President Trump on Thursday signed an executive order enacting a set of regulatory reforms to broaden the availability of affordable health insurance options. These will allow more small businesses to provide the cost-effective health care plans currently enjoyed by those working for large employers, and allow states to expand the availability of short-term plans costing a third of the premiums prevailing on the exchange. These reforms will do nothing to erode the regulatory requirements of exchange plans to cover individuals with pre-existing conditions, nor do anything to trim the statutory guarantees of subsidies that make such coverage possible and profitable for insurers.
The $5,712 average premium on the exchanges established by the Affordable Care Act greatly exceeds the $709 median health care costs borne by Americans uncovered by public entitlements. Its plans may be appealing to the chronically ill (who may expect annual medical costs above $50,000) or those earning less than $18,090 (who receive subsidies to guarantee that a plan covering 94 percent of medical expenses costs no more than $724 per year), but for the bulk of the population it offers extraordinarily poor value.
This announcement represents the Trump administration’s first commitment to a clear regulatory strategy for fixing this problem. By proposing to expand specific alternatives, while preserving the guarantees of the exchange as a subsidized safety net for low-income individuals and those with pre-existing conditions, the administration has given insurers a blueprint on which to base their market strategies and rate filings.
The majority of non-elderly Americans (151 million) receive health care through their employers. While average premiums on the individual market (the main target of the ACA’s reforms) increased by 105 percent from 2013 to 2017, average premiums for employer plans (including costs to employers) rose by only 14 percent.
The more businesses provide health care, the lighter the burden on public entitlements and federal taxpayers. Almost all large businesses (96 percent with over 100 employees) currently offer health insurance to their staff, compared with only 50 percent of businesses with between three and 50 workers.
Much of this difference is due to the Employee Retirement Income Security Act of 1974, which was designed to allow employers to provide the same health care benefits to staff across the country. ERISA also frees employers from state laws designed to hobble the bargaining power of insurers with medical providers, exempts them from costly mandates imposed by state-level political machines, and allows them more flexibility to deliver health care in cost-effective ways. But, because ERISA is only available to employers who pay health care claims out of their own funds, it has proven feasible only for large employers: 79 percent of firms with over 200 workers have self-funded plans, compared with only 15 percent of those with less than 200 employees.
The Trump administration has therefore proposed to expand Association Health Plans. It would allow a larger array of smaller businesses to get together and pool their health care risks, so that they could benefit from the same affordable ERISA-type plans that those working for large employers currently enjoy. As employer plans are already separate from the individual market's risk pool, it is hard to see the hysterical reaction of former Obama officials to the proposal as anything but scaremongering.
For those who fall between gaps in employer coverage, the Trump administration has also proposed to reverse the Obama administration’s attempts to sabotage the Short-Term Limited Duration market, which had been specifically exempted from the ACA’s insurance market reforms. STLD plans provide similar health care benefits to those available on the exchange for an average of a third of the premium of the cheapest plans available.
In a rule proposed the week before the 2016 election, the Obama administration sought to limit the duration of STLD plans to 3 months, and to prevent insurers from guaranteeing their renewability. The National Association of Insurance Commissioners opposed this regulatory assault, noting that it would serve to prevent only those who get seriously ill within the plan’s term from renewing their coverage. Yet, if the STLD rule were overturned, states would nonetheless retain the right to reinstitute it, or to prohibit STLD plans entirely (as New York already does).
Federal subsidies through the exchange expand automatically to limit the cost of insurance for low-income individuals with pre-existing conditions, regardless of the amount of healthy people enrolled in the exchange. As 70 percent of those currently enrolled in the individual market are eligible for subsidies, shifts in the risk pool on the exchange do little to alter premiums for the bulk of enrollees, and a McKinsey analysis rightly concluded that there is therefore "little risk” of a “death spiral.”
The suppression of cheaper or more attractive alternative insurance options is therefore as unnecessary as it is inequitable, and has served mostly to convince unsubsidized healthier Americans to stop purchasing insurance altogether. That is a situation which serves nobody’s interests, and efforts by the administration to improve the choices of those unable to afford care deserve widespread support.