In less than 24 hours late last week President Donald Trump struck some major blows to the Affordable Care Act (ACA) with action that will have few immediate repercussions but which signals the beginning of the Trump administration’s long-planned attempt to dismantle their predecessor’s signature healthcare law.
Trump signed an executive order loosening health plan benefit requirements and then said he would no longer send payers cost-sharing reduction (CSR) payments. The moves will disrupt the ACA exchange marketplaces and open the door for more general market disruption by allowing for plans with skimpy coverage and fewer restrictions on out-of-pocket costs.
The healthcare industry, as expected, came out in force against the executive actions. A letter signed by major industry groups for hospitals, providers, payers and patients condemned the CSR announcement in force. Such consensus throughout the industry is rare, but has been more common in response to threats to the ACA this year.
Although lawmakers are working on a deal to potentially fund the CSRs through 2019, the chances of an agreement that can be passed by both the House and Senate and also receive the president’s signature are unclear.
With legislative repeal (and/or replace) of the ACA looking less and less likely, the administration is moving forward with a death by a thousand cuts method to negate the law with budget cuts, executive actions and under-the-radar regulatory changes. Former CMS Administrator Andy Slavitt calls it “synthetic repeal.”
Trump’s recent claim that “there is no such thing as Obamacare anymore” is certainly exaggeration, but his administration’s intention to get to that point is clear.
An eventful Thursday
Around lunchtime Oct. 12, Trump signed an executive order that allows small businesses and other groups to band together to buy what are called association health plans (AHP). It also expands the use of short-term plans and allows plans to be sold across state lines. Several hours later, Politico published a report saying Trump had decided to stop making CSR payments to insurers. Soon after, the White House confirmed.
Broadly, the executive order loosens the requirements health plans must meet and shifts regulation away from federal levels. It does this through a series of ideas straight from the conservative health policy playbook. They have been discussed for decades, but not all have been thoroughly studied.
The changes in the executive order aim to allow easier access to plans that are inexpensive but have few benefits. The order would allow payers to offer some plans that have narrow networks, have annual or lifetime caps and which do not cover essential health benefits like maternity care.
The biggest concern with offering these plans is that it would lead payers to cherry-pick young, healthy people who aren't likely to need healthcare services. Such beneficiaries are less expensive for payers, but separating them from people who will need services creates an unbalanced risk pool. That can quickly lead to prohibitive out-of-pocket costs for people who have a pre-existing condition or who unexpectedly need high-cost care. Several pieces of the ACA were developed to address exactly this problem.
Most of the ideas are based on a simple theory: If you loosen regulations, businesses will be more likely to participate in the market and the competition will result in lower prices. But healthcare markets don’t usually abide by Econ 101. What is likely to happen instead is that two markets will be created.
Larry Levitt, who studies health policy at the Kaiser Family Foundation, summarized the issue on Twitter: “Anything that creates a parallel insurance market for healthy people will lead to unaffordable coverage for sick people.”
What does this mean right now?
Trump’s CSR decision came (quite possibly strategically) after the deadline for payers to commit to the exchanges and lock in premium rates. Some states and several insurers had already accounted for the possibility the CSRs would be defunded, but those that didn't have few options to change anything for next year. Policy analyst Timothy Jost noted in a blog post for Health Affairs that payers do have the option of terminating their contracts, but they have to give notice and shift beneficiaries on exchange plans to other individual policies. “But the ability of insurers to leave the exchanges will vary from state to state, and will not be easy anywhere,” Jost said.
States have responded differently to the end of CSRs. About half have told payers to put the increased costs on the premiums of silver plans, which would mean steep costs for people who do not qualify for subsidies. About a dozen are instructing payers to load the cost of premium increases onto only silver plans in the exchanges and five states are putting the cost across all metal tiers, according to an analysis multiple policy experts are compiling.
And consumers who receive subsidies are protected from rate increases, because the subsidy amounts rise accordingly with premiums. This is a big part of the Congressional Budget Office's prediction that an end to CSRs means a $194 billion deficit increase for the federal government in the next 10 years.
Health research company Avalere estimates payers will collectively lose more than $1 billion through the end of this if payments are stopped. “Health plans are stuck because they are required to keep selling more generous plans without the federal funding that pays for the cost of those enhanced benefits,” said Chris Sloan, senior manager at Avalere. Moody’s said recently both moves were credit negative to insurers in the exchanges.
It’s also important to note there are a couple of scenarios in which the CSRs will continue to be paid. Almost immediately after Trump’s announcement, attorneys general from 18 states and the District of Columbia sued the administration, stating the payments are mandated by the ACA and Trump’s order is not based on a good faith reading of the statute. Payers are likely to follow, and with their deeper pockets, could put up quite a fight. Several experts have said these lawsuits could very well be successful, because the payments are, as Jost says, “clearly mandated by federal law.” These lawsuits could take years to resolve, though.
Also, Congress has the power to overturn Trump’s decision by passing legislation that formally appropriates the CSRs. Bipartisan efforts toward this end were underway well before Trump’s announcement, and have clearly ramped up with the potential deal announced recently. A handful of Republicans denounced Trump’s CSR decision, further sign of consensus across the aisle. But members of Congress are looking at other issues to throw in with CSR legislation, which complicates and slows the process.
As for the executive order, only broad implications can be deduced at the moment, because the details don’t exist yet. The order instructs HHS and other relevant departments to write the regulations it outlines, and those regulations must go through the normal notice and comment process. There’s almost no chance they would be ready by the end of the year.
And for the long term?
If the CSRs remain unfunded, payers will anticipate a decline in the stability of the exchange markets. Some are likely to pull out of the exchanges altogether for 2019, others will stay in but hike their premiums substantially.
This could leave some areas of the country without an insurer willing to offer exchange plans in their area. Other areas would have only one choice.
The change in policy on the CSRs was sudden, but there was plenty of warning. The CSRs were on shaky ground from the beginning of the ACA, which had problems in its legislative text thanks to a flurry of last-minute changes. House Republicans sued the administration, saying the payments were authorized by the law but not appropriated by Congress, and were therefore unlawful. The lawsuit hasn't gone anywhere this year, but it formed the basis for Trump’s statement announcing an end to the payments. Regardless of legality, though, the payments have been key to keeping payers in the exchange markets.
Meanwhile, the plans laid out in the executive order could succeed in lowering prices for healthy people, but the risk pool changes that result could easily lead to people who have consistent healthcare needs facing unaffordable medical bills.
Allowing insurers to sell plans across state lines has been a conservative talking point for years. It came up frequently during last year’s Republican primary debates, and you will likely find it in the “issues” section of most websites for GOP members of Congress.
But there is little reason to believe allowing inter-state policies would lower costs overall or even be feasible. In fact, the ACA already has a provision for payers who can work out such plans with states. The times it has been tried, however, the effort is usually abandoned in the face of logistical hurdles.
The American Academy of Actuaries points to a few potential problems with selling plans across state lines. Premiums would not be likely to change much because they are based mostly on the cost of healthcare in a person’s area. Also, payers from out of state would have difficulty finding robust provider networks and negotiating reduced payment rates. This idea, like others in the order, could lead to weak consumer protection and adverse selection, particularly without clear and definite regulations.
Short-term plans exist as a stop-gap measure for people who find themselves between coverage plans. In the past, healthy people were using them as primary coverage instead, so the amount of time a person could have that type of coverage was limited to three months. Short-term plans are inexpensive for people who are healthy, but they can exclude people with pre-existing conditions. Extending the length of time a person can use one and allowing these plans to count toward the individual mandate will mean an unstable risk pool.
The idea of creating association health plans has been tossed around for years. Policymakers were toying with the concept in the late 1980s as they tried to reduce the uninsured rate and ease coverage costs for small businesses, according to a 2006 analysis published in Health Affairs. The study found that the “presumption that association health coverage has more market clout is not necessarily borne out by the evidence.”
Levitt said on Twitter the use of association health plans would likely lead to more payers leaving the exchange markets or raising premiums substantially. The result would be a very unstable, potentially collapsing, individual market.
The American Academy of Actuaries says AHPs can present problems if they are not strictly and clearly regulated. If a payer could offer a plan throughout the U.S. but only be subject to the laws of one state, the results could include market fragmentation, insolvency and eroding consumer protections. The academy also says these association plans would not likely be able to negotiate lower provider payment rates than larger insurance companies. “It is unlikely that any AHP would be able to achieve the critical mass of enrollees needed to negotiate the deep provider discounts that large health maintenance organizations and insurance companies currently obtain,” according to a policy paper from the actuaries group.
A sign of what’s to come
Trump’s executive order chips away at the heart of the ACA, which is also by far the most popular part. Public support for the ACA has steadily risen as people who were previously denied health coverage at the time they needed it most were able to get plans that could not cap payouts or leave out services like maternity care or substance abuse treatment.
It’s something proponents of the law have long feared could happen in a Republican administration. Last week’s executive order was one of the clearest signs yet that Trump’s White House is ready to follow the game plan.
It’s far from the first sign, though. HHS has drastically cut back efforts to promote this year’s open enrollment period, which begins Nov. 1. The ACA’s overall advertising budget was slashed by 90%, community groups that receive federal funding to help people enroll have been devastated by cuts and HHS recently barred regional directors from participating in enrollment events.
And the agency isn’t trying to hide its disdain for the ACA. In a recent statement to Buzzfeed news, the agency said: “The American people know a bad deal when they see one and many won’t be convinced to sign up for ‘Washington-knows-best’ health coverage that they can’t afford."
Trump has long argued for allowing ACA exchange markets to lose stability in an effort to force negotiations on repealing and replacing the law. His administration has acted on this by refusing to assure continued CSR payments and, most recently, by pressuring HHS staff to deny a state waiver requesting permission to try to stabilize its market (even though the state would have used a conservative policy idea).
The health policy world will be watching how Congress does or does not put its own spin on the latest developments, but there is no doubt the ACA is now officially under siege.