ACA Sabotage Part 2: Association Health Plans and Short-Term Insurance

By Kayla Tarlton |

With full Affordable Care Act (ACA) repeal having failed multiple times, President Trump seems more determined than ever to “kill” the law by sowing confusion and instability into the marketplace to drive premiums up and insurers out. Last week’s blog focused on an act of sabotage announced on October 12: the canceling of cost sharing reduction subsidy payments for low-income consumers. Today’s Trump Sabotage blog addresses the administration’s executive order, issued on the same day, which may be the greatest threat to the ACA we have seen yet.

 Executive Order “Promoting Healthcare Choice and Competition in the United States”

The stated goal of the new order is to allow new and less expensive health insurance options into the market, using two vehicles:  association health plans and short-term insurance plans. However, these new “junk” health plans would evade ACA regulations such as those that require comprehensive coverage of “essential health benefits,” prevent insurance companies from discriminating against consumers based on their medical history and ban charging higher premiums based on health status. Experts claim that this move could “destroy the small-group market” and bring us “back to where we were before the Affordable Care Act.”

Association Health Plans (AHPs) and Short-Term Insurance

Associations health plans fall into the category of large group insurance, and large groups are formally exempt from many ACA regulations. Short-term health insurance policies, officially known as Short Term Limited Duration Insurance (STLDIs), just like AHPs, are not subject to many of the ACA’s insurance rules.  Because of that, short-term plans are one-third the price of traditional exchange plans on average.

What’s Wrong with AHPs?

One major concern in allowing association health plans into the market is that association health plans have a long history of fraud and abuse, and are known to be “aggressively marketed but inadequately funded.” Unscrupulous promoters will sell inexpensive health insurance to unwitting consumers, but then default on their obligations and leave employers and employees with hundreds of millions of dollars in unpaid medical bills. This fraud is possible because association plans operate in a “regulatory never-never land between the Department of Labor and state insurance regulators,” making them more difficult to police.

What’s Wrong with Short-Term Insurance Plans?

The Obama administration restricted short-term insurance to a period of 3 months, in part because short-term plans do not qualify as meeting the standards for health insurance coverage required by the ACA. Trump’s executive order seeks to allow consumers to renew or remain on short-term plans for up to one year. If this were to happen, in addition to consumers having fewer protections and flimsier “non-coverage,” more healthy people would be lured out of the individual market with the promise of cheaper insurance outside of the ACA markets.

If the Trump administration decides to exempt short-term enrollees from ACA individual mandate tax penalties, short-term plans will become even more attractive to consumers, and a death spiral will be even more likely to occur in the ACA markets.

The End Result: An Unstable Insurance Market

The end result of Trump’s executive order is a “less stable, less competitive individual market.” Trump’s executive order will destabilize the ACA marketplaces overall by opening loopholes for consumers to buy less expensive insurance outside of the ACA’s markets. Younger and healthier people will be wooed away by the promise of cheaper insurance, and older, sicker people will remain, leading to higher premiums and fewer insurers left in the healthcare market.

Sanity Check

Given the timeline for new federal regulations defined by the Administrative Procedures Act, it is unlikely that any new regulations will affect the health insurance marketplace for 2018. However, the chaos and confusion incited by the mere act of signing the order and the resulting firestorm in the media could still do damage to the ACA marketplaces, effective immediately.

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