October 19, 2017
The Limits of Trump’s Health-Care Order
At the margins it will improve availability and affordability, but Congress still needs to act.
Give President Trump an A for effort with his latest executive order, which tries to expand health-insurance options for individuals battered by exploding premiums and fleeing insurers. At least somebody is trying to do something after congressional Republicans failed to repeal and replace ObamaCare. While the executive order represents progress, Congress still needs to act.
Mr. Trump is directing three federal departments—Labor, Treasury, and Health and Human Services—to consider ways of providing more flexibility for association health plans, short-term insurance, and health reimbursement arrangements.
Associations have been offering their members access to various types of health coverage for decades. The best known example is AARP. Those polices are “fully insured,” meaning a licensed health insurer underwrites them and bears the risk. And because federal law before ObamaCare left insurance regulation primarily to the states, association-offered policies must comply with regulations in whichever state they’re sold.
But there is a safe harbor: the Employee Retirement Income Security Act of 1974, better known as Erisa. Widely varying state insurance regulations made it difficult for large companies with employees in multiple states to offer uniform coverage to their employees. Erisa allows large employers, as well as groups of employers known as Multiple Employer Welfare Arrangements, to “self-insure.” This means the employer, not an insurer, pays the medical bills.
Erisa pre-empted self-funded plans from state insurance regulations, so state legislatures and insurance departments have not been able to micromanage them as they do small-employer and individual plans. That freedom made self-funded plans very popular. For decades medium-size and even small employers have looked for creative ways to leave fully insured coverage for a self-funded plan.
Several associations, especially those representing small employers, such as the National Federation of Independent Business and the National Association of Realtors, spent years trying to persuade Congress to allow associations to self-insure and to offer their members the same coverage across state lines largely free of state mandates. But Congress never changed the law.
Since the passage of ObamaCare, however, states are no longer the driving force behind most insurance mandates and regulations. Washington is. The health law imposed some requirements on self-funded plans—free preventive care, no annual or lifetime limits, no pre-existing condition waiting period, children as old as 26 can remain on their parents’ policy, etc.—but ObamaCare’s 10 essential benefits are not mandated. Most self-funded plans retain at least some freedom to create their own benefits package.
Mr. Trump and congressional Republicans are hoping the Labor Department will identify a way to allow associations and small employers to create self-insured plans—or something similar. That change could allow them to adjust benefits and offer more affordable coverage to more people. A more straightforward solution would be for Congress to change the law.
The health-insurance industry opposes this step because self-funded plans bypass insurers. Others fret that association plans will be a “race to the bottom” of coverage. According to a July 2016 report from the Employee Benefit Research Institute, some 60% of the 155 million American workers and their dependents with employer-provided coverage are in self-funded plans now and glad to be there. Would you prefer less-regulated, self-funded health coverage from a company like UPS—or the ObamaCare exchange?
The executive order also seeks to roll back HHS-imposed restrictions on short-term, limited-benefit policies, or “bridge policies.” If this measure succeeds, people would again be able to keep those policies for a year instead of three months, the limit imposed by the Obama administration. But such policies have always been a minuscule part of the insurance market. They are not qualified coverage under ObamaCare, and purchasers would still face penalties for being uninsured. It’s unlikely there will be a mad dash to enroll in them.
If HHS were to find that purchasing such a policy constituted an approved “hardship” and temporarily exempt buyers from the mandate’s penalty, that could help more people who have little or no affordable ObamaCare options gain at least some coverage.
Finally, some employers make tax-free health reimbursement arrangement deposits, which employees use to pay for certain eligible health-care costs. Mr. Trump wants to expand HRA options, though it’s unclear how much flexibility officials can provide without changing the law. Still, it can’t hurt and may help. Expanding health savings accounts would be better, because that money belongs to the individual. But that would take legislation.
The intent behind Mr. Trump’s executive order—to expand access to affordable coverage—is spot on. And it may achieve part of this goal. But even if federal agencies become creative in their efforts to identify safe harbors from ObamaCare, it is unlikely to make much difference without action on Capitol Hill.