Recently, President Donald Trump undertook two executive actions that will have an impact on the individual and small group health insurance markets under the Affordable Care Act (ACA). The following is an explanation of the actions.
The president signed an executive order that directs the Departments of Health and Human Services (HHS), Treasury, and Labor to draft rules to expand the use of association health plans and short-term limited duration plans, and to reduce restrictions on Health Reimbursement Arrangements.
Association health plans are formed when small businesses in a common industry within a state pool come together to purchase insurance. Association plans are required to meet the essential health benefits requirements and consumer protections created by the ACA. President Trump’s executive order seeks new rules that would allow the expansion of association plans so that they could be treated as large group plans and be exempt from certain ACA regulations. This would open the door for small employers to offer association plans that provide cheaper, deregulated, health insurance plans with very limited benefits. While this type of coverage may be an attractive option for healthier employees, it would likely be inadequate insurance for employees with chronic conditions such as kidney disease who require more comprehensive coverage. Expanding association plans in this manner could also weaken the risk pool and raise premiums for ACA-compliant plans.
Short-term limited duration plans are policies that are not subject to ACA regulations and are available for individuals facing temporary coverage gaps, such as people who are between jobs. Short-term plans generally provide limited coverage—they can exclude coverage of preexisting conditions and certain services and typically have higher out-of-pocket costs than traditional health insurance. Current regulations limit the use of short-term plans to three months. The executive order looks to change that rule to possibly allow their use for a full year and make it easier to renew policies. This could weaken the ACA risk pools as healthier individuals opt for cheap, bare bones short-term plans and lead to higher premiums for people shopping for ACA-compliant plans—especially people with chronic conditions like kidney disease who need more comprehensive coverage.
Health Reimbursement Arrangements (HRAs) allow employers to directly cover an employee’s medical costs on a pre-tax basis. Current rules prohibit employers from using HRAs to pay the premium for an employee’s coverage in the individual market. The executive order looks to possibly change that rule, which could also lead to risk pool concerns and increased premiums in the ACA insurance markets. Employers could potentially push their less healthy employees into the individual market instead of offering them employer-based coverage.
Note that the executive order does not change any regulations immediately. It directs the departments to draft rules, which will have to undergo the notice and comment rulemaking process before final rules are published.
Ending Cost-Sharing Reduction Subsidies
The Trump administration announced they would no longer pay ACA cost-sharing reduction (CSR) subsidies that reimburse insurers for the reduction in out-of-pocket costs that they are required to provide for low-income enrollees with silver-level ACA plans. CSR payments were the subject of a 2014 lawsuit by the Republicans in the House of Representatives, who successfully argued in a federal district court that CSR payments had not been appropriated by Congress and were therefore unlawful. The Obama administration appealed that ruling, and pending the outcome of the appeal CSR payments were allowed to continue. President Trump had said for months that he would end those payments, and has now officially done so, effective immediately.
The Congressional Budget Office (CBO) analyzed the effects of ending the CSR payments and estimated that approximately 1 million enrollees would become uninsured over the next two years as some insurers opt to leave the ACA marketplaces, resulting in some counties with no ACA plans being offered. CBO estimated that gross premiums for silver-level plans in that ACA marketplaces would increase by 20 percent in 2018 and by 25 percent in 2020, as insurers look to make up for the lost CSR payments. And because premium tax credits are tied to the cost of silver-level plans, federal spending on premium tax credits will also rise, leading CBO to estimate that federal deficits would increase by $194 billion over 10 years.
Congress could fund the CSR subsidies through legislation, and there is activity in the Senate to come up with a deal that would fund the CSR payments for two years, coupled with increased flexibility for states regarding other parts of the ACA.