Health-care policy is complicated and boring. The Affordable Care Act is a chunky, unappetizing stew of rules, regulations, and means-tested subsidies. Given these facts, it will be difficult for many to understand — let alone care about — how Donald Trump’s new executive order adjusts that stew’s recipe. Why would anyone have a visceral reaction to regulatory changes that expand access to association health plans and short-term limited-duration insurance (whatever those things are)?
But while the details here are complex and dull, the upshot is simple — and the stakes for millions of vulnerable Americans are enormous. Unappetizing, bureaucratic stews can keep people nourished; prepared with the wrong ingredients, they can also get people killed.
Before we get into the nitty-gritty, let’s quickly review what the health-care policy debate in the United States is fundamentally about.
Progressives want to live in a society where nonaffluent people don’t routinely die or go bankrupt due to injury or illness. In order to bring this society into being, the young, healthy, and rich need to subsidize the medical costs of the old, unhealthy, and poor.
One way to do this is to have the government impose a (progressive) system of taxes to finance a universal, state-run health-insurance program. This works pretty well for many developed nations, including our neighbor to the north. But there are a lot of powerful people, industries, and interest groups that would stand to lose if America adopted such a system.
So, Obamacare attempted to deliver universal health care by heavily regulating — and subsidizing — the private insurance market, instead. Insurers on the ACA exchanges were required to include a set of essential health benefits in all of their plans — and were barred from charging people with preexisting conditions more than their (ostensibly) healthy peers. This forced the (temporarily) healthy to subsidize the sick in two ways:
1) Healthy people who wanted to purchase some form of health insurance on the individual market could no longer opt for cheap, skimpy plans. Instead, they would be forced to pay for coverage benefits that they were unlikely to use, thereby making it possible for insurers to (profitably) provide those same benefits to people who were likely to need them, at an affordable price.
2) Healthy people would pay premiums that overpriced their risk more broadly, so that insurers could (profitably) underprice the risk of providing affordable coverage to people with serious, predictable medical problems.
On its face, this might look like a raw deal for the healthy. But then, healthy people can become sick people in an instant. And under this system, healthy optimists would never find themselves stuck with inadequate coverage after developing an expensive, unforeseen condition.
Nevertheless, to induce healthy folks to foot the bill for comprehensive coverage, the law required every American to purchase health insurance or else pay a penalty. To keep this from burdening nonaffluent healthy people, Obamacare provided health insurance subsidies to middle-income folks financed by taxes on the rich.
It’s a wonky, imperfect system. But it got America closer to the overwhelmingly popular, progressive goal of not letting people die from preventable illnesses because they don’t have a lot of money.
For political expedience, conservatives have taken to claiming that they, too, share this goal — even though they’re actually hostile to the very concept of social insurance. So, they argue that getting to universal coverage requires bringing down prices; point to the various parts of Obamacare that make insurance more expensive for healthy people; ignore the fact that these same rules make insurance affordable for nonaffluent cancer patients; and then try to weaken or abolish said rules.
This is fundamentally what Trump’s new executive order is about: creating loopholes that allow healthy people to stop subsidizing the sick. Attracting an adequate number of healthy people to the Obamacare exchanges has already been a problem — thanks, in part, to the Trump administration’s myriad efforts to sabotage the law. Depending on how the new executive order is implemented, this challenge could metastasize into a full-blown crisis.
Loophole No. 1: Expanded Association Health Plans
Association health plans are a means for small businesses to pool together to purchase insurance, thereby securing greater purchasing power and cheaper premiums. For example, independent farming businesses will often join together in farm bureaus, and purchase insurance through those collective entities.
Before Obamacare, associations were free to model their national plans around the regulatory requirements of any individual state. Which is to say: A farm association with members in Alabama and New York could provide the latter with skimpy plans that would otherwise be barred by the Empire State’s benefit requirements. This appealed to small businesses with younger, healthier workforces, which used association plans to avoid subsidizing more comprehensive coverage for small business with older, sicker employees.
The Affordable Care Act put an end to this state of affairs, by subjecting association health plans to the same essential health-benefit requirements as individual small businesses.
Trump’s executive order calls on the secretary of Labor to expand the use of association health plans by making it easier for associations to form across state lines, and to band together for the exclusive purpose of purchasing health insurance.
This could allow new association health plans to grow so big, they qualify as large employers — and Obamacare does not require large employers to offer plans that cover essential health benefits.
This is the explicit purpose of Trump’s requested regulatory changes: In a press release, the White House touted that its executive order could allow small businesses to offer their workers a “broader range of insurance options at lower rates in the large group market.”
In other words, it would allow younger, healthier small businesses to exit the small-group market, thereby increasing premiums for the older, sicker businesses which are left behind.
And the Trump administration is reportedly considering an even more radical change, one that could effectively end Obamacare as we’ve known it. According to Vox, the White House may try to allow individuals to buy into cheap, skimpy association health plans. This could set off a death spiral in the individual market as healthy people flee for cheap association plans, thereby leading insurers to raise premiums (to defray the cost of covering an increasingly sick pool of enrollees), thereby leading even more healthy people to flee for cheap association plans, thereby leading insurers to raise premiums, etc., etc. …
Loophole No. 2: Lengthened duration of short-term insurance
Short-term health insurance policies are completely free from Obamacare’s regulatory requirements. They typically offer few services, and are designed for people who are just looking for financial protection from a medical calamity during a temporary period of unemployment.
Before the Affordable Care Act, Americans could remain on short-term health insurance for up to a year. But to prevent healthy people from using the plans to avoid subsidizing the sick on the individual market, the Obama administration brought that limit down to three months.
Trump’s order calls for expanding access to short-term plans by reversing this rule. Once again, the effect would be to bleed healthy enrollees from the Obamacare exchanges. In the most extreme scenario, the administration would make short-term plans not only available for longer periods, but also renewable.
The effect, once again, would be to engineer a destabilizing increase in premiums for those in the individual market.
Now, all of this depends on how Trump’s cabinet secretaries chose to implement his requests. The executive order calls on the departments of Treasury, Labor, and Health to consider rewriting the relevant regulations. But the agencies have ultimate discretion over what gets changed. And it’s unlikely that there will be any significant regulatory changes by the end of this year.
Nonetheless, the executive order provides a blueprint for how the administration could effectively end Obamacare (at least temporarily) without passing a single piece of health-care legislation. Or, to put a finer point on the matter: It is a blueprint for increasing the number of people in our society who die from preventable illnesses because they are not wealthy.
