“Health insurance stocks,” President Donald Trump gloated on Twitter on Saturday, “which have gone through the roof during the ObamaCare years, plunged yesterday after I ended their Dems windfall!”
The tweet was vintage Trump, combining faux-populism, enthusiastic punctuation, and boisterous ignorance (in the long run, his move could actually increase federal payments to insurers). But what was he blathering on about anyway?
On Thursday, Trump made not one but two big moves relating to Obamacare. He announced the end of government payments for “cost sharing reductions” (CSR) subsidies, and he released an executive order that opened the door for bare-bones health plans, free of Obamacare mandates. His actions have been broadly blasted as “Obamacare Sabotage.”
So, what is Trump up to? Let’s start with his decision to halt subsidy payments. In addition to the premium subsidies that make so-called “Obamacare” (or marketplace) plans more affordable for those earning less than 400 percent of the federal poverty level, the Affordable Care Act (ACA) created subsidies for those making 100 to 250 percent of the federal poverty level. These CSR subsidies help reduce low-income individuals’ cost-sharing burden (for example, by lowering copays and deductibles) — sometimes substantially.
The ACA’s drafters, however, didn’t include a clear appropriation for the CSR subsidies. As a workaround, President Obama decided to compensate the insurers directly, arguing that he was fulfilling the law’s intent. House Republicans disagreed and sued the administration, claiming he was issuing illegal payments. In 2016, a federal court sided with the GOP and deemed the payments unconstitutional (while nonetheless authorizing them to be made while an appeal was pending). Trump therefore had the green light to stop the payments at any time. He threatened to do so for months, before following through on Thursday.
The great worry is that Trump’s decision will cause deductibles and copays to skyrocket for low-income individuals on Obamacare. However, this will simply not happen.
Why? Because the law still requires insurers to provide the reduced cost-sharing plans (for instance, with lower deductibles and copays) to those earning 100 to 250 percent of the federal poverty line — companies just won’t be reimbursed by the government for doing so.
This creates some curious consequences. In August, the Congressional Budget Office (CBO) projected that insurers would respond to a move like Trump’s by raising premiums by as much as 25 percent for medium-level “silver plans” by 2020 (some of that increase already occurred this year, as insurers in many states anticipated Trump carrying through on his threat).
But here’s the rub: because premiums are subsidized and thereby indexed to income for all those earning less than 400 percent of the federal poverty level, premiums won’t actually go up for most of these individuals (who constitute 84 percent of marketplace enrollees), and in fact will go down for some.
In addition, the increase in premium subsidies will greatly exceed the loss in CSR subsidies — substantially boosting federal spending and thus the deficit. Though disruption in the marketplace could lead to an estimated 1 million more uninsured in 2018, by 2020 the CBO estimates that a million more will have coverage than under current law.
While Trump’s executive order is far from a boon — it could conceivably inject some chaos into the marketplaces in the short run, and might hurt those who make more than 400 percent of the federal poverty line and who continue to purchase “silver” marketplace plans — this is hardly the Obamacare death blow it has been described as.
What the administration hopes to gain from this move, then, is unclear. Republicans are presumably unenthusiastic about increasing federal spending on health care subsidies for low-income people. As Greg Sargent writes in the Washington Post, Trump has put congressional Republicans in a tight spot, and there is a reasonable chance that they will agree to a bipartisan deal that restores the subsidies, making the president’s move a moot point. Indeed, Democrats have the upper hand here: they should not feel compelled to concede anything substantial in return for a CSR subsidies appropriation.
What about Trump’s other measure? The same day that he cut off CSR subsidy payments, Trump signed an executive order directing his cabinet secretaries to pursue new regulations that could promote “association health plans” (AHP), along with short-term insurance plans and health reimbursement accounts.
AHPs are plans offered by associations of small businesses that would not be subject to various ACA mandates, like covering a comprehensive set of health benefits. The risk, therefore, is that their expanded use would provide a lower-cost, skimpier alternative for healthier, younger individuals, dividing the Obamacare risk pool. As health law expert Timothy Jost writes:
Their apparent intent is to siphon healthy people out of the ACA-compliant market, causing the risk pool to become every less healthy and more costly, possibly leading to collapse in some states. These measures could also leave a significant number of participants in the small group and individual market without the protections Congress intended to give consumers when it adopted the ACA.
To what extent any of this will happen is anyone’s guess. After all, signing an executive order does not allow the administration to work outside the confines of existing law — including the ACA — no matter how devious its intent.
Our response to Trump’s measures — which fall well short of the heinous Trumpcare bills over the summer — should be twofold.
On the one hand, for all the inadequacies of Obamacare marketplace plans, some 10.3 million Americans rely on them. Even if our goal is to replace the largely inadequate coverage of these plans with something much better — universal, cradle-to-grave, comprehensive coverage without cost-sharing — we should of course resist Republican efforts, whether large or small, to degrade the coverage that millions rely on now.
On the other hand, there is a danger in overstating the damage of Trump’s fiats. Or, to put it more accurately, there is a hazard in suggesting that without Trump’s mischievous sabotage, the marketplaces would be humming along like well-oiled, profit-producing health care machines.
This is not to say that the marketplaces are “collapsing” or “imploding,” as Republicans frequently contend. It is simply to note that the marketplaces have a fundamental flaw: the coverage they provide is contingent upon insurer profitability. Of course insurers are going to pull out of marketplaces when they find them unprofitable: that’s what profit-maximizing firms must do. Of course they will jack up premiums when they can get away with it: their shareholders demand it. And of course they will seek to structure benefits to discriminate against people with expensive conditions like HIV: business is business.
Nor did marketplace dysfunction begin with Trump. One year ago, Politico reported on the “insurers who are abandoning the exchanges, jacking up premiums, and forcing consumers to find new policies.” In August 2016, a New York Times headline read, “Obamacare Marketplaces Are in Trouble. What Can Be Done?” The same month, political scientist Jacob Hacker re-proposed a public option as a solution to “Obamacare’s current woes,” as the Vox headline put it.
Again, none of this is to minimize the harm that Trump and the Republicans could inflict, even without legislation. Just this month, the administration threw up barriers to contraception access using federal regulations.
But the marketplaces’ problems should be seen as intrinsic to the health reform model they embody.
In August, in a widely criticized move, the Trump administration dramatically cut the budget used to advertise Obamacare. Perhaps this is a form of “sabotage.” Yet a sensible health care program would not rely on a $100 million a year advertising budget to persuade people to buy one of a wide range of plans — far too often with sky-high deductibles and “narrow networks” of doctors — in an annual, often bewildering, electronic shopping ritual. It would automatically enroll everyone at birth into a single public program with “one big network” of doctors and no deductibles.
Life is just too short — and precious — for healthcare.gov.