that Congress was either unable to pass in its recent reconciliation bills or that it couldn’t address as part of the reconciliation process.
As significant as many of the order’s components are, a second bombshell came that evening, when Politico broke the story that Trump planned to stop paying the ACA’s Cost-Sharing Reduction (CSR) for individual policies — a story that was later confirmed by a White House statement. If it’s discord that the president seeks, Thursday was a very good day.
Whereas the Congressional debate over “repeal-and-replace” ended up being full of sound and fury but signifying nothing, Trump’s executive orders will have real, nearly immediate impacts to an individual health insurance market that Larry Levitt of the Kaiser Family Foundation said this: “The Trump administration has now loaded many straws onto the back of the ACA marketplace. It’s not broken yet, but…”
Discontinuing Cost-Sharing Reduction Payments
Discord Scale: 9 out of 10
If President Trump’s policy specialty is upsetting wildly disparate interest groups, then discontinuing CSR payments may be his magnum opus. These payments, established by the ACA, work in coordination with the Advanced Premium Tax Credits (APTC’s), which reduce the premium costs to individual based on need (measured by income in relation to the Federal Poverty Level, or FPL). While the APTC’s work on the premium end, the CSR’s reduce potential out-of-pocket costs to individuals — things like deductibles and copays. By not paying the CSR’s, individuals making below 250% of FPL but not enough to qualify for Medicaid — AKA the working poor — may end up being responsible for thousands of dollars more in medical expenses out of their own pockets every year.
For the carriers that have stayed in the public health insurance exchanges, removing the CSR’s means billions of dollars in expected payments will vanish. Many of these carriers have already planned for this day, which, as Charles Gaba of ACAsignups.net has extensively outlined, is responsible for 20-percent or more increases in 2018 individual plan premiums compared to 2017. Many carriers preemptively increased rates anticipating that Trump would stop paying the CSR’s and that they need to make up the lost revenue. The most financially effective (though not strongly morally defensible) way to retrieve that lost revenue is to raise premiums, which further pinches individual pocket books. With the APTC’s still in force, individuals who qualify for subsidies may be insulated somewhat from rising premiums, but the potential for large out-of-pocket expenses remains a clear and present danger to the working poor.
Yet since the APTC’s contributions from the federal government are based on ranges of percent of income, rising premiums also mean larger payouts by the federal government. So, CSR’s aren’t purely saving the government money because their loss means a shift to larger APTC payments.
That’s a pretty impressive trifecta by the president: upset those in the individual market (both those who are subsidized and those who are not, since premiums have and will continue to rise on both groups) by making them pay more in both premium and out-of-pocket costs; upset carriers by discontinuing billions of dollars in payments (something, by the way, that Trump has called “corporate handouts” in his more populist moments); and upset budget hawks in the federal government by increasing the cost of administering Obamacare’s individual markets. It also puts states in a bind of not being able to rein in costs by forcing the shrinking pool of carriers still in the individual market to reduce their premiums, among other steps.
Nevada’s GOP Governor Brian Sandoval described both the state official’s predicament and the reason for the high Discord marks:
“It’s going to hurt people. It’s going to hurt kids. It’s going to hurt families. It’s going to hurt individuals. It’s going to hurt people with mental health issues. It’s going to hurt veterans. It’s going to hurt everyone.”
The only factor saving this decision from a perfect Discord 10 is that it’s not a straight repeal, which would leave millions without affordable insurance options as opposed to an ever-shrinking list of affordable, and arguably unacceptable, options.
(Note: there has been some bipartisan support for taking the CSR payment decision out of the president’s control and making it a legislative appropriation. It’s possible that this decision may spur that rare instance of cooperation on healthcare reform and the ACA on Capitol Hill. Also, Trump has indicated that he’ll use the payments as a bargaining chip on “the wall.” So, y’know, more Discord.)
Executive Order: Association Health Plans
Discord Scale: 7 out of 10
The Order: Sec. 2. Expanded Access to Association Health Plans. Within 60 days of the date of this order, the Secretary of Labor shall consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form AHPs. To the extent permitted by law and supported by sound policy, the Secretary should consider expanding the conditions that satisfy the commonality‑of-interest requirements under current Department of Labor advisory opinions interpreting the definition of an “employer” under section 3(5) of the Employee Retirement Income Security Act of 1974. The Secretary of Labor should also consider ways to promote AHP formation on the basis of common geography or industry.
Expanding access to and support for association health plans have been high on the GOP’s list of healthcare reforms for a while. Back in 2015, when we were all awaiting the Supreme Court’s decision on King v. Burwell regarding the legality of the CMS providing Obamacare subsidies on behalf of states through healthcare.gov, Republican policy makers I spoke to on Capitol Hill saw expanding association health plans as a way to promote free capitalist markets while also filling in the void of affordable coverage that a ruling for King would have brought. It didn’t happen and AHP expansion was prioritized behind straight ACA repeal.
Now it’s back and the executive order sounds less like a Trump imperative and more like the GOP party line.
On the positive side, expanding AHP’s would theoretically give small companies buying power similar to that of much larger (and usually self-insured) companies. Those in the health insurance business know that the U.S. system is not monolithic but thousands upon thousands of small systems, many the size of a single company. AHP’s would let many of those single companies come together to their own benefit and to the benefit of their employees. In fact, many had much more leeway before the ACA. AHP’s acted somewhat like the credit unions of health insurance, with similar companies in the same industries (or sometimes not — some states had so-called “air-breathers associations”) banding together to gain leverage with health insurance carriers to hopefully drive down costs for their employees and themselves.
On the negative side, the reason the Obama Administration limited the leeway of AHP’s was because they feared two main outcomes: 1) employers would take advantage of their “large employer” status to avoid ACA mandates like essential health benefits coverage (more on that later), and 2) associations would penalize unhealthy companies, which would separate the small group risk pools further into healthy and unhealthy segments, essentially driving the unhealthy groups and industries out of the health insurance-providing game.
These two potential outcomes still apply with the introduction of this executive order. If we can expect the best from employers, then the Discord caused by this order may be somewhat minimal. If not, the impact on individuals, along with the shift in power between small employers and carriers, not to mention a potentially meteoric rise in the influence of associations working across state lines, could cause a sizable shift in the small-group market.
Executive Order: Expanding Short-Term, Limited-Duration Insurance (STLDI)
Discord Scale: 6 out of 10
Text of the order: Sec. 3. Expanded Availability of Short-Term, Limited‑Duration Insurance. Within 60 days of the date of this order, the Secretaries of the Treasury, Labor, and Health and Human Services shall consider proposing regulations or revising guidance, consistent with law, to expand the availability of STLDI. To the extent permitted by law and supported by sound policy, the Secretaries should consider allowing such insurance to cover longer periods and be renewed by the consumer.
STLDI’s were fairly common before the ACA. They are still sold but must be labeled as not being ACA-compliant, meaning they don’t count as “coverage” that will enable you to avoid an Individual Mandate fine for non-coverage, mainly because they do not provide coverage of the ACA’s mandated “essential health benefits.” It makes sense, since these plans don’t fit the U.S. definition of health insurance so much as they are simply catastrophic coverage for those who either can’t afford regular, and typically more expensive, COBRA or individual health insurance coverage or those who just don’t want to pay more for health insurance (like “young invincibles”). Some plans have bastardized versions of copays and networks, but it’s more of a “buyer’s club” type of discount than real, underwritten insurance.
By expanding the limits of these policies to 12 months instead of 3 months, the Trump Administration professes to give people more affordable options, and Trump himself has said they’re far better options than Obamacare. Maybe in My Little Pony’s homeland of Equestria but not here in the real world.
However, a sad saving grace of these “junk plans” is that they’re so bad that many companies won’t make them available, lest they want to be viewed in their respective industries as partaking in a “race to the bottom” of employer-based health insurance. The main danger is that they offer them alongside ACA-sanctioned plans and that low-income employees opt for them when they could get better, financially comparable coverage on a public exchange, along with the 70 percent of individuals who qualify for APTC subsidies for real health insurance. Of course, the benefits of the public exchange are provided Trump’s executive orders, sabotage campaign against public exchange open enrollment, and removal of CSR’s don’t drive the rest of health insurance carriers out of the individual market.
Executive Order: Expanding the Use of Health Reimbursement Accounts (HRA’s)
Discord Scale: 5 out of 10 or 10 out of 10
Text of the order: Expanded Availability and Permitted Use of Health Reimbursement Arrangements. Within 120 days of the date of this order, the Secretaries of the Treasury, Labor, and Health and Human Services shall consider proposing regulations or revising guidance, to the extent permitted by law and supported by sound policy, to increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage.
HRA’s have been around for decades but have seen limited use because of the built-in limitations of applying only to group-sponsored coverage and qualifying expenses. The main benefit to employers is that they hold the pursestrings, so they can give their employees money and keep the unused balance at the end of the year, while maintaining their tax preference on the money spent.
Recently HRA’s have gained some momentum on two fronts. First, in the retiree market, where employers want (or are required through collective bargaining) to provide coverage for pre- and post-65 retirees but they don’t want this generally high-risk pool to impact their overall health insurance premiums and expenses. A Retiree Reimbursement Arrangement (RRA — basically an HRA for retirees) allows employees to give retirees money to spend on group-sponsored coverage for retirees. It’s an arrangement that may actually work out well for both parties, although the retiree coverage may not be as rich as what they would receive on the regular group plan(s).
The second front is where the Discord score of 5 could shoot up to a perfect 10. Late last year, an amendment to the “21st Century Cures Act” opened up the use of “standalone HRA’s” for small businesses (50 or fewer employees) meaning they could give tax-preferred dollars to employees to buy insurance on the individual market. It’s way too early to know whether that move would lead to an erosion of employer-based coverage or if it turns out to be a good thing for employees, but it appears that the Trump Administration, with the last words of that part of the executive order (“allow HRA’s to be used in conjunction with nongroup coverage”), wants to expand that financial arrangement post-haste.
Five years ago, during the “private exchange” frenzy, many people in the industry, myself included, talked about the dawn of the defined contribution era in health insurance, one that would mirror the shift in employer retirement plans from defined benefit pensions to defined contribution 401(k)’s. If HRA’s are expanded in the way that the Trump Administration appears to desire, then HRA’s could become the greatest disrupter of the employer-based health insurance market in a generation.
In fact, it could, ironically, save the individual market from its current dance with death and bring on the demise of the employer-based model. How? Remember, as mentioned above, that the U.S. employer-based health insurance system is really thousands and thousands of systems. It’s something that actually defies much logic as capitalistic or “free-market.” Employers are paying billions of dollars in administrative fees alone every year for their health plans, and the costs are rising much faster than inflation and have been for decades. If they could wipe out both the cost and the burden of that administration in exchange for simply benchmarking the right defined contribution to give their employees and then letting them shop for their own health insurance — and have their employees be happy with that arrangement — then you’d be hard-pressed to find employers who would not opt for that approach over the current system.
Would that mean that employer-sponsored coverage would become as rare and specialized as pensions? Would it mean that the thousands of small risk pools would become a single, nationwide pool that would make an economist weak in the knees? Would it mean that employees would be as unprepared for a health issue with health insurance as extensive research suggests they are for retirement with 401(k)’s? We’ll have to wait first and foremost for the final regulations to see how huge and disruptive this executive order could become.
But for now, it seems pretty assured that we’ll see some chaos in the short run as well as the long run in the healthcare space. Discord would be proud, Mr. President.