President Donald Trump’s executive order yesterday allows changes to the way certain aspects of the Affordable Care Act operate, but can still be overturned by Congress through law.
What are the practical implications of Trump’s actions for employers?
Creation of association plans: There have been association-like plans around for a long time (such as captives, co-ops, etc.). While the executive order should make it easier to form these arrangements, it will still take an insurance company willing to insure the group. Many carriers refuse to take on such arrangements on a fully-insured basis due to the volatility that will occur when you have sick groups eat up all of the claims dollars and the healthier groups leave for cheaper rates. This is called the death spiral effect and has killed many previous association plans. The EO does allow for the groups to be rated based on their medical conditions, but this too has been allowed for groups that are either on a self-funded platform, or have greater than 50 employees. This could potentially help trade associations like a Realtor group, but again, they would need an insurance company willing to write such a formation. Essentially, this is great on paper, but won't have much of an effect on the market.
Selling across state lines: This part of the EO is also a perceived value. Rates are set based on region currently, due to provider contracts and the cost of healthcare. By allowing individual market carriers to sell across state lines, they will still have different rates based on the residing state of the participant on the health plan. States like California and New York could potentially benefit due to carriers not needing to comply with their state laws to sell the insurance, but that is if the insurance carrier would want to sell policies in those states where the cost of care is significantly higher than other states. Employer plans really won’t be affected by this move, nor will the individual market, as you don’t have carriers begging for entry into this space. It could potentially help with the trade associations as they seek membership outside the state it is domiciled if the plan is fully-insured. Self-funded plans already can market outside of the state.
Expansion of short-term medical plans: It isn’t clear as to whether or not these plans will meet the minimum essential coverage mandate that will allow an individual to not have a penalty for lack of insurance. If it doesn’t, then the move is more ceremonial by nature, as short-term policies of up to three months already exist.
Expansion of the health reimbursement arrangement: The signature allows for employers of all sizes to create an HRA and pay for employees to get individual policies outside of the employer on a tax-free basis. The arrangement is currently allowed for retiree health plans and small-group health plans. I don’t see this being much of any value for large employers, as they would then be subjected to the employer mandate penalty if they drop their employer plan.
Allowing cost-sharing subsidies to lapse: President Trump is allowing the cost-sharing subsidies for the individual market to lapse. This does not affect the premium subsidies individuals receive, and will not affect the deductible reduction at their level. What this will in effect do is require the carriers to continue to offer the individuals artificially lower deductibles (to those who qualify), but not be subsidized by the federal government for the increased costs for such a benefit. The rates have already been finalized for 2018, so there won’t be a change in premiums based on this move. It is my understanding that many of the carriers anticipated this to occur and filed their rates as such, so it’s possible there might not be much of an adverse effect from the move. The bigger issue is the combination of all of these moves will likely throw the market into disarray for the 2019 year if nothing is accomplished to fix the moves prior to October of next year.
While many of the changes make good sound bites, they won’t make much of an impact other than to create an urgency to create a fix. There is a greater possibility of higher costs due to the changes in 2019 than stabilization, which should cause some concern. The positive point is the market place is ever-changing and self-correcting. The market today likely will not look like the market tomorrow — or this time next year.
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