On Thursday, the Trump administration proposed to change current health law by permitting millions of small businesses and self-employed individuals to purchase plans that don’t play by Obamacare rules.
“People have no idea how big that is,” President Donald Trump said of association health plans (AHP) in a recent New York Times interview. He’s right.
Thanks to the new proposed rule, people can exit the Affordable Care Act (ACA) marketplace and purchase an AHP for their health insurance. The option to purchase cheaper, skimpy health plans will likely leave older, sicker people with expensive premiums if they continue to purchase plans on the ACA marketplace. Congress repealed the ACA’s individual mandate, requiring people to have health insurance, in its tax bill late last year, but even if it had not, AHPs still would have likely disrupted the marketplace in this way. (This is a point the drafters acknowledge in the proposed rule.)
Posted Thursday on the Federal Register, the new proposed rule on AHPs would relax existing regulations around associations sponsoring health plans. The rule follows Trump’s October executive order, which directed federal agencies to write these regulations. Changes to AHPs don’t go into effect until the regulation becomes a final rule; this could happen by the end of 2018.
Here’s how AHPs could work under Trump: associations can form health plans based on common geography or industry. They form just to provide insurance and small businesses or self-employed individuals could purchase these plans. Self-employed professionals like Uber drivers or yoga instructors will likely be incentived to purchase AHPs — especially if they don’t qualify for subsidized, Obamacare-compliant plans. A concern right off the bat is this proposed regulation leaves an opening for junk insurance.
“Regulators are worried for fraudsters to come back in and put stuff together — put together a plan,” said Karen Pollitz, Senior Fellow at the Kaiser Family Foundation. “Here’s what it costs, now send me your money…There are some rules — there needs to be a governing body and stuff, but fraudsters would set that up without too much trouble.” (There’s precedent for this.)
Supporters’ main rallying cry is that AHPs provide the potential for cheaper premium plans. “AHPs have the potential to create significant efficiencies that could lower premiums across the board,” the drafters write. But while AHPs cannot discriminate against people based on health status or charge someone with cancer higher premiums, these plan discriminate against people in other ways — and this is how premiums become cheaper.
AHPs do not need to provide “essential health benefits,” an Obamacare rule that requires insurers to cover benefits like maternity and newborn care, mental health and substance use disorder services, and prescription drugs. So while the cancer patients could technically purchase AHPs, these plans may not cover what they need.
Additionally, while AHP premiums cannot vary based on a specific health condition, premiums can vary based on age, gender, geography, and occupation. Pollitz described it as “medical underwriting proxies.”
By contrast, premiums for ACA-compliant plans only vary based on age (currently, insurers cannot charge seniors more than three times what younger people pay), geography, family size, and tobacco use.
“Under these rules, well, some [medical underwriting proxies] creep back in. They can’t say ‘if you are pregnant we’ll charge you more.’ [They can say] ‘If you are a women under 40, I can charge you a ton more,'” Pollitz said.
The drafters believe AHPs will not just provide insurance to younger, healthier (less costly) workers. “They will also have incentives to form in industries with older or less healthy workers when, for example, they deliver sufficient administrative savings to offset any additional cost of insuring an older or less healthy population,” they write. But experts remain skeptical of this notion:
I would expect association health plans to avoid industries with older and sicker workers, communities with higher health needs, and benefits that attract people with pre-existing conditions.
— Larry Levitt (@larry_levitt) January 4, 2018
Focusing on one demographic is precisely how the regulation could hobble the marketplace, as explained by the Center for Budget and Policy Priorities’ Edwin Park — a notion also supported by actuarial experts:
Key point. Barring AHPs from charging higher premiums to specific employers based on health won't stop adverse selection. AHPs can/will cherry-pick healthier firms overall in other ways, destabilizing ACA-compliant market & driving up premiums for firms w/ older & sicker workers. https://t.co/eRfIuhG0kd
— Edwin Park (@EdwinCBPP) January 4, 2018
Experts are still examining how states could regulate these health plans. The rule isn’t supposed to disrupt states’ ability to regulate insurance plans but how that would work in practice is unclear, said Pollitz.
The proposed rule is open for comment for 60 days, and it’ll likely be riddled with questions about state regulation. Federal officials will likely be flooded with inquiries about the legality of such rule. “Expanding association plans to market insurance to individuals who are not employees would ‘not be remotely legal,'” Nicholas Bagley, a health care law professor at the University of Michigan told Reuters in October after Trump’s executive order.