On Friday, shortly before word of pending indictments from Special Counsel Robert Mueller sucked up all the oxygen in the news cycle, the Trump administration dropped a 365-page proposal including numerous potential tweaks to the rules governing Obamacare. Among other things, the proposed rulemaking from the Department of Health and Human Services could allow insurers to sell stripped down health plans in the Obamacare exchanges, potentially leaving people without coverage when they need it, or even setting off a “death spiral.”
The proposal contains many suggested changes to existing health insurance regulations, including changes regarding Obamacare’s Essential Health Benefits, which help determine which benefits Obamacare health plans must cover. These changes are wonky and complicated, but they could potentially impact millions of Americans — especially in red states with governments hostile to Obamacare.
Under the Affordable Care Act, plans sold in the Obamacare exchanges must cover ten “essential health benefits,” a list that includes emergency services, hospitalization, maternity care, mental health treatments, prescription drugs, and pediatric care. The scope of the essential health benefits offered in such plans, moreover, must be “equal to the scope of benefits provided under a typical employer plan.” Thus, Obamacare plans, which typically are marketed to individuals and small business, must provide a level of coverage that is similar to what workers who are insured through their employer receive.
Current regulations give states some leeway to choose a “benchmark plan” that defines the scope of essential benefits in that state. Generally, though, states must pick benchmarks that actually bear some resemblance to what a “typical employer plan” would offer.
The Trump administration’s proposal defines the term “typical employer plan” to include virtually any employer-provide health plan so long as that plan has at least 5,000 enrollees. A state can effectively seek out an employer who offers an unusually stingy benefits package, and so long as that employer’s health plan covers at least 5,000 people, it can use that plan as its statewide benchmark.
Obamacare plans in that state, in other words, would only have to be as generous as the least generous employer-provided plan that a state can find.
As law professor and health policy expert Nicholas Bagley notes, the Trump administration’s proposal could cause people to buy health insurance plans with unexpected gaps in their coverage. A “random self-insured plan that excludes appendectomies could be treated as typical, even if it’s the only plan in the nation that does so,” Bagley writes. And then hundreds of patients in the Obamacare exchanges could suddenly discover that their appendectomies are not covered.
Bagley also points to a more fundamental problem with the Trump administration’s proposed rules — it has serious legal problems. “It’s black-letter administrative law that an agency can’t subdelegate its powers to outside entities, states included,” Bagley writes. Yet the Trump administration’s proposal would give states much of the Secretary of Health and Human Services’ power to decide which plans comply with the Essential Health Benefits provisions of Obamacare.
And that’s in addition to the fact that the Trump administration’s proposal relies on an extraordinarily idiosyncratic reading of the word “typical.”
The biggest danger from the Trump administration’s proposal is that it could set off what is known in health policy terms as an “adverse selection death spiral.” In a market where stingy plans are available, it’s common for young, healthy consumers to gravitate to the cheapest plans, while sick consumers will buy more generous insurance because they have no other choice if they want to cover their medical bills. As healthy patients sort into the cheapest plans, they drain money out of the insurance pools, potentially leaving insurers without enough money to pay for the costs of their sick customers.
The result can be a death spiral: Lacking funds to cover sick patients, insurers will jack up premiums for the more generous plans — causing even more health consumers to seek out cheaper plans, which will in turn cause even higher premiums. Under this scenario, much of the market could eventually collapse, and people with expensive health bills may be unable to obtain insurance at any price.