The truth about those Obamacare executive orders
The President issued executive orders on Obamacare last week that sent the left into its typical (and exhausting) frenzy. But what do the orders actually do to the health insurance law? According to this piece in Forbes by Avik Roy, the effects are modest -- but also very good.
First, the order on association health plans:
The concept is that individuals could get insurance from voluntary associations, like the Sierra Club or a church group, and receive the same tax benefit that people get for obtaining their coverage through their employers.
The Trump executive order claims to legalize association health plans, but in reality is much more limited. The order allows small businesses—but not voluntary associations—to pool together to buy insurance in bulk.
The thing is, the order is even more modest than that. Small businesses already have the ability to pool together to buy insurance and other benefits, through professional employer organizations, or PEOs. The Employee Retirement Income Security Act of 1974 (ERISA) enables these “multiple employer welfare arrangements,” whereby the PEO becomes the “employer” for purposes of providing health coverage and other fringe benefits. Millions of Americans get their health insurance this way already.
Hence, the likely policy impact of this part of the executive order is minimal to zero.
Next, the order on short-term insurance:
In April of last year, Anna Wilde Mathews of the Wall Street Journal profiled Robin Herman, a 34-year-old business owner who bought a short-term policy that cost her one-quarter of what Obamacare plans were charging. “This is saving me a ton of money for the year,” she said, because Obamacare-based coverage is “just not affordable.” According to eHealth, sales of STLDIs doubled in the year after Obamacare took effect.
The Obama administration read the WSJ article, and responded a few months later by issuing a rule prohibiting STLDIs that last longer than three months. The Obama administration also barred individuals from renewing their STLDI policies.
Trump’s executive order simply reverts back to the pre-2016 rules. When some pundits hysterically describe this change as the “sabotage” and “gutting” of Obamacare, they’re talking about rules that were in place for 7.5 of Obama’s 8 years in office.
Democrats claim that allowing healthy people to buy more affordable coverage is bad, because the healthy uninsured will no longer serve as a piggy bank for the sick. But they’re wrong, because Obamacare’s means-tested insurance subsidies will expand in size to cover the difference. To repeat: no one eligible for subsidies under Obamacare will see higher premiums under President Trump’s re-legalization of STLDIs.
So again, we’re talking about a modest impact: going back to the rules that were in place a mere 15 months ago.
Regarding reimbursements for health care, we get this:
For years, employers have been able to use health reimbursement accounts—a kind of health savings account funded by an employer—to pay for co-pays, coinsurance, deductibles, and other services not covered by the employees’ health insurance plan.
The principal difference between HSAs and HRAs is that the HRA isn’t portable; if the worker changes jobs, whatever remains in the health reimbursement account stays with his old employer. Otherwise, they work in similar ways. Unused funds can be rolled over into future years, rewarding smart shoppers who take advantage of ways to save the system money.
The Trump executive order seeks to “increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage.”
That last part is the most important. If federal regulations were revised to allow HRAs to be used to buy nongroup (i.e., individual-market) coverage, this idea could unlock the ability of patients to once again control their own health care dollars, and shop for coverage on the open market. This approach could strengthen the individual market—including Obamacare’s exchanges—by dramatically increasing the number of people who buy coverage that way.
And about those payments to insurance companies...
It is simply illegal for the federal government to spend money that Congress hasn’t authorized it to spend.
But Trump’s decision to uphold the rule of law does have implications for the Obamacare exchanges.
Insurers are required, under the Affordable Care Act, to offer plans with very low deductibles to those with incomes below 250 percent of the Federal Poverty Level, amounting to $30,150 for childless adults and $61,500 for a family of four. The cost-sharing subsidies are designed to pay insurers for the extra cost of providing that kind of coverage.
Without the cost-sharing subsidies, insurers will have to cover these individuals at a loss; nearly all have said that they will increase premiums on those above 250 percent of FPL in order to make up the difference. Again, as with the short-term limited-duration plans, the Obamacare premium subsidies will expand to cover all of this difference for nearly all exchange enrollees.
There are a couple of misconceptions about cost-sharing subsidies. One, promulgated by Republicans, is that continuing CSRs amounts to a “bailout” for insurance companies. That’s not the case. Obamacare requires insurers to offer these policies, and mandates that insurers can’t charge higher premiums for them. That isn’t their fault.
The other misconception, promulgated by Democrats, is that lower-income folks will see higher premiums or out-of-pocket costs due to the Trump decision. That’s not the case either. Anyone who benefited from cost-sharing subsidies will see no change to their net premiums or cost-sharing. However, spending on tax credits will increase to make up for the absence of cost-sharing subsidies.
Despite the end of the world hysteria coming from Democrats, the President's executive orders are relatively modest, but all point toward better outcomes. The key to making them -- and much else -- permanent depends on Congress.