President Donald Trump on Thursday signed an executive order directing an overhaul of major federal health regulations, calling it the first step toward fulfilling the GOP’s promise to repeal Obamacare.
The order is aimed at encouraging 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.
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“We’ve been hearing about the disaster of Obamacare for so long,” Trump said. “I just keep hearing repeal, replace, repeal, replace. Well we’re starting that process.”
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 Health and Human Services 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 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 are aimed at widening the array of health plans available to consumers and lowering premiums, Trump administration officials argue, in a bid to counter the struggles of the Obamacare markets.
The action drew immediate praise from conservatives in Congress including Sen. Rand Paul, who had pushed Trump for months to encourage the use of association health plans.
“President Trump is doing what I believe is the biggest free-market reform of health care in a generation,” the Kentucky Republican said. “This reform, if it works and goes as planned, will allow millions of people to get insurance across state lines at an inexpensive price.”
The executive order will also direct an expansion of a program allowing large employers to use pre-tax dollars to fund workers’ health insurance premiums.
It asks agencies as well to study further actions states and the federal government can take to expand health plan options and lower premiums, ahead of what Trump promised would be a series of administrative steps aimed at unraveling Obamacare and boosting competition within insurance markets.
“The competition will be staggering. Insurance companies will be fighting to get every single person signed up,” the president said. “Today is only the beginning.”
Trump also insisted the GOP will try again to repeal and fully replace Obamacare, after multiple failed attempts over the last several months. Congressional Republicans have since turned their attention to tax reform, admitting they are unlikely to have the votes to pass a health care bill anytime soon.
“I believe we have the votes to do block grants [to states] at a little bit later time, and I believe we’ll be able to do that,” the president said, adding that he will “pressure Congress very strongly to finish the repeal and replace of Obamacare.”
Skeptical health policy experts warned the changes will spur the emergence of a deregulated health insurance system that competes for the same customers as the Obamacare markets, 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 [Affordable Care Act] 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 currently 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.
Trump’s order won’t be specific, and senior administration officials insisted that any changes would go through a traditional rule-making process that invites public comments and could take months to complete.
But multiple people familiar with the plans said the Labor Department is already far ahead 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. Senior administration officials said a decision has not been made on whether individuals could buy into association health plans.
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.
The National Association of Insurance Commissioners — which represents every state insurance regulator — panned the effort to expand association health plans as a pre-emption of their regulatory authority that could harm the Obamacare markets.
“The NAIC has long expressed concerns with expanding AHPs in a manner that reduces consumer protections or solvency requirements that promote safe and sound markets,” the organization wrote in a statement. “We also have concerns about the impact of such a proposal on already fragile markets.”
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.
Association health plans — which were more widespread prior to Obamacare’s passage — would still have to meet many of the law’s standards, including its ban on annual and lifetime limits for an individual or family’s health care costs and its requirement for small group markets that everyone in the group be charged the same premium.
But critics counter that it would be difficult to put strict guardrails on who exactly qualifies as an association. That could open the door to a rush of newly formed associations designed largely to appeal to younger and healthier enrollees.
If the administration offers that broad leeway, it “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.”
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, as Paul long advocated. The Kentucky Republican has 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. Even some of the strongest proponents of association plans insist that strong guardrails must be placed on what groups can qualify.
“Constraining participation to bona fide trade associations — that’s a critical element,” said Neil Trautwein, the vice president for health care policy at the National Retail Federation. “I think there is a way that you can weed out the true trade associations from the would-be fly-by-nights.”
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.”