Trump Administration's Proposed ACA Cuts Could Create Parallel Insurance Market

Under proposals from the Centers for Medicare & Medicaid, states would have more flexibility to create lower-cost insurance plans which could attract healthier individuals from the marketplace.

On his first day in office, as part of his mission to dismantle the Affordable Care Act, President Donald Trump signed an order promising to give states flexibility “to create a more free and open health care market.”

The administration on Thursday released an official set of examples to help states flex these powers.

It is intended to roll back key elements of Obama-era requirements, which were designed to promote enrollment in ACA plans that cover a broad range of medical needs and meet uniform national standards.

Seema Verma, the Centers for Medicare & Medicaid Services administrator, said those strict rules were seen by many as burdensome, and “virtually impossible” for states to meet.

Instead, the Trump administration wants states to innovate in ways that could produce more lower-cost options, even if those alternatives do not provide the same level of financial or medical coverage as an ACA plan.

“I’m confident states will come up with ideas that will work better,” said Verma.

Still, coupled with other ongoing efforts by the Trump administration to gut Obamacare, policy experts predict the ideas would further foster a parallel market of cheaper, less robust coverage that could draw younger or healthier consumers, but drive up premiums for those who remain in ACA market plans.

“Invariably, the coverage is going to be more expensive for people who really need comprehensive coverage,” said Timothy Jost, a retired Washington and Lee University law professor who follows the ACA closely.

One of the biggest changes signaled by the administration involves allowing states to revamp how federal subsidies are used. Currently, they are strictly targeted to lower-income Americans and are seen as key to bolstering enrollment in marketplace plans.

The Trump guidance would give states wider latitude to expand or narrow the income range eligible for subsidies, target them toward younger people or allow them to be used for less costly but skimpier types of insurance.

This would “potentially upend the subsidy structure,” said Sabrina Corlette, research professor at Georgetown University’s Health Policy Institute.

Another example would, for the first time, make federal subsidy money available to people who get job-based insurance, countering Obama-era rules that generally prohibited that. It would let states use federal dollars to fund accounts consumers could use to buy insurance or pay other health costs, such as deductibles or copayments. Employers or consumers could also add additional funds to these accounts.

Still, managing those accounts would be a large administrative expense for a state to oversee, said Corlette. “I don’t understand why a state would want to set it up,” she added.

Supporters say the examples unveiled Thursday would give consumers more control over how they choose to spend their health care dollars and the types of coverage they want to buy. They say it might also improve the markets, which are seeing declining enrollment as premiums rise.

“If states can provide larger subsidies to younger individuals to attract them to enroll, that will improve the market overall,” said Christopher Condeluci, a Washington, D.C., attorney who specializes in employee benefits and has served as the tax and benefits counsel to the U.S. Senate Finance Committee.

However, if many states follow the administration’s lead, critics say, it would bring back the days when insurance rules varied widely state by state. Consumers could end up buying skimpier plans that leave them vulnerable to high, unexpected medical bills.

While not prescriptive, the examples are designed to encourage states to innovate and apply for permission to offer more choices for consumers, so long as the proposals don’t cost taxpayers more and don’t reduce access to ACA plans, said Verma.

State proposals would still have to be affordable, comprehensive and not raise the federal deficit, she said. And CMS would pay particular attention to potential effects on low-income Americans, she added.

Reshaping The Individual Market

The administration’s examples focus on states’ health marketplaces, where insurance plans are designed for individuals who don’t get job-based coverage and small businesses. An estimated 14 million people buy their own coverage through those markets or through brokers.

Premiums in those markets have risen substantially since the law took effect in 2014, for a variety of reasons, including lower-than-expected enrollment by healthy people and actions taken by Congress and the Trump administration that removed the tax penalty for failing to have coverage, eliminated some payments to insurers and loosened restrictions on alternative types of insurance plans.

The administration’s examples add a new twist to a provision of the ACA, which gave states the option of seeking a federal waiver to develop alternative marketplace proposals.

To get one under Obamacare rules, however, states have to meet four “guardrails” established in 2015. These require states to ensure their proposals would provide equally comprehensive and affordable coverage, not result in fewer people enrolling or increased costs for taxpayers.

The examples, tapped by the administration as “waiver concepts,” build on the Trump administration guidance issued in late October to loosen those guardrails. That guidance, effective in 2020, says states have to provide access to affordable and comprehensive coverage, but will not be held to a strict tally of how many people actually enroll. So long as a state could show that equal numbers of people were buying some kind of coverage — either comprehensive ACA plans or less expensive but skimpier plans — it could pass the test.

That October announcement, and Thursday’s concepts, drew immediate criticism from ACA supporters, who said it encourages the use of subsidies to buy short-term plans, which aren’t as comprehensive as ACA coverage and can bar people with preexisting conditions.

Congressional Democrats sent a letter to top administration officials saying the process by which the changes are being made — meaning they are not following a formal rule-making process — are illegal.

“We believe this sub-regulatory guidance exceeds the Secretaries’ statutory authority,” wrote Ways & Means ranking member Richard Neal (D-Mass.) and Energy and Commerce ranking member Frank Pallone Jr. (D-N.J.). “It appears to be part of the Administration’s ideologically motivated efforts to sabotage the ACA.”

The Brookings Institution and other experts have raised similar questions and predicted a legal challenge.

“As soon as any state proceeds to go somewhere with this, there will be legal challenges,” said Jost, the law professor.

Verma pushed back against this warning, noting that the Obama administration also issued its guardrails as guidance, not a formal rule.

And, just as when the administration released its earlier guidance in October, Verma anticipated that critics would say the ideas would adversely affect people with preexisting medical conditions.

Those critics argue that anything that draws younger and healthier people out of the market will drive up costs for those who remain in ACA plans, including those with medical conditions who might be barred from buying an alternative policy, such as a short-term plan.

But Verma said that “nothing in this guidance would take away protections from people with preexisting conditions.”

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