President Trump has strongly hinted that new rules may be forthcoming imminently that would let many more people purchase "Short Term Health Insurance" and "Association Health Plans" instead of being largely confined to higher-priced plans that conform to all the requirements of the Affordable Care Act. Critics of this proposal argue that it would result in healthy people exiting the Exchanges established by the ACA, resulting in major insurer losses for 2018 and higher premiums or, frankly, collapse of many markets by 2019. Supporters of the proposal note that Obamacare has left individual health insurance unaffordable for large segments of the American public and that some alternative needs to be provided.
They're both right. Widespread availability of these insurance alternatives would indeed lead to significant defection of the healthy from Exchange policies and leave the risk pool in many jurisdictions in tatters. Insurers who could not find a way to exit in 2018 would lose money and would finally learn by 2019 that the only way to "win" the ACA game is not to play.
But is also true that, for many people, the ACA has already betrayed its central goal of providing affordable health insurance to individuals. All the Trump plan would do is provide an alternative to a market that has already collapsed.
There actually is a middle ground, though. It's one I hope the Trump regulations -- assuming they are not just bargaining leverage to be used to get a better deal from Democrats -- take advantage of. Make the insurance alternatives (short term plans, association plans) more widely available, but do so only to persons for whom the Obamacare market has indeed become unaffordable.
First, let me sell this idea to liberals and Democrats and supporters of the Affordable Care Act. What you have to recognize is that partly because of inherent flaws in the ACA that our political system has not yet been able to fix and partly because of a lack of vigorous support of the law from the current executive branch, for many people the ACA has destroyed their possibility of getting health insurance at anything like an affordable price.
The table below shows the percentage of rating areas in which, by 2018, the cheapest bronze policy will cost a person earning just over 400% of the federal poverty level more than 10% of their income. I pick 10% because that is roughly the maximum amount that the ACA requires a person earning under 400% of the federal poverty level to pay for the second lowest silver plan. So, if making a person earning 399% of the federal poverty level pay 10% for the second cheapest silver plan is unfair then, a fortiori, making a person earning 401% of the federal poverty level pay 10% of their income for a considerably less generous bronze policy is yet more unfair.
In case you missed it, in every single rating area examined, policies in 2018 will be unaffordable for persons 60 years old and with an income or other characteristics that prevents them from obtaining a subsidy. We are not talking about Silver PPO plans here or Gold Plans or policies that have deductibles or, say, only $2,500. We are talking about the cheapest Bronze HMO plans that don't give insureds much choice in selecting a provider and that generally have deductibles in excess of $6,000. People age 60 can't afford them anywhere and only a small fraction of people age 50 will find them affordable, even by the generous metric used here.
To be sure, the figures in the above table are approximate because bronze prices have not yet been finalized. I've assumed for purposes of simplicity a uniform 18% increase in gross premiums for bronze policies, which is less than the overall 30% plus estimated hike in premiums for 2018 because much of that, for complex reasons, will be loaded on to silver plans. It is also approximate because the dataset with which I am working contains only states that sell policies on the federal exchanges. Still, the figures are sufficiently telling that I do not believe fine tuning will change the basic story. And the basic story is that in large swathes of the United States, even the most basic ACA policies have become unaffordable for those ineligible for subsides, at least 25% of purchasers.
Before we get into details, though, let me also sell the middle ground to those who dislike the Affordable Care Act. You need to realize that making short term health plans too attractive -- like making them available for an entire year -- 0r making it to easy to obtain minimally regulated Association Health Plans is also likely to kill off the ACA in a chaotic way, one that is going to hurt people you know and people that you care about.
Trump's critics have a valid point. If you let people leave the Exchanges for policies that provide lesser protection but cost, say, one third as much, healthier people are indeed going to leave. They would be stupid not to. And markets will grow up fast to serve them better. That will indeed convert the Exchanges ever more into high risk pools. But insurers priced their policies for 2018 on the assumption that a decent fraction of insureds would consist of reasonably healthy people. Starve the insurers of premiums from the healthy and make them continue to pay claims for those who are sick -- that is a recipe for financial disaster. Insurers will struggle mightily to exit midyear or, at a minimum, decline to take on any new insureds. And they will have the support in doing so of many state regulators who do not want to deal with the extreme ugliness of insurer insolvency.
Now, of course, one reaction to the preceding paragraph is "So what?" Or "Actually, it would be great if Obamacare collapsed." I am going to suggest that any initial euphoria is likely to be short lived. First, when insurers exit there are going to neighbors of yours who, through no fault of their own, no longer have health insurance and now face the perils of being uninsured in modern America. And, if they have health problems they are indeed going to have troubles in getting any of these alternative forms of policies. You will bear some moral responsibility when they won't go to a doctor for needed medical care or when they are bankrupted -- as some of them will be -- when urgent medical needs forces them to confront without any protection the obscenity of modern medical pricing.
Second, do you really want to kill Obamacare through executive action without any real prospects for fixing it in 2019? Call me old fashioned. Have it stick in your craw that President Obama's administration basically propped up the ACA for years through illegal executive action such as tens of billions in unlawful cost sharing reduction payments and $5 billion of money for insurers that Congress directed go to the United States Treasury. But, even if its life was prolonged by illegal executive action, shouldn't the death of the ACA be accomplished by a legislative process instead of a clever exercise of executive power? So, unless you think executive action is going to spur compromise rather than further roil the waters or unless you really think you're going to get a far bigger legislative majority by late 2018, recognize that the suggested Trump executive action is likely to work huge changes in the healthcare landscape without what many would consider to be the traditional checks and balances created by having a legislature -- a fact that will not go unnoticed by some judges asked to examine the legality of the Trump rules. There is a heavy price to be paid for political hatred regardless of the side from which it emanates.
But all of this is not necessary. One can rescue people now being hurt by Obamacare without completely sabotaging the law. Here is the principle:
Alternative forms of insurance such as Short Term Health Insurance and Association Health Plans should be made more widely available to persons who, because of their ineligibility for subsides, the rating area in which they reside, and their age find that ACA-compliant plans are unaffordable.
There are, of course, details to be worked out:
- What do we mean by unaffordable? Should it be measured by the cheapest bronze plan, some sort of silver plan, some constructed benchmark? What percentage of income should be used as the cutoff? Should it be the 8% that marks exemption from the individual mandate, the 9.56% maximum that persons earning less than 400% of federal poverty level have to pay for the cheapest silver, or some round number, such as 10%?
- How individualized do we get in measuring affordability? Do we look, for example, at the projected particular income of the insured and say that even though premiums in their rating area are sky high, still, since they are projected to earn $500,000 in the coming year they don't get to access the expanded market because they really could afford ACA-compliant plans? Or do we not try to engage in complex individual projections and use simple measures to determine affordability -- such as whether the premiums for a certain age are over some amount in a rating area?
- What, if any constraints are there to be on the insurance alternatives? Can a short term health plan last a full year? Must it provide any federally mandated benefit? How related to the Association does a person have to be before they can join an Association Health Plan?
Still, these details do not seem insuperable. There are reasonable answers to these questions that could be developed before year's end.
Finally, let me deal with two anticipated objections from liberals and other supporters of the ACA.
1. This is all Trump's fault
If President Trump would just enforce the mandate and make the cost sharing reduction (CSR) payments, there wouldn't be a need for these alternatives, which, even in your restricted form, are going to hurt the marketplace.
That's a convenient story, but it is not a great basis for rejecting the middle ground proposed here. First, get real. President Trump is not going to suddenly change grounds, fall in love with the individual mandate, more fully fund advertising for ACA enrollment, and cheerfully renounce any threats to stop making the CSR payments. So, even if another President could fix the ACA without the suggestions made here, that is not the world we live in. And in the world we live in, a lot of people are about to get hurt.
Moreover, the plight of the ACA simply is not all Donald Trump's fault. ACA premiums were high and rising during the Obama administration. Candid supporters of the law admit that even without what some term "The Trump Tax," ACA premiums were going up next year, perhaps by about 18%, with these increases likely being roughly similar among bronze and other metal levels. In many states, problems with the ACA such as the inadequacies of its risk adjustment program and the failure of its plans to be sufficiently attractive to younger, healthier people, have shrunk the market far beyond what was originally projected with ever increasing premiums the predictable consequence. Restrictions on enforcement of the individual mandate, limitations on that mandate baked into the ACA, and absurdly expansive interpretations of those exemptions by the Obama administration, likewise have contributed to the high premiums. So, some of the need for my "middle ground" stems from actions of the current President, but not all of it and, in the end, I am not so sure it matters.
2. Even a Middle Ground Is Going To Cause Problems
You already acknowledged that greater use of these alternative insurance plans is going to shrink the Exchange market. And you already acknowledged that killing Obamacare through executive action is politically problematic. But this plan suffers the same types of problems.
My response is that it is a matter of degree. Yes, it will shrink the market, but probably not by very much. How many healthy people who would have to pay more than 10% of their income to obtain insurance will continue to do so on the Exchanges? The middle ground I propose here should result in very few healthy people fleeing Obamacare; instead it will offer victims of Obamacare a respectable alternative. And, yes, changing the ACA through executive action rather than the legislative process is a bit bothersome. But the ACA has always been implemented through executive action, including some actions that were quite drastic such as not enforcing the employer mandate as written for two years or interpreting "cost sharing reduction" payments to be really the same thing as premium tax credits and thus payable out of an account reserved for tax refunds. There's a difference between executive actions that mortally wound the ACA and executive actions that provide essential correctives while leaving its basic idea intact.
