The Trump administration got one thing right in its proposal to loosen Affordable Care Act regulations so insurers could sell skimpier health plans that don't offer the full range of ACA-mandated benefits.
It's true, as the White House says, that Obamacare plans can be too expensive for some buyers — those with household incomes exceeding 400% of the federal poverty level, or $48,560 for an individual and $100,400 for a family of four.
But the solution it unveiled Tuesday is the wrong one. Trump's proposal is to allow the sale of cheaper but skimpier health plans that normally are designated as short-term plans. The Obama administration limited these to 90 days, including renewals; Trump proposes to extend that to a full year.
If the administration were truly concerned about the expense of health plans, rather than sabotaging the consumer protections enacted through the ACA, there's an obvious alternative: Change the subsidy system that insulates most buyers from high premiums.
Before we get to how that would work, let's examine the drawbacks of Trump's solution.
As we've reported before, these plans traditionally were marketed to customers facing a short but predictable gap in coverage, say because of a break between jobs. So they're suitable chiefly for people who basically are healthy and know they'll need these plans for only a short period.
The ACA exempted these plans from the requirement they cover 10 essential health benefits and from the prohibitions against raising premiums or refusing coverage to people with medical conditions. They're like umbrellas that look solid, but dissolve at the first hint of a drizzle. They bristle with exclusions, many of which their buyers aren't even aware of until they file a claim and discover it's not covered.
Their prices can be based on a customer's medical history or preexisting conditions, so they may not, in fact, be affordable by people with actual healthcare needs. Trump's proposal to allow the plans to be offered for up to a year would be the worst of all possible worlds, exposing their buyers to junk coverage for long periods of time.
Customers who get sick can expect to be thrown back in the Obamacare pool. And because these plans don't count as qualified insurance, their expiration doesn't allow a person to sign up for Obamacare plans in mid-year. You could get sick or seriously injured and have no coverage for as long as nine months. Trump's proposal doesn't change that. In fact, it mandates that buyers be warned of those downsides.
What concerns healthcare advocates even more is the potential of Trump's initiative to sabotage the individual insurance market more generally, by siphoning younger and healthier customers out of the insurance pool, leaving sicker customers in and driving up premiums — while also increasing the cost to the federal government of subsidizing eligible buyers.
Trump's formal proposal recognizes that problem. Because Congress eliminated the ACA's individual mandate through its tax cut bill, signed in December by President Trump, as many as 200,000 individuals may abandon ACA exchange plans for the short-term plans, according to the government's rule proposal. "This would cause the average monthly individual market premiums … to increase," it acknowledges. Because subsidies rise as premiums rise, the government could be on the hook for as much as $168 million a year in higher subsidies, the rule proposal says.
The proposal also acknowledges that insurers "could experience higher-than-expected costs of care and suffer financial losses, which might prompt them to leave the individual market." That's a fascinating admission, since Republicans have been grousing all along that too few insurers are offering Obamacare exchange plans already.
Half of all counties, the rule observes, already are served by only a single insurer. The proposed rule will make things worse because it "may further reduce choices for individuals remaining in those individual market[s]."
In other words, the Trump administration sees certain problems with the ACA market, and ostensibly to alleviate them, will take specific steps to exacerbate them. To quote Jerry Seinfeld, this is how healthcare policy is done in the Bizarro World.
People receiving ACA subsidies are protected from premium spikes, either completely or to a degree. Those who earn too much for subsidies but consider themselves healthy will be prime marketing targets for short-term bare-bones plans. But as health insurance expert David Anderson of Duke University puts it, that leaves potentially millions of others exposed to Trumpian sabotage. If the Trump plan is implemented, he writes, "people who aren't healthy and who make too much to qualify for the ACA subsidy pool...are in trouble."
It's not news to anyone that the ACA's system of premium subsidies was flawed from the start. Eligibility was limited to households up to 400% of the poverty line to save money for the federal government. But that created a steep eligibility cliff. A four-member family earning $100,400 is eligible for a subsidy. The same family earning $100,401 is out of luck.
This problem is common to all government programs with income limits. In this case, however, there's an obvious fix: Eliminate the 400% ceiling. That would be feasible because the way the subsidies actually work is by applying a sliding scale limiting the amount any household pays for a benchmark silver-tier health plan as a percentage of its income. For low-income families earning up to 150% of the poverty line, the limit is 4.03% — any premium higher than that is covered by the subsidy.
The ceiling tops out at 9.69% for families in the range of 300% to 400% of the poverty line. In other words, our family earning $100,400 has to pay up to $9,728 or about $810 a month before the subsidy kicks in.
But what if the 400% ceiling were eliminated but the 9.69% maximum remained to be applied to all households? ACA expert Charles Gaba calculated last year that this change would bring as many as 1 million more households into the ACA marketplace, at a cost of $6.3 billion a year. He also reckoned, however, that average premiums might fall because many of the new customers would be younger and healthier, reducing the risk profile of the pool.
At first glance, this might look like just another handout to the wealthy, who would become eligible for a subsidy now denied them. But the 9.69% limit would foreclose that possibility. Someone earning, say, $200,000 would need to buy a benchmark policy costing more than about $19,400 to receive a subsidy — way more than the average individual benchmark premium of about $5,700 this year, according to the Kaiser Family Foundation.
The occasion for Gaba's analysis was the introduction of a bill last June by six Democratic senators, including Dianne Feinstein and Kamala Harris (both of California) and Elizabeth Warren (Massachusetts). Their bill simply would have excised the 400% income limit from the ACA, leaving the percentage standard in place. It died in the Senate Finance Committee, which, like the rest of Congress, is controlled by the GOP.
That measure, obviously, would make health coverage cheaper for more families, without subjecting them to hidden exclusions and other rip-offs that were rife in the individual market before the ACA. But it's also obvious that Trump and the GOP leadership don't care about that one tiny bit. Their goal is to destroy the Affordable Care Act, and if they do so while claiming to be offering ordinary citizens a break, they think that's a plus — even if they're conniving in the rip-off, which is exactly what they're doing.