President Donald Trump is trying to do with the stroke of a pen what Republicans in Congress could not — bring about the end of the Obamacare markets.
Trump is expected to sign an executive order on Thursday directing an overhaul of major federal regulations that would encourage the rise of a raft of cheap, loosely regulated health insurance plans that don’t have to comply with certain Obamacare consumer protections and benefit rules. They’d attract younger and healthier people — leaving older and sicker ones in the Obamacare markets facing higher and higher costs.
It’s not yet clear how far the administration will go, or how quickly it can implement the president’s order. But if successful, the new rules could upend the way businesses and individuals buy coverage — lowering premiums for the healthiest Americans at the expense of key consumer protections and potentially tipping the Obamacare markets into a tailspin.
"Within a year, this would kill the market," said Karen Pollitz, a senior fellow at the Kaiser Family Foundation who previously worked at former President Barack Obama’s HHS Department.
The focus of the directive is association health plans, which allow small-business owners, trade groups and others to band together to purchase health insurance. Such plans would be exempt from certain Obamacare’s rules, including requirements that it cover standard benefits, such as prescription drug coverage. To make those changes, the administration is already working to reinterpret ERISA, a massive federal law that governs many workplace benefits, people familiar with the order said — opening the door to more expansive changes that could affect Obamacare plans more directly.
The administration is also preparing to roll back Obama-era restrictions on short-term health insurance plans, allowing insurers to once again sell stopgap policies which don’t cover pre-existing conditions, mental health services and many other costly benefits. Coverage could extend for as long as a year, up from a current three-month limit.
Those changes would spur the emergence of a deregulated health insurance system that competes for the same customers as the Obamacare markets, health policy experts said, creating a potentially destabilizing result: Young and healthy enrollees would flock to the skimpy but cheap plans sold by associations and short-term insurance specialists, leaving behind the nation’s sickest patients in the increasingly expensive and untenable Obamacare markets.
"No one healthy is now going to sign up in the ACA risk pool, because they have this cheaper option," said Deep Banerjee, a health care analyst at S&P Global Ratings. "It just takes away the opportunity of this risk pool getting better."
The potential damage to Obamacare rests largely on how far the Trump administration pushes its authority to unilaterally rewrite the rules. The federal government can lift the three-month limit on short-term policies and exempt existing association health plans from Obamacare’s regulatory standards by altering rules created in the past few years, policy experts say.
Once those changes took effect, they could put a dent in the health law’s stability, opening the door to new competitors that could draw healthy people out of the Obamacare markets.
Still, association health plans are overseen by the states, and Obamacare insurers have experience contending with short-term policies during the shaky first years of the law.
The far bigger threat lies in who the administration deems to be an association — and how far it reimagines ERISA.
While Trump’s order is unlikely to get specific, multiple people familiar with the plans said the Labor Department is already working on a reinterpretation of the workplace rule that would broaden the kinds of groups that can qualify as associations and thereby exempt themselves from Obamacare regulations.
That definition, which isn’t yet settled, could include small businesses, trade groups and unions, all the way to groups of self-employed individuals. One debate has centered on how small a group could be and still qualify as an association, according to one person familiar with the discussions,
Association health plans would be federally regulated as part of the large employer market, allowing them to sell coverage across state lines. Importantly, they wouldn’t have to meet Obamacare’s benefit requirements or cover a minimum percentage of enrollees’ health care costs.
Association health plans “could effectively cherry pick" the most desirable participants, said Sabrina Corlette, an insurance expert at Georgetown University and a former Democratic congressional staffer. "Anybody who’s healthy and unsubsidized would quickly make the transition."
Trade groups and associations representing small businesses have been big cheerleaders of the executive order behind the scenes, arguing it would expand the health care choices for small employers and franchise operators — and lower premiums for them and their employees.
But the small businesses left in the Obamacare markets would likely face higher prices and fewer insurers willing to cover such an increasingly risky population. That deterioration could spread to the individual market if the Trump administration rewrites the rules broadly.
Sen. Rand Paul — who’s pushed Trump repeatedly to expand association health plans — has long argued for letting people buy their way out of the Obamacare markets by forming their own small associations. Doing so would test the bounds of ERISA, which legal scholars emphasize is supposed to apply only to employee benefits, not individuals’ health coverage.
But Trump has declared repeatedly that his goal is to give people more choices and lower premiums. Some health plans, already spooked by Trump’s threats to pull federal funding for crucial subsidies, have discussed suing the administration if it tries to expand its reach into the individual market.
"How that doesn’t get challenged, how that isn’t such an expansive interpretation of ERISA that goes beyond the administration’s authority — someone’s absolutely going to" bring a legal challenge, said an insurance industry official, who requested anonymity to discuss strategy. "This is chaos."
Still, Trump’s executive action could offer the GOP its best remaining chance to follow through on its vows to unravel Obamacare — and in a twist, take the health care market in a more conservative direction than most congressional Republicans ever contemplated.
"They could really change the incentives quite dramatically," Corlette said. "It depends on how far they want to go."