The Effect of Trump's 'Healthcare Choice and Competition'

How will Trump's October 2017 executive order affect health insurance?

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On October 12, 2017, President Trump signed an executive order "promoting healthcare choice and competition across the United States." The executive order came just a few hours before the Trump Administration announced that funding for the ACA's cost-sharing reductions (CSR) would end immediately, so it's not surprising that the effect of the executive order and the CSR funding cut are sometimes conflated.

But while the CSR funding cut was a clear action that took effect immediately, the executive order didn't make any changes in and of itself, and its effects will take time to materialize. The executive order simply directs various federal agencies to "consider proposing regulations" to make a variety of changes to the rules that pertain to short-term health insurance, association health plans, and health reimbursement arrangements (HRAs). Those regulations would have to go through the normal rule-making process, which includes a public comment period.

Let's take a look at what those changes are likely to be, and how they might affect your health insurance.

Short-Term Health Insurance

Short-term, limited duration insurance (STLDI) is just what it sounds like: health insurance that you can only keep for a limited duration. But the length of time that someone should be able to have short-term coverage has been controversial in recent years.

Short-term health insurance is not regulated by the Affordable Care Act. So applicants' eligibility for coverage is still based on their medical history, pre-existing conditions aren't covered, lifetime and annual benefit maximums apply, and the plans don't have to cover the ACA's essential health benefits.

The medical loss ratio (MLR) rules don't apply to short-term plans, so there's no requirement that the majority of the premiums be spent on medical claims.

In short, these plans are similar in many ways to some of the individual major medical plans that were for sale in most states prior to 2014. The ACA prohibited the sale of plans like that in the individual major medical market as of 2014, but the new rules don't apply to short-term plans.

Since short-term plans have been able to continue to offer coverage only to healthy individuals with tight restrictions on the benefits, and because the plans have limited durations, the premiums tend to be drastically lower than full-price premiums in the ACA-compliant market (both on and off-exchange, as individual major medical plans are required to follow the same rules outside the exchange that they follow inside the exchange).

Prior to 2017, the federal definition of a short-term plan was coverage that had a duration of up to 364 days. Some states had tighter rules (a few don't allow short-term plans at all, and some limited them to six months), and many insurers limited their available short-term plans to six months in duration, regardless of the flexibility offered by the state or federal government.

But in the majority of the states, there were at least a few short-term plans available with durations of nearly a year.

Enrollment in these plans increased after the ACA's provisions took effect, as people looked for more affordable alternatives to ACA-compliant coverage. The ACA makes individual market coverage affordable for people who qualify for premium subsidies, but those with income just a little above 400 percent of the poverty level (ie, not eligible for premium subsidies) sometimes find that the plans available to them are beyond what their budget will allow

For these individuals, as long as they're healthy, a short-term plan might offer a viable alternative to being uninsured.

But short-term plans have serious drawbacks (that people don't always know about until they find themselves in need of serious medical care), and when healthy people leave the ACA-compliant risk pool in favor of other alternatives, it leaves the overall risk pool for ACA-compliant plans more heavily tilted towards sick enrollees, which results in an unstable market.

Although people who rely on short-term insurance have been subject to the ACA's shared responsibility penalty since 2014 (because short-term insurance is not considered minimum essential coverage), the Obama Administration decided to step up the regulations and ensure that short-term insurance could only be used as it was originally intended: to fill in a short gap between other health insurance plans, and not as a long-term substitute for real health insurance.

So they implemented regulations in late 2016 (which took effect in January 2017 and were enforced starting in April 2017) that limit short-term plans to three months in duration. 

Trump's executive order is likely to result in new regulations that would roll back the 2016 regulation and reinstate the prior rule that allowed short-term plans to have durations of up to 364 days. But people who rely on short-term plans would still be subject to the ACA's shared responsibility penalty, as short-term insurance would still be considered an excepted benefit, and thus not minimum essential coverage.

There are concerns that rolling back the regulations on short-term plans will destabilize the ACA-compliant individual market. But some states would likely retain the more restrictive rules that they had prior to 2016, and others might adopt similar regulations in order to protect their ACA-compliant individual major medical markets.

Association Health Plans

Trump's executive order calls for "expanding access" to association health plans (AHPs), in order to allow small businesses to join together and obtain large group coverage (purchased from an insurer or self-insured), rather than having each business purchase its own small group plan.

The ACA imposed the majority of its rules on the individual and small group market. Although large employers (50+ employees) are the only ones that are required by the law to offer coverage to employees, the coverage that small groups can buy is more heavily regulated than the coverage available to large groups.

For coverage effective January 2014 or later, the ACA requires small group premiums to be based only on employees' ages, tobacco use, and physical location—the overall health status of the group cannot be used to determine premiums. And small group plans are required to cover the ACA's essential health benefits. Neither of these requirements apply to large group plans (the majority of very large group plans are self-insured, but those ACA requirements don't apply to them either way).

So the idea with AHPs is to allow small groups to essentially band together to form large groups, and avoid some of the ACA's regulations in the process. But while a bonafide large employer has a vested interest in making sure its workforce remains healthy and its health benefits are robust enough to be a solid recruiting and retention tool, that might not be true for an association health plan.

And although a large employer has to think long-term about its overall benefits strategy, there is nothing preventing a small business from joining an AHP while its employees are healthy, and then reverting to the ACA-compliant small group market at a later date if that option were to become more appealing based on changed circumstances. So there are concerns that expanding the scope of AHPs could destabilize the ACA-compliant small group market by attracting healthy small groups away from the ACA-compliant market and into AHPs. 

Health Reimbursement Arrangements

The executive order also calls for new regulations for "expanding flexibility and use of" health reimbursement arrangements (HRAs). The idea, essentially, is to allow employers to use HRAs to reimburse employees for individual market premiums.

Employers used to be able to do this. But it was banned altogether under early regulations that were written to implement the ACA (the ban was accompanied by a steep fine: $100 per day per employee if an employer continued to reimburse employees for individual market premiums). The restriction was softened a bit by the 21st Century Cures Act, which took effect in 2017 and allows small employers (fewer than 50 employees) to reimburse employees' individual market health insurance premiums up to a pre-determined dollar amount, using HRAs.

But small employers are not required to offer coverage at all under the ACA, while large employers are. And there is currently no provision that allows large employers to reimburse employees for individual market premiums. Employees are free to obtain whatever kind of insurance they like—accepting their employer's offer of group health insurance, or buying coverage in the individual market—but a large employer cannot pay for the individual market coverage (conversely, the employee cannot access premium subsidies in the individual market if the employer is offering affordable, minimum value group health insurance).

Trump's executive order is expected to result in proposed regulations that would expand the flexibility for employers to use HRAs to reimburse employees' for individual market premiums, even if the employer has 50 or more employees. 

What we don't yet know is the scope of the proposed regulations. Will only ACA-compliant coverage be considered eligible for reimbursement, or would excepted benefits (like the aforementioned short-term plans) be eligible? Would large employers be considered in compliance with the employer mandate (ie, the requirement that they offer coverage or potentially have to pay a penalty) if they used HRAs to reimburse individual market premiums rather than offering group coverage?

When Will We See New Regulations?

A lot remains to be seen in terms of exactly what is proposed in the forthcoming regulations. The regulations for AHPs and short-term health insurance are expected to be proposed within 60 days of the date of the executive order, so we should see them before the end of the year. And the regulations pertaining to HRAs are expected to be proposed within 120 days, so they should be available by early 2018.

After the proposed regulations are published, there will be a public comment period before they take effect, so if you have feedback for the federal agencies that are working on these issues, that will be your opportunity to share it.

Sources:

Department of the Treasury; Department of Labor; Department of Health and Human Services. Excepted Benefits, Lifetime and Annual Limits, and Short-Term Limited Duration Insurance. October 2016.

White House, Office of the Press Secretary. Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States. October 12, 2017.

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