The Trump White House has issued two Obamacare-related policy announcements this week: announcements that some characterize as “gutting” or “sabotaging” the health care law. But a sober, factual analysis reveals that the Trump decisions will be fairly modest—and largely positive—in their effect.
Trump’s ability to act is constrained by the law
It’s pretty clear that President Trump is frustrated by Senate Republicans’ inability to pass health care reform. Republicans control 52 seats in the Senate, and based on what has transpired thus far, it appears there is no GOP bill that can attract the support of Rand Paul (Ky.), Susan Collins (Maine), or John McCain (Ariz.). Hence, until and unless the composition of the Senate changes, the only actions Republicans can take are through the executive branch.
Given the President’s eagerness to wield his pen, you’d think that he would have a lot of options to push health care back in a more free-market direction. But he doesn’t.
Eight years ago, much was made of the 2,000-plus page length of the Patient Protection and Affordable Care Act, now simply abbreviated as the “ACA.” But the reason Obamacare weighed in at 2,000 pages is because the law passed by Democrats detailed, in highly specific language, how Washington would run the health care system from here on out.
While the HHS Secretary—in those days, Kathleen Sebelius—would have the authority to determine exactly how to implement Obamacare’s rules, the Obama administration was (in theory) bound by the statutory law passed by Congress.
Now, in reality, the Obama administration was highly selective in enforcing the Affordable Care Act as written. Here are just some examples of ways in which Obama simply ignored the Affordable Care Act and decided to do what he thought was best, regardless of the law:
- The Obama administration decided not to enforce the law’s employer mandate until 2015, and then delayed its enforcement a second time.
- After millions of Americans complained that their insurance plans had been canceled—contrary to Obama’s promise that “if you like your plan, you can keep your plan”—Obama declined to enforce aspects of the law that required those plans to shut down—until he was reelected.
- The Obama administration decided—unilaterally—to waive Obamacare’s individual mandate, by granting a “hardship exemption” to anyone for whom Obamacare’s offerings were “unaffordable.”
- The Affordable Care Act forced insurers to offer plans with reduced co-pays and deductibles for those with very low-incomes, but didn’t appropriate the cost-sharing subsidies needed to pay for them. Facing a rebellion from insurers, who were being forced to cover these individuals at a loss, the Obama administration decided to spend the money anyway, even though they had no legal authority to do so.
I could go on, but you get the point.
As the Romans used to say, “Quod licet Iovi, non licet bovi.” What’s legal for the gods is not legal for mere cattle. Those who wanted Obamacare to succeed largely shrugged off the Obama administration’s illegalities. But the sense that that there was one set of rules for political elites, and a different set of rules for average Americans, did a lot to drive the Trump phenomenon.
Hence, there is very much a sense within the Trump White House that two wrongs don’t make a right: that whatever Trump does on health care must conform to the letter of the law, as enacted by Congress.
And that brings us to the events of the past few days.
On Thursday, President Trump issued an executive order covering three areas: (1) allowing small businesses to pool together to purchase health insurance; (2) restoring the ability of individuals to buy short-term plans exempt from some Obamacare rules; and (3) examining ways to make employer-funded health savings accounts more flexible.
On Friday, the President announced that he would no longer be disbursing the cost-sharing subsidies that I discussed above, until Congress appropriates the funds for them.
Executive order, part one: Association health plans
The idea of association health plans has been around for a long time. George W. Bush included them in his 2007 health-reform proposal. 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.
Executive order, part two: Short-term limited-duration insurance
Short-term, limited duration health insurance plans, or STLDIs, used to be an afterthought in the health insurance market. Historically, STLDIs are used by people who need a few months of coverage in between jobs. These plans can only last for less than a year (i.e., 364 days), and are exempt from Obamacare’s rules around pre-existing conditions and the like.
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.
Executive order, part three: Health reimbursement arrangements
This is the most interesting piece of the Trump executive order. 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.
Furthermore, it would provide fiscal certainty to businesses, who could offer a defined contribution—say, $6,000 per worker or $12,000 per family—for that worker to buy health insurance on his own.
Ending illegal cost-sharing subsidies
Finally, we get to Friday’s decision to end the disbursement of illegal cost-sharing subsidies, until Congress appropriates the money for them. This should not be thought of as a health policy decision, but rather as a constitutional one. 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.
It’s time for Congress to act
What the White House has done, in effect, is to send the ball back into Congress’ court, where Congress has the authority—and the interest—in appropriating funding for cost-sharing subsidies. They should do so, if they can pair that funding with other reforms that would provide relief to those facing unaffordable Obamacare premiums.
Is this Congress capable of doing that? The jury is out.
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UPDATE: The above post focuses on the impact of Trump's orders on low-income individuals eligible for Obamacare’s subsidies. On Twitter, some have asked me to comment on the impact for those with incomes above 400 percent of the Federal Poverty Level, who are thereby ineligible for Obamacare subsidies.
The answer is that higher-income individuals will also do fine under these orders. Cost-sharing subsidies are tied to Obamacare “Silver” plans; Bronze, Gold, and Platinum plans remain unaffected, and short-term limited-duration plans provide an even more affordable option for most.
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