Trump: Sabotaging the Affordable Care Act and the Individual Market for Pique and Profit
President Trump is doing what he can to sabotage the federal and state Exchanges and the individual health insurance market. Here is the context, what he has been doing, the countermeasures some states are taking, and the need for and prospects of Affordable Care Act fixes.
The individual market is used by the self-employed, the flex workforce, the unemployed, the disabled, students, early retirees and others working in the gig economy. Most but not all full time, full year employees are covered through their jobs. But low wage and smaller employers often do not offer any coverage so some of their employees are covered in the Exchanges and the individual markets as well. It’s important to understand that employers pay about 80% of the premiums for employment-based coverage, while individuals pay 100% of the costs of their premiums in the individual market. Thus for individuals in these markets, there is a vast affordability challenge that is not experienced by the employees with employment-based coverage.
About 8% of Americans under the age 65 rely on the individual market. In California about 1.4 million subscribers participate in the individual market through the Exchange (Covered California), and a roughly equal number buy individual coverage outside the Exchange.
There are two problems in the individual market: availability for those individuals with pre-existing conditions and affordability for those with low, moderate and middle incomes. The ACA addressed both.
Availability Prior to the ACA, insurers used a number of unsavory underwriting tactics to exclude individuals or rescind coverage of individuals with pre-existing health conditions. These practices are now illegal both inside and outside the Exchange. The background needed to understand these unsavory practices are that in any given year, the most costly 1% account for over 20% of health expenditures; the top 5% account for 50%, and the top 10% account for 65% of health spending. Half the population accounts for about 3% of health spending. So if you only sell coverage to the very healthy and they are fortunate to stay healthy, you can charge very low premiums and make a very hefty profit, yet it's those who are very sick that really need and value their health coverage.
In many ways catastrophic health costs are just like the spate of recent fires, earthquakes, hurricanes that have been in the news nearly every day; they are absolutely devastating to the individuals impacted. In other ways, they are even worse. Imagine you lost your house and all your belongings, but you still have your health to build it all back again vs. imagine you, your children or a family member came down with a dread disease like a cancer, a stroke or heart attack, are hospitalized, can no longer work, or take care of yourself and your family members.
The ACA (Affordable Care Act) put an end to individual and small employers health insurance underwriting based on a patient’s medical condition. All coverage is now guaranteed issue, guaranteed renewal, no pre-existing condition exclusions, ten essential health benefits covered, and no lifetime or annual benefit caps. No price discrimination based on health status is permitted. Premium variations based on age are permitted within a 3/1 rate band – i.e. a 64 year old can be charged three times as much as a 21 year old for the same coverage -- reflecting the higher incidence of health needs as you age.
The ACA reforms put the primary focus on those health insurance plans who are able to best manage the costs of care to the sick as opposed to those carriers whose primary business tactics were avoiding the risks of paying for care to the sick. It gives an advantage to those plans that can help their subscribers stay healthy through prevention and timely primary care as opposed to those plans that rely on selling their productsto the healthy and excluding the sick. To succeed in the reformed market, a health plan needs a good, strong, reliable and cost effective provider network with an orientation to wellness and a proven history of and capacity for taking excellent care of individuals who become ill and improving their health outcomes.
Affordability. Individual insurance premiums for family coverage exceed the income of a minimum wage family. For individual only coverage, premiums exceed half the income of a minimum wage full time worker. The problem the ACA drafters were trying to solve was not simply affordability for minimum wage workers and their families, it’s also affordability for moderate and middle income families and individuals. Affordability of individual health insurance gets ever more difficult as you and your spouse age and your premiums soar as a result. Individuals can choose from four tiers of coverage from bronze (60% of expected medical costs and copays and deductibles of 40%) to platinum (90% of expected medical costs and copays of 10%)
The ACA sought to improve affordability for families and individuals through two mechanisms: premium assistance and cost sharing reductions; these subsidies are also referred to as refundable tax credits. Premium assistance helps low, moderate and middle income individuals pay their premiums. Cost sharing reductions help low and moderate income individuals afford their out of pocket copayments and deductibles so they can get care. Both mechanisms were linked to a sliding fee scale such that individuals with the lowest incomes ($16,000 annually) got the most help -- they must pay premiums, but their responsibility is limited to 2% of incomes. The assistance was phased down and then out at 400% of poverty ($48,000 for an individual) as an individual’s income increased. The premium assistance thresholds increase with family size. The cost sharing reductions phase out at 250% of FPL -- about $30,000 for an individual; they are only available for persons who choose what is referred to as the enhanced silver plan.
The individual market can be subject to gaming (also known as adverse selection) where some individuals may buy insurance only when they are sick or otherwise need care, like a pregnancy with a new child. Imagine buying fire insurance as the fire is coming over the nearby hill or flood insurance just as the dam upstream is about to fail. It’s the exact same thing in the individual health insurance market, so the ACA has a much-discussed individual mandate (shared responsibility) under which an individual must buy coverage or pay a tax penalty ($695 or 2.5% of wages, whichever is more). There are exemptions if the available coverage is unaffordable, and there are other hardship or religious belief exemptions. The annual open enrollment is time limited to a three month window with exceptions for unforeseen events like losing job-based coverage or Medicaid.
Many insurance companies exited the individual market when the rules changed because they could not compete without their familiar underwriting tactics. Particularly in our state, the big national carriers with small shares of the California individual market (Aetna, Cigna, United and Humana) promptly exited. They lacked the strong provider networks and the market clout (purchasing power) in the California market which are essential to competing under the new rules. Other health plans embraced the changes and participated and competed enthusiastically in the new market. Kaiser, Blue Shield, Health Net and Molina stood out, as did several smaller regional carriers like Sharp, Western Advantage and Chinese Community. Anthem Blue Cross’ PPO product was initially a major and very successful competitor in the Exchange and the individual market; it recently exited the individual market in most California counties due to the increasing uncertainty of federal financial support.
Reinsurance in the individual market. For several years, premiums in California’s Exchange increased modestly, 4% or less a year, and carriers competed vigorously on price to attract the million and a half new California enrollees under the ACA. Then Senator Rubio and colleagues pulled the rug out from under the individual market by ending federal reinsurance payments for catastrophic cases and increasing the “risk” to insurers.
Those plans that could not compete, could not absorb the increased risk and could not make a profit began to pull out of the individual markets. Those plans that had been most aggressive in lowering their premiums, found they were losing money without federal reinsurance and reversed course – jacking up their premiums quite rapidly to what now became unaffordable levels. Individuals with federal premium assistance in the Exchanges were insulated from these premium increases because under the ACA, their share of premiums could not exceed a set percent of their incomes. Those individuals over the threshold for eligibility for premium assistance were hit very hard by the premium increases, and the impacts have been the worst in rural and other markets where there is little plan or provider competition to assure affordable premiums.
Alaska discovered that by funding reinsurance at the state level with a small assessment on all insurers, it could reduce premiums by 20% and assure participation by its carrier(s). It subsequently secured a federal §1332 waiver to reinvest the resulting federal program savings to fund its state reinsurance program. HHS initially encouraged other states to follow suit, but HHS recently disapproved one state, Oklahoma, seeking to follow in Alaska’s path while approving another, Minnesota. California and its insurers may wish to explore a state reinsurance fund – a measure that was present in many earlier California reform proposals – it would need to be financed.
Cost sharing reductions A second measure of uncertainty has been the availability of federal funding for the cost sharing reductions. Insurers must offer coverage with reduced copays and deductibles to low and moderate income subscribers who choose what is referred to as the enhanced silver plan. They are compensated for this increased cost based on the numbers of their subscribers choosing enhanced silver. House Republicans sued the Obama Administration claiming that funding for the cost sharing reductions had to be approved annually through Congressional appropriations. There is bi-partisan agreement in the Senate and the House to fund these appropriations for a certain period of time. The Trump Administration, however, has been threatening to end these payments to put additional pressure on insurers and Democrats in Congress to embrace the Trumpian vision of health reform> it has just done so today. This amounts to a $7 billion annual hit on insurer premiums in the individual market.
Covered California has developed an interesting and interim workaround for this impasse. It will increase premiums by a surcharge of 12% for the enhanced silver tier plans in the Exchange to compensate their insurers. It will then advise all individuals without eligibility for premium assistance to buy their silver tier coverage outside the Exchange or to buy gold or bronze tiered plans inside the Exchange. Individuals with eligibility for premium assistance will be insulated from the premium increases by their federal premium assistance subsidies and can choose the Enhanced Silver plans at no increased cost. Or they can stretch their premium dollars even farther by choosing the gold or bronze tier plans inside the Exchanges, which now become much more financially attractive due to the interface with the surcharge on the silver tier plans. This is a lot of new information to convey to subscribers and a lot of new calculations to make in a challenging outreach and enrollment environment of the Trump Administration’s making, which was part of its purpose.
On taking office, President Trump indicated that he would repeal and replace the ACA with something much better – it would offer lower premiums, lower deductibles and everyone would be covered. His first step was to instruct his Administration to use every tool of their discretionary powers to undermine ObamaCare. For example, open enrollment has been reduced from three months to six weeks, that means open enrollment begins on November 1 and ends on December 15. Outreach, advertising and enrollment and navigator grants have been cut. Advertising has been cut by 90%. Funding for in person assistance has been cut by 40%, and partnerships with Latino enrollment groups have been severed entirely. The monthly Trump Administration threats to discontinue the payments for cost sharing reductions for low and moderate income individuals and families, creating further uncertainty and stress in the insurance markets.
Repeal and replace. The Republican “repeal and replace” measures which the President heartily endorsed and heavily lobbied for would have 1) reduced the numbers of Americans with health insurance and increased the ranks of the uninsured, 2) repealed at state option the protections for those with pre-existing conditions, 3) increased premiums and reduced premium assistance in the individual market placing greatly increased financial burdens on individuals and families purchasing in the individual markets. These burdens were particularly severe for the older and rural voters that comprised a significant share of his voting base. While most Americans are widely relieved by the failure to enact these highly unpopular, ill-conceived and draconian measures, the donor base of the Republican Party is enraged and demanding blood if Obamacare is not repealed and their taxes are not reduced. Their rage resonates with certain voting blocks, witness the recent triumph of Justice Moore in the Alabama Republican primary.
Cherry picking and skimming The insurance industry can reduce individual market premiums quite dramatically, and/or can make higher profits if they can once again exclude the sick that most need coverage. That however would totally destroy the purpose of insurance and the single most popular feature of the ACA.
This brings us to the President’s recent executive order – study and enact regulations allowing for association health plans, buying insurance products across state lines and expanding temporary or interim insurance. These are all efforts to bypass the insurance reforms in the ACA, siphon off healthy lives, weaken the enforcement of individual market reforms and disable the Exchanges. What do they mean and what do they do?
An association health plan is a group of similarly situated employers or self-insured individuals buying together as a collective. For example, the bankers, lawyers, CPAs, doctors and ag-businesses all have used association health plans in the past to negotiate favorable rates from select health insurers. There is nothing wrong with this model when properly regulated. However the trick to association health plans is to form an association of healthy lives, for example, yoga instructors as opposed to bartenders, classical musicians as opposed to punk rockers, piano tuners as opposed to sky diving instructors. Coverage is then limited to the members of the association, who can get favorable insurance rates if you have assembled the right demographics. The loophole for association health plans in Kentucky’s insurance reforms of the early 90s is fair warning of the ability of insurers to destroy insurance reforms through the simple expedient of association health plans to siphon off the healthiest occupations. This is Senator Rand Paul’s brainchild and based on the really bad true life experiences and insurance profiteers in Kentucky’s insurance markets. Another past variation on this theme is to collect all the bad risks who would typically be excluded because of their preexisting conditions and sell them very high priced coverage befitting their worse risk profile. The ACA obviated the need for association health plans, many of which have since fallen into disuse. Trump wants to bring them back.
Buying across state lines refers to a different concept. It allows insurers to pick their legal domicile of least state regulation and weakest insurance enforcement and then sell the insurance products licensed by that state to residents in every other state without complying with the insurance market rules, financial solvency rules and consumer protections of the state in which it sells its products. So this could mean a Wyoming licensed insurer could sell its insurance products to California residents without complying with California laws or being subject to California’s regulatory enforcement regimen. Imagine as an individual having to enforce your health insurance contract for coverage in California with a Wyoming insurance department and under Wyoming’s laws or even under Wyoming’s arbitration system. Another variant on this is to designate the Trump Administration’s Department of Labor to serve as the primary regulator (entirely dispossessing state enforcement) as it has done in the past for what are known as ERISA plans (single large employers) or MEWAs (multiple employer welfare arrangements for small employers). These are health plans put together by a third party administrator (TPA) where the employer(s) bear the full or partial financial risk if the health plan’s expenses exceed projected revenues. California had some very bad experiences with poorly designed and fraudulently run MEWAs for smaller businesses, which left lots of small employers and employees in the lurch. California eventually forced MEWas to meet the same financial solvency rules and the same underwriting rules with which standard insurers and health plans must comply; the bad actors left the market. To compete in California, you need market share, purchasing clout and a robust effective provider network, this palliative offers none of the above, but rather another rule skirting opportunity for the devious.
Temporary or interim insurance refers to a short term insurance product sold to individuals to tide them over between jobs. The Trump Administration wants to expand the time frame for these products from 90 days to one year and to exempt these plans from the underwriting rules and coverage requirements of the ACA. Temporary insurers could offer reduced benefits and sell only to healthy individuals. This would allow temporary insurance market to cherry pick the healthy and exclude the unhealthy. This puts the rest of the insurers and insurance products in the individual market at increased risk of worsening risk pools. It would put consumers of traditional insurance products at risk for higher premiums and the purchasers of the new products at risk for the uncovered services and underwriting tactics of the temporary insurers.
What do we need to do? First raise your voices in protest with California’s elected representatives. We have been successful, do not let President Trump destroy our progress. Second, organize and mobilize to throw these scoundrels out of office before they wreak further damage to our health. Third, make sure you and your family members get enrolled in the plan that best meets your familiies' medical and financial needs, but be very careful, don't assume what worked last year is best for this year, read the fine print, do the calculations and be very very wary of the new products designed to skirt the ACA. The prices may look appealing, but the coverage could prove inadequate when you get or a family member needs medical care.
Prepared by: Lucien Wulsin
Dated: 10/13/17