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Discontinuation of Subsidies and Relaxation of Interstate Sale of Healthcare Plans

Publication date: 
Friday, November 10, 2017

President Donald J. Trump issued an Executive Order No. 13813 titled, “Promoting Healthcare Choice and Competition across the United States” on October 12, 2017. The order came after a series of announcements and actions already affecting healthcare in the United States, including discontinuing Cost-Sharing Reduction (CSR) payments to market insurers, allowing employers to opt out of paying for contraception due to religious or moral objections, and the Center for Medicare and Medicaid Services’ plan to spend only $10 million on consumer outreach and assistance compared to $100 million the previous year. The latest changes in healthcare under the Executive Order include:

  • Length of Short-Term, Limited-Duration Health Insurance (STLDHI)
  • Expansion of Association Health Plans (AHPs) and Health Reimbursement Arrangements (HRA)

Through these changes, the White House seeks to provide more choice and increased competition in the healthcare markets. However, changes in the existing guidelines and implementation of ACA affect the stability of healthcare insurance market and reduce the type of available healthcare coverage that people are provided as well as the number of individuals in the United States that remain insured. This memorandum will cover the changes that impact the stability of the markets, including the cost-sharing reduction payments, STLDHI, HRAs, and decreased outreach to sign up for the Affordable Care Act.

Cost-Sharing Reduction (CSR) Payments

Last month, the White House announced that it will stop issuing healthcare subsidies to market insurers. These subsidies known as Cost-Sharing Reduction (CSR) payments are essential to keeping healthcare plans affordable to low- to moderate-income individuals. According to Center for Budget and Policy Priorities (CBPP), about 6 million low- to moderate- income people enrolled through the market places are eligible for CSRs totaling $7 billion annually.  

Under the ACA, market insurers are entitled to CSR payments as mandated by law. In the absence of federal payments, market insurers plan to fill the gap by increasing healthcare premiums for the “silver” metal plan. Silver metal plans are the most common plan of choice for market consumers because it has offered moderate premium costs with over 70 percent insurance coverage on medical expenses. According to the Congressional Budget Office (CBO), since individuals enrolled in silver metal plans are typically eligible for premium tax credits, these individuals are unlikely to feel the effects of increases in the premiums for silver metal plans as a result of stopping cost-sharing reductions. Individuals enrolled in the silver metal plan can choose to use all, some or none of their premium tax credit. In this scenario, individuals will use more of their premium tax credit to keep their premium low. However, not all insurers will decide to go with this plan and alternatively, choose to exit the healthcare market. Moreover, individuals enrolled in the silver metal plans, but do not qualify for the premium tax credits due to their income, will be affected by increasing premiums. The CBO forecasted that over 1 million more people will be uninsured and many more insurers dropping out of the market in 2018 as a result of the elimination of CSRs. The White House argued that stopping CSR payments is a cost-saving measure. However, the federal government is poised to forego more federal dollars in premium tax credits, which will outweigh any cost-savings from eliminating CSR payments.

Meanwhile, members of the Senate have taken on this issue and under the Alexander-Murray deal, have proposed a bill to continue CSR payments up to two years. Although, the bill has enough bipartisan support to pass in the Senate, both the House and the White House have yet to express their support of the proposal.  

Short-Term, Limited Duration Health Insurance (STLDHI)

President Trump’s Executive Order includes an attempt to make changes to the limitations of short-term coverage. Generally, people utilize short-term coverage after falling out of coverage due to changes such as unemployment. Short-term coverage provides healthcare coverage for 3 months, however, does not have the same benefits as a comprehensive health insurance plan. Mainly, short-term coverage plans leave out essential benefits such as maternity care or mental health services.

The Executive Order authorizes agencies to relax the three-month limit up to one year. According to the Commonwealth Fund, these short-term coverages are “medically-underwritten.”Consequently, individuals with pre-existing conditions may not qualify. Also, healthy individuals are more likely choose these short-term coverage plans, which are generally cheaper than a comprehensive health insurance plan. As a result, healthcare plan risk pools will potentially become unstable and further introduce volatility in the ACA market.

Association Health Plans (AHPs) and Health Reimbursement Arrangements (HRAs)

Similar to short term coverage plans, the Executive Order enables individuals and small businesses to purchase health insurance across state lines through Association Health Plans (AHPs). Through AHPs, federal regulations would treat small employers similarly to large employers providing insurance to their employees. These AHPs would be exempt from providing “essential benefits” and allow plans to charge higher premiums for individuals with pre-existing conditions. Proponents like Senator Rand Paul (R-Kentucky) see AHPs as a way for small employers to negotiate better insurance plans for their employees and for employees to have greater degrees of freedom over choosing their healthcare plan. However, the CBPP argues that the expansion of AHPs would essentially create a second health insurance market that is not compatible nor compliant with ACA regulations.

Alongside AHPs, the Executive Order calls for agencies to explore “standalone” Health Reimbursement Arrangements (HRA). These health reimbursements are tax-advantaged, employer funded accounts that reimburses employees for premium or out-of-pocket healthcare costs. However, under current ACA regulations, employers providing HRAs must also offer comprehensive health insurance plans. The CBPP analyzed that a standalone HRA would be cheaper for employers to provide and will discourage employers from offering comprehensive health insurance plans, leaving employees with less comprehensive coverage and paying more in healthcare premiums.

Budget Cuts on Centers for Medicare & Medicaid Services (CMS)

Earlier in October, the Centers for Medicare & Medicaid Services announced that the $100 million budget dedicated to activities such as consumer outreach and assistance in the previous year would be reduced to roughly $10 million this year. The CMS consumer outreach and assistance program known as “Navigator” programs aim to identify and offer help to vulnerable populations that have limited or no knowledge of the types of healthcare coverage available to them. The CMS outreach programs also play a major role in ACA enrollment sign-ups, especially for young people. Enrollment of young people in ACA is seen as especially important to the stability of the individual market as young people are typically healthier, which stabilizes health insurance plan risk pools.

Foundations have initiated and/or supported programs to promote and increase enrollment in the ACA market, which have resulted in over 20 million individuals signing up since the ACA’s inception. The ACA enrollment period this season is shorter than previous years, ending on December 15. These latest changes are projected to reduce the amount of individuals insured through the ACA market. Thus, an increased need may exist in outreach and assistance on enrollment to meet the needs of communities and ensure the stability of the ACA market.

For comments or questions, please contact Sean Tan, Public Policy Intern, at [email protected].

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