Analysis of Presidential Executive Order on Healthcare, Signed October 12, 2017
President Trump issued an Executive Order on October 12, 2017 that expanded access to three key policy levers in order to purportedly increase flexibility and affordability in the individual market:
- Association health plans to purchase insurance across state lines;
- Short-term health plans; and
- Expansion of tax-preferred savings accounts.
The biggest fear of analysts with all three options is that it leads to cherry-picking the healthiest individuals out of the market, leaving the sickest behind, putting the remaining plans into a true death spiral. (That is, where only the sickest are left to purchase unaffordable insurance that continues to become increasingly unaffordable because only the sick are in the risk pool.) Overall, may lead to cheaper coverage for some, but at the expense of those who need it most, as well as at their own expense — they will have less comprehensive, less reliable, and less regulated coverage.
The EO also notes that the Administration intends to reduce data and reporting burdens, but also increase transparency to the information the consumer needs to make more informed decisions. This seems inherently contradictory, but it seems clear that the Administration intends to reduce the reporting requirements on at least some types of data.
Association health plans
- States want to protect their constituents
- Carriers have trouble setting up new networks
- Regulatory “race to the bottom”
The Executive Order (EO) directs the Secretary of Labor to consider expanding the interpretation of ERISA regulations or guidance within 60 days so that employers can form associations and buy insurance together, as though they were one entity. It also suggests that they would take a more flexible look at the term “employer” in order to broaden the scope of whom may be allowed to form an association.
Associations could then purchase insurance in any state, taking a step toward the Republican goal of being able to purchase insurance across state lines. More details — especially how associations can form around the basis of health status and cherry pick benefits to reflect this — will be closely monitored as the Secretary of Labor moves to implement this program.
There is no federal barrier to offering insurance across state lines. In fact, several states already have “compacts” to allow for this — including Maine’s program that accepts Connecticut-based plans. The first problem is that many states want to more closely regulate the products sold in their state. States are worried about how to protect consumers in their state from products sold in another state, over which they have no authority.
The second problem is that no health plans have been interested when these options have been made available in Georgia, Maine, and Wyoming. It is very difficult to set up a new network and all of the price negotiation that goes along with it. Prior to the ACA, there was also great variation in benefit structure — now the Essential Health Benefits has provided a baseline to compare products and, for the most part (notwithstanding the next discussion below on short-term health plans) offer Minimum Essential Coverage.
Finally, state and federal regulators have been worried about a regulatory race to the bottom — that insurers would find the state with the fewest regulations and consumer protections and set up shop there, but then who is responsible for protecting consumers in other states?
On the other hand, associations may be able to offer their membership more narrowly crafted plans with fewer benefits, which would be cheaper. For example, if assistive reproductive technology or acupuncture is required to be covered by one state, but not another, the association could open a plan with the second state. These lower cost options may be a better fit for some types of organizations.
Short-term health plans
- Less than EHB
- Limitations on pre-existing conditions
- Liftetime caps on coverage
The EO directs the Secretaries of Labor, Treasury, and HHS to expand the use of Short Term Limited Duration Insurance plans. There is no detail about how they should do so.
This summer, many Republicans called on the Secretary of HHS, then Tom Price, to repeal a 2016 rule that put limits on short-term plans to sales of 90 days or less. The rule was implemented because the federal regulators found that people were using these stop-gap plans as their primary, long-term insurance. The plans allow for a reduced set of benefits from the Essential Health Benefits, underwriting based on health status (i.e., insurance can be denied based on preexisting conditions), and other significant limitations such as lifetime caps on coverage. The regulations established that these plans do not meet the Minimum Essential Coverage requirements under the ACA and must clearly state so before being sold.
The National Association of Insurance Commissioners submitted comments to the rule before it was finalized and argued that the 90-day limitation was arbitrary and prevents a consumer who reasonably missed the Open Enrollment Period deadline from obtaining reasonable, short-term coverage. They make a reasonable case for this and with the right regulations in place, this could still be a reasonable stop-gap product. However, the Administration apparently intends to leverage this as a longer term, cheaper option, not as a stop-gap to coverage.
Of course, even if these concerns are addressed and younger, healthier people are pulled out of the regular MEC/EHB individual market, it will make premiums increase even more for those individuals and families. Furthermore, when buying a reduced benefit set on a short-term basis, one can more reasonably predict what he or she will need, but on a longer term basis, it is unreasonable to assume or predict that other benefits will not be needed.
Tax-preferred savings accounts used for premium payments
The EO also directs the Secretaries of Labor, Treasury, and HHS to expand the use of Health Reimbursement Accounts (HRAs). HRAs are non-taxable income that are currently used for certain health expenses. While the EO is not specific about how these should be expanded, there has been a lot of speculation that this could be used to expand to premiums and allow an individual to use money in the HRA to go purchase a cheaper plan on the individual market.
While that could benefit certain individuals without predictable medical expenses, it will draw them out of the risk pool that they were in, potentially causing other rates to rise for the people left behind.
Resources
https://www.americanactionforum.org/research/primer-interstate-sale-of-health-insurance/
