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Trump Order Could Destabilize Health Insurance Markets, Hurt Those With Pre-Existing Conditions

President Trump’s new executive order could destabilize the health insurance markets where millions of individuals and small businesses get their coverage and undermine protections for people with pre-existing health conditions.

The order directs relevant agencies to consider ways for more people to buy health coverage that’s exempt from many standards of the Affordable Care Act (ACA) — such as the requirement that health plans cover a package of “essential health benefits” including maternity care and mental health treatment and the prohibition against charging people different premiums based on their health status. Such coverage includes “short-term” health insurance plans and Association Health Plans (AHPs).

Like the “Consumer Freedom” plans that Senator Ted Cruz proposed as part of Senate Republican efforts in July to repeal the ACA, supporters pitch short-term health plans and AHPs as ways to expand consumers’ choices. In reality, they’re a threat to comprehensive coverage, to people with pre-existing medical conditions, and to the ACA’s risk pools that provide insurance options to both the healthy and the sick.

Today’s executive order doesn’t change policy: it directs agencies to consider making changes by issuing regulations and revising guidance. And such changes could face serious legal challenges. But if the changes described in the executive order and the Administration’s accompanying materials were actually implemented through subsequent regulations, they could make coverage far less affordable for people with pre-existing conditions.

First, the order directs agencies to consider rolling back limits on short-term health insurance plans that don’t have to comply with ACA standards. Responding to the proliferation of these plans, the Obama Administration adopted regulations defining “short-term” plans as those lasting less than three months. If the Trump Administration allows short-term plans to once again last for a full year, as they sometimes did before the Obama regulations, such “short-term” coverage would operate as a full-scale alternative to the ACA-compliant market for individual coverage.

Second, the executive order directs the agencies to make AHPs broadly available to small businesses on a nationwide basis. AHPs, and the related idea of allowing sales of insurance “across state lines,” have both been long opposed on a strongly bipartisan basis by the National Governors Association and the National Association of Insurance Commissioners. The executive order apparently contemplates letting AHPs sell coverage to small businesses without abiding by the ACA’s rules for small group coverage or complying with other state health insurance laws, potentially including those that protect consumers from fraud and insolvent plans. Here, too, the result could be a full-scale alternative market to ACA-compliant small group plans, putting enrollees at risk.

The proposals in the executive order would represent a major challenge to the ACA’s risk pools and coverage options and would undermine protections for people with pre-existing conditions. Among individual market consumers who are not eligible for ACA premium tax credits to help them buy coverage in the individual market, healthier people would likely enroll overwhelmingly in non-ACA-compliant plans that could offer them lower premiums, since they wouldn’t have to offer the same premiums to sicker people. Small businesses with healthier employees would do the same.

As alternative options lure healthier individuals and small groups away from more comprehensive, ACA-compliant plans, premiums would rise substantially for individuals and small businesses that remain in ACA coverage. People eligible for the ACA premium tax credits would be largely protected because the credits would rise to keep pace with higher premiums — at significant cost to the federal government. But middle-income people and small businesses that have employees with serious health needs would face high, sometimes unaffordable costs.

That’s the same dynamic, known as “adverse selection,” that the Cruz amendment would have unleashed. Consumer and patient groups, experts, and others widely panned that effort:

  • The American Academy of Actuaries said that under the Cruz amendment, insurers would structure those plans subject to the looser rules in ways that would attract healthier people to them, using premium rates based on health status, fewer benefits, and more cost-sharing. Premiums for ACA coverage would “far exceed those of noncompliant coverage, thereby destabilizing the market for compliant coverage,” the actuaries wrote.
  • The Blue Cross Blue Shield Association and America’s Health Insurance Plans called the amendment “unworkable in any form”: it would create two separate insurance systems for healthy and sick people and therefore “undermine protections for those with pre-existing medical conditions, increase premiums, and lead to widespread termination of coverage for people currently enrolled in the individual market.”
  • The American Cancer Society said the amendment would “essentially return cancer patients, survivors, and anyone with a serious illness to an underfunded high-risk pool.”

These same criticisms apply to the short-term plan and AHP proposals that Trump’s executive order would facilitate.

The executive order also calls for expanding health reimbursement arrangements (HRAs), a type of tax-favored, employer-funded account that workers can use to pay for health insurance premiums and/or out-of-pocket costs – but that, under the ACA, generally must be paired with a regular health insurance plan. Currently, some small employers that meet certain criteria are permitted to offer “standalone” HRAs under which workers can use HRA funds that their employers contribute to buy a plan in the individual market.

If the Administration attempts to broaden the availability of such “standalone” HRAs, that would likely prompt fewer businesses to offer health coverage to their employees. Workers who now have good coverage and substantial contributions from an employer could see those benefits dropped and replaced with an HRA that leaves them paying higher premiums for less comprehensive coverage than what they have today.