Obamacare tries to build large, comprehensive “risk pools” in which the healthy and the unhealthy commingle. This has never been perfectly achieved: There are too many channels that allow low-risk individuals and groups to avoid keeping costs down for the unhealthy. This executive order dredges new channels for the healthy to segregate their costs from people with expensive care needs.
The executive order instructs the Department of Labor to make a new rule to redefine association health plans so that more small groups can band together to purchase insurance. Association health plans have a long history serving the small group market. A 2006 study estimated that 30 percent of all small-business employers insured their employees through an association health plan.
Association health plans are not tightly regulated under Obamacare; it regulated fully insured direct purchase plans in the individual and small group markets. Large association plans are exempt from state benefit regulation and can offer narrower benefits. Furthermore, association plans can be selective; high risk individuals would not be invited to join.
Employers that remain in the A.C.A. small-group market will offer plans that are more expensive than average, and they will see premiums increase. Only the sickest groups would remain in the A.C.A. regulated risk pool after several enrollment cycles.
However, the association health plan expansion is not the only factor contributing to a sicker and more expensive risk pool in A.C.A.-regulated plans. Sophisticated insurers and benefit consultants sell small group underwritten products that are regulatory workarounds to Obamacare requirements.
The executive order will exacerbate a trend that splits the small group risk pool into low-cost and high-cost segments. Fewer small employers will be able to afford to offer the comprehensive insurance that is part of the A.C.A. This logic is powerful in the small group market, but it is far weaker in the individual market.
The executive order also instructs the Department of Health and Human Services to make a rule to reverse a 2016 regulation that limits short-term individual insurance to a single 90-day period. It would restore the status quo of the 2014 to 2016 benefit years, when limited-duration plans could span as long as 364 days and could be renewed. These plans often offer limited benefits, require high cost sharing and exclude individuals with pre-existing conditions. In 2015, about 148,100 people were insured under these policies at any time.
The executive order will increase the relative attractiveness of underwritten short-duration plans for low-risk individuals. Plans that last 364 days and offer limited benefits to only healthy people will have low premiums for healthy people. Some healthy people will leave the regulated individual market for a better short-term deal. As healthier individuals leave the A.C.A.’s risk pool, the average health of the remaining people in the individual market risk pool will decline.
Insurers won’t run from the market, but they will raise premiums to cover a sicker group of people. Higher premiums do very little harm to individuals who qualify for premium tax credit subsidies. They are insulated from major price hikes.
Who will pick up the tab for bigger subsidy checks? The United States Treasury.
Single adults making more than $48,240 or families of four earning more than $98,400 will be the biggest losers. These people don’t qualify for subsidies, so they pay the full cost of the premiums. Higher premiums will come out of their hide. Senator Bill Cassidy, Republican of Louisiana, frequently points to a constituent who already pays over $40,000 to insure his family every year. His choices will get worse. He can go without coverage, pay more, earn less so his family could qualify for subsidies or find a job with employer-sponsored coverage.
The executive order will weaken the risk pools that are regulated by the A.C.A. The proposed new rules will not occur instantly, and insurers will have the ability to change strategies and models in time for the 2019 open enrollment.
The steps are part of a broader trend to split risk pools so that currently healthy people do not bear the burden of paying for the care of currently unhealthy people. The new executive order merely accelerates this trend toward greater health inequality.