From premiums to politics: 5 predictions for the health insurance industry in 2018

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After the demise of two major insurer mergers and multiple Affordable Care Act repeal attempts, few could argue that 2017 wasn’t an eventful year for the health insurance industry.

But 2018 is shaping up to be just as interesting—complete with more political wrangling, M&A intrigue and evidence that, despite all this uncertainty, insurers are pushing ahead and embracing innovation.

Read on for our predictions about what’s in store for the industry in the coming months.

1. The CVS-Aetna deal will have a domino effect in the healthcare industry

While the lines between payer, provider and pharmacy benefits manager have been blurring for a while now, CVS’ $69 billion deal to purchase Aetna is undoubtedly a game-changer.

The move was likely motivated by a desire to compete with UnitedHealth’s thriving Optum subsidiary, which has its own PBM and an increasing presence in care delivery. So it stands to reason that other major insurers will try to strike deals of their own that mimic that scale and level of diversification.

Already, Humana has made a bid to purchase part of hospice- and home-health giant Kindred Healthcare. There’s also been speculation that it is preparing to be acquired—possibly by Cigna, or in a deal that would mimic CVS-Aetna, Walmart or Walgreens.

Other insurers may also seek to build PBM capabilities, following in the footsteps of UnitedHealth, a combined CVS-Aetna and Anthem, which announced in October that it would team up with CVS to create an in-house PBM called IngenioRx.

It’s certainly possible, however, that CVS’ purchase of Aetna will not pass regulatory muster. While it would require less divestment than the ill-fated Anthem-Cigna and Aetna-Humana deals, the DOJ’s decision to block another vertical deal—between AT&T and Time Warner—doesn’t bode well for its chances.

2. Republicans and Democrats will be forced to work together on ACA fixes

With one less Republican senator—thanks to Alabama’s election of Democrat Doug Jones—the GOP likely won’t have the votes to pass a repeal bill without bipartisan support. Senate Majority Leader Mitch McConnell acknowledged as much before Congress’ holiday recess, though he clarified the next day that he would be happy to pass an ACA repeal bill if there are enough votes for it.

McConnell also owes Sen. Susan Collins, R-Maine, as he had promised her he’d pass her reinsurance bill and a bill that would fund cost-sharing reduction payments this year. While Collins held up her end of the bargain—voting for the GOP tax bill—the ACA fixes didn’t make it into the stopgap spending bill Congress passed on Dec. 21.

Democrats, meanwhile, will also be motivated to reach across the aisle. The repeal of the individual mandate will likely put the ACA on more unstable footing, lending more urgency than ever to the task of shoring up the exchanges.

Both parties will also likely face pressure from the healthcare industry’s biggest lobbying groups to get some sort of ACA fix passed. The push to do so, however, will be complicated by the full slate of legislative priorities Congress is facing in the new year, including reauthorizing funding for the Children’s Health Insurance Program.

3. There will be more premium hikes and insurer exits in the individual market

The individual mandate is now gone, and arguments about its effectiveness aside, that was one of the mechanisms that encouraged healthy people to buy insurance and stay covered. Even if the effect on coverage levels is minimal, the move is probably going to be enough to push risk-averse insurers to raise rates and even exit more rating areas in 2019.

There is also little indication that large insurers that have exited will come back anytime soon. After all, why invest resources in an unstable market when there are far more steady and lucrative markets like Medicare Advantage?

Adding to the policy uncertainty for the remaining insurers, there is no guarantee that Congress will authorize short-term funding for cost-sharing reduction payments. Many insurers raised their 2018 rates to account for the possibility of them disappearing—which turned out to be a wise move—so it stands to reason they’d have to do the same for 2019.

Perhaps the best harbinger of what’s to come came from a study conducted in November, which noted that the actions insurers and state regulators took to fill in “bare counties” on the ACA exchanges are “temporary and unsustainable without long-term federal action.” And with Republicans in charge, federal action to patch up the exchanges is unlikely.

4. Federal agencies will start to carry out Trump’s executive order—and states will push back

Although it was overshadowed by all the repeal-and-replace drama, Trump’s healthcare-focused executive order has huge implications for the industry. Put simply, it paves the way for expanded use of association health plans, short-term health plans and employer-based health reimbursement arrangements.

In 2018, we’re likely to see the relevant agencies start issuing rules to implement the order, which could dramatically change the individual market as we know it—and not for the better. Such rulemaking would also set the stage for a power struggle between the federal government and left-leaning states.

In fact, a coalition of healthcare organizations have urged state insurance commissioners to take steps to override any rules resulting from the executive order. For example, states could restore the three-month limit on short-term health plans if agencies unwind that Obama-era rule on the federal level.

Since only certain states are likely to heed these suggestions, the upshot of Trump’s executive order will be to create a patchwork of individual market rules across the country. If that sounds strangely like what the individual insurance markets were like before the ACA, well, that’s precisely the point.

5. Payers’ move to value-based payment models will continue, with or without the feds leading the way

On the one hand, the Trump administration clearly wants to scale back the federal government’s role in pushing payers and providers away from fee-for-service payment models. The surest sign was CMS’ announcement late last year that it would endmandatory bundled payment models for hip fractures and cardiac care.

Some have worried that moving away from those mandatory programs would be a setback for the move to value-based payments, given that the feds play a powerful role in galvanizing the industry to change. In addition, the administration wants to take the Center for Medicare and Medicaid Innovation in a “new direction”—one that CMS Administrator Seema Verma said would “move away from the assumption that Washington can engineer a more efficient healthcare system from afar.”

But even if the federal government will take a lighter touch in the move from volume to value, it’s not likely that the private sector will take that as a cue to reverse course. On the payer side, especially, too many industry-leading companies have invested heavily in alternative payment models to turn back now. And they have compelling business reasons to keep investing in those models, given their potential to lower costs and improve care quality.


GOP unlikely to repeal ObamaCare mandate in tax measure

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The House is unlikely to repeal the mandate to buy insurance under ObamaCare as part of its tax-reform bill, GOP sources say, though the issue could return down the road.

President Trump and conservative lawmakers are pushing for the individual mandate to be repealed in the bill, but House Ways and Means Committee Chairman Kevin Brady (R-Texas) has expressed worry that the controversial measure would jeopardize the broader tax-reform bill, given the Senate’s failure on health care earlier this year.

“It hasn’t ever been in the [House] bill,” said one Republican on the Ways and Means Committee who has been taking part in the negotiations. “I expect that it will be added somewhere down the sausage-making venture.”

“I agree there is a chance, but I think if it gets included, it would be on the Senate side,” added a second Ways and Means Republican.

Senate GOP leaders said they plan to roll out their own tax bill on Thursday. Sen. Tom Cotton (Ark.) has been the leading GOP senator pushing to include repeal of the mandate in the tax bill.

House leaders emerging from a meeting Monday evening said no final decision has been made on the individual mandate issue, and Brady and Speaker Paul Ryan (R-Wis.) both said in interviews in recent days that they have not ruled out the idea.

“We have an active conversation with our members on a whole host of ideas on things to add to this bill and that’s one of the things being discussed,” Ryan said during an appearance on “Fox News Sunday.”

But Brady expressed concerns about including the mandate’s repeal at an event last week.

“There are pros and cons to this,” Brady said at an event Friday hosted by Politico. “Importing health care into a tax-reform debate has consequences.”

If Congress doesn’t act, Trump has vowed that he will. The president is reportedly considering taking executive action on the insurance mandate if Congress leaves it out of the tax-reform bill.

A lobbyist told The Hill the administration is working on guidance, which might not be in the form of an executive order, that would expand what are known as “hardship exemptions” that allow people to be exempted from the mandate’s requirement to have health insurance or pay a fine.

Brady said Monday that repeal of certain ObamaCare taxes would not be included in tax reform. Instead, he said he is working with Democrats on temporary relief from measures like the medical device tax and health insurance tax.

“We are working on common-sense temporary and targeted relief from many of these taxes to be acted on in the House before the end of the year,” Brady said.

Repealing the mandate could destabilize health insurance markets, experts warn, by removing an incentive for healthy people to enroll. The Congressional Budget Office has previously estimated that repealing the mandate would increase premiums by 20 percent.

Trump has been pushing to repeal the mandate in the tax-reform bill. Brady said last week that Trump had asked for it twice on the phone and once in person. Trump also told a meeting of Republican lawmakers at the White House last week that he wanted to repeal the mandate in tax reform and floated adding it in the Senate, attendees said.

Two conservative leaders, House Freedom Caucus Chairman Mark Meadows (R-N.C.) and Republican Study Committee Chairman Mark Walker (R-N.C.), have been pushing leadership to repeal the mandate in the tax bill. Walker has been slightly more aggressive, calling it a “good move.”

“When given the opportunity to actually address even part of an ObamaCare repeal with a simple majority, our leadership consistently finds excuses to justify their failure,” said a conservative House lawmaker who favors adding repeal to the bill.

“The individual mandate will be repealed by the president while Congress makes excuses.”

A number of lawmakers — both on and off the Ways and Means panel — are predicting the tax legislation Brady unveiled last week would attract the 218 GOP votes needed for passage.

While a handful of vocal New York and New Jersey Republicans are objecting to a provision of the bill that scraps or limits state and local tax deductions, most moderate Republicans have signaled they will go along with the legislation rather than derail one of the GOP’s top campaign promises of the 2016 elections.

So there is a reluctance among GOP vote-counters to add the insurance provision and upset that fragile balance.

“I believe it’s going to be a very strong vote based on my interactions with members and their passion to reform the tax code,” Rep. Jason Smith (R-Mo.), who serves on both the Ways and Means Committee and Ryan’s leadership team, said of the current version of the bill.

What’s next for the ACA after Trump’s executive order

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President Trump couldn’t get Congress to repeal the Affordable Care Act, so he signed an executive order to encourage cheaper, less regulated insurance options — a change that critics fear will remove patient protections and undermine insurance markets. In response, Senators Lamar Alexander and Patty Murray have put forward a bipartisan bill designed to stabilize the ACA markets.

With the future of the ACA so fiercely contested, what impact will Trump’s executive order have on health insurance, and what action should Congress now take?

We asked five experts:

Gallup: Uninsured rate climbs to 12.3% in Q3

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Dive Brief:

  • The share of U.S. adults who lack health insurance inched up 0.6 percentage points to 12.3% in the third quarter of 2017 over the previous quarter, a new Gallup poll shows.
  • The uninsured rate — 1.4 points higher than at the end of last year (3.5 million more Americans) — is now the largest since the 2014 fourth quarter when it was 12.9%.
  • The biggest decline is among individuals with self-paid plans, which fell 1.3 points to 21.3% since the end of 2016. The poll — part of the Gallup-Sharecare Well-Being Index — draws on interviews with 45,000 U.S. adults between July 1 and Sept. 30.

Dive Insight:

The numbers are somewhat alarming given the record low 10.9% uninsured rate in the second half of last year. Still, the current rate is well below the 18% high seen in Q3 2013, before the Affordable Care Act’s (ACA) insurance exchanges and individual mandate took effect.

After adults with self-paid plans, the biggest change is among Americans with Medicare coverage, down 0.5 percentage points to 7.1%.

Factors contributing to the recent rise in uninsured, according to Gallup, include the lack of competition and rising premiums as payers exit the exchanges, and uncertainty about the ACA’s future.

With President Donald Trump and Republican lawmakers attempting to sabotage the ACA, the number of uninsured is likely to continue to rise. Earlier this month, Trump signed an executive order loosening health plan benefit requirements and said he would discontinue cost-sharing paymentsto insurers. The combined moves will undermine the exchanges and allow payers to offer skimpier plans with more out-of-pocket costs.

Congress also let pass it Sept. 30 deadline for reauthorizing the Children’s Health Insurance Program (CHIP), which provides coverage for nearly 9 million children. While Congress has vowed to pursue legislation, states are concerned a delay in reauthorization could cause federal funds, which pay for most of the program, to run dry.

The Gallup findings are somewhat in line with a recently released National Center for Health Statistics survey, which found the percentage of all uninsured Americans dropped to 8.8% in the first quarter of this year versus a year ago. Among adults between 18 and 64, the uninsured rate was 12.1%, 5.3% of children were uninsured.

Hospitals, many of them already struggling, are bracing for more uncompensated care as Trump and Republicans angle to roll back Medicaid expansion. A new formula for calculating uncompensated care payments is also fueling industry concerns. The formula, part of the Medicare Inpatient Prospective Payment System, would increase disproportionate share hospital payments to $6.8 billion, or about $800 million more than in fiscal year 2017, but the American Hospital Association has called the worksheet used to calculate the payments confusing and not always accurate.

In addition, the CMS has said FY2018 uncompensated care payments for all hospitals will be $2 billion below the current level. Between 2018 and 2025, uncompensated care payments are expected to decline by $43 billion.

Keeping the Alexander-Murray health care bill in context

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As debate continues about a bipartisan fix for the Affordable Care Act marketplaces, Drew Altman’s latest Axios column describes the scale of the problems in the ACA marketplaces and the public’s confusion about whether they are impacted. He says that the news media, experts and policy makers can do more to put the marketplace problems and fixes in context as debate evolves.

As the debate unfolds about the bipartisan bill by Senators Lamar Alexander and Patty Murray to repair the Affordable Care Act marketplaces, the public could be just as confused as they have been about the ACA’s marketplaces. That’s why it’s important to debate it in the right context: It’s aimed at an urgent problem affecting a relatively small sliver of the health insurance system, not all of the ACA and not the entire health system.

The bottom line: It’s a limited measure that will never give conservatives or liberals everything they want.

Reality check: Many people will think it affects their insurance when, in actuality, it will have no impact on the vast majority of Americans who get their coverage outside of the relatively small ACA marketplaces.

The chart based on our new Kaiser Tracking Poll shows the confusion. Just 23% of the American people know that rising premiums in the ACA marketplaces affect only people who buy their own insurance. More than seven out of 10 wrongly believe rising premiums in the marketplaces affect everyone or people who get coverage through their employer.

The public will be susceptible to spin and misrepresentation of the limited goals of Alexander-Murray: a bipartisan effort to stabilize the marketplaces by funding the cost-sharing reduction subsidies, providing more resources for open enrollment outreach, and expediting state waivers.

President Trump has added to the confusion. He recently pronounced the ACA “dead”, adding, “there is no such thing as Obamacare anymore.” Possibly that’s because he wishes it was dead. More likely, he was referring to the problems in the ACA marketplaces, which he has exaggerated.

Like thinking your whole house is falling down when just a part of the foundation needs shoring up, both he and the American people have an inaccurate picture of where the marketplaces fit in the ACA and where the ACA fits in the health system.

A few facts:

  • There are just 10 million people enrolled in the ACA marketplaces.
  • The law’s larger Medicaid expansion and consumer protections are popular and working well.
  • The far larger Medicare and Medicaid programs and employer based health system combined cover more than 250 million people, and are largely unaffected by developments in the ACA marketplaces.
  • Premiums for the 155 million people who get coverage through their employers rose a very modest 3% in 2017.

Some conservatives in Congress will hold out for repeal, and they’ll resist any legislation that they view as propping up Obamacare. But for everyone else, it’s important to understand the problem and get the facts.


State Attorneys General Ask Court For Injunction Reversing CSR Payment Halt

On October 18, 2017, the attorneys general of eighteen states and the District of Columbia asked the United States District Court for the Northern District of California for a temporary restraining order and order to show cause why a preliminary injunction should not issue to compel the Trump administration to continue making cost-sharing reduction (CSR) payments until the lawsuit they have filed is resolved. The motion asks the court to make a decision by 4:00 PM tomorow, October 19, as the next cost-sharing reduction payment is due on October 20. The plaintiffs ask for a nationwide injunction as the issue it addresses is nationwide in scope.

The motion is supported by a legal memorandum and numerous affidavits. To obtain preliminary relief, a plaintiff “must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” In the Ninth Circuit, where California is located, it is enough to show that serious legal questions are presented if the balance of hardships tips sharply in the plaintiff’s favor.

The brief begins by explaining the purpose of the Affordable Care Act’s cost-sharing reductions: making health care affordable to lower-income individuals enrolled in silver marketplace plans by reducing out-of-pocket limits, deductibles, and other cost-sharing. It notes that insurers are required to reduce cost sharing for eligible individuals and that they are doing so to the tune of $7 billion for 2017. The ACA requires the federal government to reimburse insurers for these costs and up until September of 2017—including eight months of the Trump administration—it did so. Only days before the October payment was to be made, and less than three weeks before open enrollment began for 2018, the administration cut off the payments.

The states argue that Congress has in fact appropriated funds to cover the cost sharing reduction reimbursement payments. It is undisputed that Congress appropriated in the ACA funds for the premium tax credits and, the states argue, this appropriation covers the CSRs payments as well. They base their argument on the text, structure, and design of the ACA. This argument was rejected by the lower court in the House of Representatives’ lawsuit, but that decision is not binding on any other federal court and the states’ argument has never been ruled on by a federal appellate court.

The states further argue that the executive branch’s sudden termination of the CSR payments was “arbitrary and capricious” and thus prohibited by the Administrative Procedures Act. They contend that President Trump has violated his constitutional duty to “take care that the laws be faithfully executed.” The brief quotes liberally from President Trump’s tweets, in which he claimed, “The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!”; bragged that the ACA “is being dismantled, but in the meantime, premiums & deductibles are way up!” while health insurance stocks plunge because of his Executive action; and boasted that he had “knocked out the CSRs,” pronouncing the ACA “dead,” “finished,” and “gone.” The brief describes the President as “characteristically frank” in detailing his motives for cutting off the payments, which do not rely on legal analysis.

The brief describes in detail, with frequent cites to affidavits filed with the brief, the harm that the states and their residents will suffer because of the administration’s decision. These include destabilizing the states’ individual health insurance markets, increasing premiums, decreasing consumer plan choices, and suppressing market participation. The decision will also, the states assert, increase the number of uninsured individuals in the states and thus their uncompensated care costs. The brief notes that the District of Columbia Court of Appeals already recognized these burdens on the states when it granted them the right to intervene in the appeal of the case brought by the House of Representatives. The brief contends that the timing of the decision to terminate the CSR payments will cause consumer confusion and cause insurers to absorb multi-million dollar losses, further destabilizing the individual market.

Finally, the brief argues that the balance of the hardships tilts toward the plaintiff states. In particular, as has been noted by the Congressional Budget Office and others, terminating the CSR payments will cost the government more than it saves since it will increase premiums and thus premium tax credits. An injunction is also, the states note, necessary to preserve the status quo until the court can rule on the legal issues in the case.

The President’s Executive Order: Less Than Meets The Eye?

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The executive order (EO) signed by President Donald Trump on October 12 directs the Departments of Health and Human Services (HHS), Labor, and Treasury to develop federal regulations that could allow new and less expensive health insurance options for employers and consumers.

The EO marks a shift in the administration’s strategy on health care. After failing to get legislation through Congress to repeal and replace the Affordable Care Act (ACA), the administration is now attempting to move away from the ACA’s heavily-regulated markets through changes that can be implemented without a change in the law.

The executive order does not itself change any federal regulations. Instead, it sets into motion a policy development process that could lead to new regulations or regulatory guidance within the confines of current law. Although the EO gives general policy direction, the specific content of future regulations depends on legal and technical analysis to be conducted by the agencies.

The policy themes are familiar: expand access to lower-cost insurance outside of the ACA’s exchange mechanism and enhance the use of financing vehicles to help workers pay for their care. The extent of possible changes is limited. For example, the EO seeks to allow the sale of insurance across state lines, but relies on potentially expanding the ability of employers to form Association Health Plans (AHPs) under the Employee Retirement Income Security Act (ERISA). Individuals purchasing their own insurance would continue to be subject to federal and state insurance market rules.

An Uncertain And Potentially Lengthy Timeline

The timeline for producing rule changes is uncertain. The EO gives the agencies 60 days to “consider proposing regulations or revising guidance” without specifying the date when a proposed rule would be released. It typically takes months, and sometimes years, to put a new federal regulation into effect.

The Administrative Procedures Act specifies that agencies must follow an open public process when they issue regulations. Following an often-lengthy internal clearance process, a proposed rule is issued that invites public comments. The final rule taking those comments into consideration must be developed and cleared before publication. Less time is required if an agency determines that it can issue an interim final rule without first publishing a proposed rule. Interim final rules generally take effect immediately.

Even if the federal agencies move expeditiously, it is unlikely that new regulations could affect the marketplace for health insurance in 2018. ACA exchange plans have been finalized in time for this year’s open enrollment period, starting November 1. Most employers will have signed contracts for their insurance plans for next year well before the end of 2017 as well. Most Americans will be required to select next year’s coverage before the end of this year. Realistically, any new rules are likely to be effective starting in 2019 or later.

Major Policy Areas

The EO targets three policy areas for change.

Association Health Plans (AHPs)

Republicans have long supported the use of AHPs to give small employers some of the advantages that large employers have in purchasing insurance for their workers. AHPs potentially could allow small firms to operate as one large employer plan, giving them scale economies and greater market power than they have purchasing insurance as separate companies. In addition, AHPs could be exempted from some of the ACA’s requirements (including essential health benefits and community-rated premiums). However, as the law is now interpreted, AHPs are subject to the same state and federal regulations that apply to the small group and individual insurance markets, largely eliminating their usefulness.

The EO directs the Labor Department, which oversees the regulation of employer plans, to look for ways to make it easier for small businesses to join AHPs. The existing rules for multi-employer insurance plans are complex, but it may be possible that ERISA could be reinterpreted to make AHPs more effective and attractive than they are today. The EO raises the possibility that AHPs could be formed among employers operating in the same geographic area or industry. Details may not be available for some time.

Whatever changes are pursued will be heavily scrutinized and likely challenged in court. Insurers selling in ACA-regulated markets might oppose the new regulations if they expect AHPs to attract healthier individuals from more comprehensive (and more expensive) exchange plans.

It is not clear that AHPs would be a better option for small employers than they have today. Forming larger groups can help spread insurance risk and administrative costs. Larger plans can also use their leverage to push better managed care protocols into their insurance plans, and thus cut costs. However, the voluntary nature of AHPs could result in plans competing for healthier groups of workers rather than investing the resources necessary to make health care more efficient and effective.

Small employers may have the option of joining more than one AHP or staying in the regulated market. Competing AHPs might structure their coverage to attract firms with younger, healthier workers. The press statement accompanying the EO states that employers would not be allowed to discriminate among workers based on their health status. But small employers would not be forced to join AHPs, and the rules for joining might be written in ways that implicitly and subtly target firms with healthier workers.

AHPs could add value to the health system if they moved people out of expensive, unmanaged fee-for-service insurance with high administrative costs into better-run managed care plans that cut expenses through economies of scale and elimination of unnecessary use of services. The Trump administration might find a way within current law to make these kinds of AHPs available without shifting higher premiums onto less healthy workers. But the history of AHPs and related types of organizations is not promising. Many previous multi-employer plans have suffered from undercapitalization, and have gone insolvent. It will not be easy to secure the necessary capital to build a viable AHP in a market in which small employers may have several insurance options.

Short-Term, Limited Duration Insurance (STLDI)

Short-term health insurance policies offer coverage to individuals who are unable to obtain other forms of health insurance but want to be protected for a specific period of time. STDLI plans are not subject to the ACA’s insurance rules. They do not have to cover the ACA’s essential health benefits, they do not cover pre-existing conditions, and they are not required to cover people in poor health. One study found that STDLI plans are one-third the price of exchange plans. These plans have generally been viewed as niche products, sold primarily to people who are between jobs.

The EO calls on HHS, Labor, and Treasury to reverse decisions of the Obama administration that restricted the availability of STLDI plans. A regulation issued on October 31, 2016 limits their duration to no more than three months, and the plans are not renewable. Moreover, enrollment in an STLDI plan does not constitute coverage under the ACA’s individual mandate. It seems likely that the agencies have the authority under current law to allow STLDI plans to cover an individual for up to one year and to be renewable.

STLDI plans are clearly not for everyone but could prove attractive to some customers. Low-cost coverage should be made available to individuals who change jobs and those who are unable to buy exchange coverage after the open season has ended. Consumers enrolled in STLDI plans who develop a serious medical condition would probably not be able to renew their coverage but would have access to higher-premium plans offered on the ACA-regulated marketplace.

An open question is whether the Trump administration will also attempt to exempt STLDI enrollees from the individual mandate’s tax penalties. That would make short-term plans more attractive for healthy people and thus exacerbate the adverse selection that is already driving up premiums for ACA-compliant plans.

Health Reimbursement Arrangements (HRAs)

HRAs allow employers to reimburse workers for their families’ medical expenses, including deductibles and other cost-sharing payments and health items not covered by insurance. Unlike health savings accounts, workers do not contribute to HRAs. Payments made by an employer through an HRA are not treated as taxable income for the worker. The Obama administration required HRAs to be used solely in conjunction with ACA-compliant health plans.

The EO directs the agencies to propose ways to expand the availability and use of HRAs. The EO specifically states an intention to allow HRAs to be used for workers purchasing their own non-group coverage. The administration may be planning to allow HRA funds to be used to pay premiums and cost-sharing in the individual insurance market, including plans that are not ACA-compliant. Those plans might include AHP plans and STDLI, depending on other regulatory changes that might result from the EO.

For some small employers, an expanded role for HRAs may be an attractive way to help pay insurance premiums for their workers without sponsoring an insurance plan themselves. But it is far from clear how much authority there is under current law to make this kind of change. Moreover, even if the administration were able to create a larger role for HRAs, workers in small firms may not be eager to get their insurance through the ACA exchanges instead of through their place of work.

Premature Predictions

Several commentators have said that the Trump administration’s EO would result in risk segmentation that would drive up premiums and could eventually lead to dismantling the ACA exchanges. That prediction seems premature. AHPs as they exist today do not pose a threat to the ACA. It remains to be seen if the administration can make room for a viable AHP option, and whether or not that option will adversely affect the ACA exchanges. The STLDI plans are a niche market today. While it is possible their role could expand, their value is limited and attractive to only a small segment of the market. The administration’s vision for HRAs is not clear enough to predict how any changes would affect the existing ACA markets.

Each of the changes contemplated by the Trump EO would take time to put into effect. Once the rules are changed, the private sector would need to make investments to change their business practices. It is doubtful there would be a rapid transition.

Millions of consumers are enrolled in ACA-compliant plans today. The ACA exchanges face an elevated level of adverse selection. But those markets remain the only real game in town primarily because the ACA’s generous premium subsidies are only available through the exchanges. The President’s EO cannot change this reality. Whatever is done in response to the EO is likely to have a less dramatic effect on the market than some in the administration now hope, and others now fear.