Being that I’m a health insurance broker, I feel like I need to clarify the consequences of Trump’s executive order on health care reform, because I think there’s a lot of misinformation circulating around in social media, and of course, the mainstream media does a terrible job of explaining what may happen as a result of the order. I’m going to try to break it down here.
Federal Funding for Cost-Sharing Reductions May Go Away
Many are under the misconception that their health insurance subsidy is going to be taken away. This is not the case. Rather, the federal government is no longer going to fund the cost-sharing reduction (CSR). The CSR is the reduction in copayments and deductibles available only on Exchange Based Silver Plans for those who earn between 133% and 250% of the Federal Poverty Level.
What are the consequences of no longer funding the CSR? The way things currently work, insurance companies reduce copayments and deductibles for eligible consumers. In return, insurance companies receive monthly payments from the federal government to make up the difference. As a result of taking away the funding for CSR, insurers will be forced to raise premiums. Those who qualify for the CSR will still get the CSR, but those who don’t qualify will wind up paying higher premiums. This ” market destabilization” could result in more insurers pulling out of the federal and state based exchanges, resulting in fewer coverage options for those who do qualify for subsidies. It’s basically a backdoor way of forcing Congress to reform healthcare, because without this funding, the individual health insurance market as we know it today, may eventually collapse on its own. After all, the middle class cannot continue to bear 20%-30% rate increases every year. In my opinion, this change is not necessarily a bad thing. We need healthcare reform, and perhaps the only way to get it is to shake things up a bit , and force Congress to take action.
Association Health Plans Allow the Sale of Insurance Across State Lines
Given that those who won’t qualify for subsidies via the Exchanges will inevitably experience higher premiums, they will need somewhere to go to purchase health insurance. Association Health Plans may offer a way for middle class individuals to find affordable health insurance outside of the current health insurance system.
Associations allow large groups of people to come together and form a “Group” insurance plan, much like a large employer does. But there are some differences. Large employers have a diverse group of stable employees, and insurers are able to predict claims experience based on these populations. Thus, in the large employer group insurance realm, insurance premiums have some stability. Also, employers are incentivized to pay a large portion of the premium as a “benefit” to attract high quality labor. This incentive encourages both the healthy and sick to participate in the plan, which keeps the plan viable, and premiums stable.
Associations are different, because members tend to join just for the purpose of obtaining insurance, and their populations tend to be unstable and wrought with heavy healthcare utilizers. Within the association, there is no employer contributing to the cost of the premium. As claims experience rises within associations, rates go up. Heathy members then tend to leave the group for lower cost options elsewhere. Association Health Plans (AHPs) have a tendency to fall prey to adverse selection, or joining only when sick, which results in cancellation of the plan at some point in time. This happens because, unlike employer group plans, members come and go frequently. There is no membership stability, so the sickest members tend to remain enrolled, while the healthy members leave when rates go up. NAHU, my professional association, is not in favor of AHPs.
One of the greatest advantages of AHPs is that they can design ERISA regulated self-insured plans that offer only catastrophic coverage, something many consumers demand, but are unable to get in the current system. AHPs would be exempt from penalties associated with non-compliance with the ACA, because they are not employers. Some express concern that AHPs would not offer the consumer protections offered by the ACA, and that bare bones plans could leave consumers under-insured.
The executive order establishes a time frame for federal agencies to report to the President on the feasibility of enacting AHPs. We’ve seen association plans among realtors, lawyers, contractors, and other self-employed people. My State, CO, has regulations that discourage the formation of association plans, so the attraction of being able to join an association plan across state lines has merit for self-employed individuals. The self-employed are often those experiencing the most difficulty with today’s current health insurance system, because coverage truly is unaffordable for them right now. This demographic does not tend to qualify for subsidies under the ACA.
Short Term Health Insurance Up to 364 Days
Short Term Health Insurance is the epitome of bare bones, catastrophic health insurance. Short Term Coverage is the kind of coverage you buy when you are in-between jobs, missed an open enrollment,etc. It is designed to protect one from the cost of a major medical event. It does not cover pre-existing conditions, maternity or prescriptions. Short Term Coverage is medically underwritten, and a person can be denied coverage if they are currently sick with a major disease, or if they are a pregnant woman or father-to-be. Because these plans can deny coverage to pregnant women and fathers-to-be, they are never on the hook for large NICU claims or claims related to complications of pregnancy. The low risk associated with those insured by Short Term Health Insurance, allows for very low premiums.
The advantage of Short Term Health Insurance is it is extremely inexpensive. Prior to last year, people could purchase Short Term Coverage for up to six months, and then sign up for another six month term after the first term ended. But Obama’s administration changed the rules, allowing people to only be able to purchase Short Term Coverage for up to 3 months per term, with no more than two terms in a year. After April, consumers are only allowed to buy one three month term. The purpose of these rules was to force consumers into the Exchanges, disallowing them to buy less expensive plans as a means to thwart the high cost of ACA compatible plans.
Trump’s executive order allowing people to buy Short Term Coverage for up to 364 days will bring more options back into the market for those who cannot afford ACA Compatible coverage. Generally, you cannot keep purchasing Short Term Coverage Certificates back to back to back. At some point Short Term plans typically require a break in coverage before another certificate period can be purchased, so these plans are not viable as a long term way of getting around the high cost of ACA Compatible coverage, however, they can provide some relief in the short run.