Will Trump’s push for flexibility save or sink insurance markets?
STATES AND EMPLOYERS are getting a lot more leeway in the types of health insurance they can offer residents and workers, ensuring the likelihood that differences in access and affordability of coverage will continue to widen in the name of expanding consumer choice and reducing regulatory burden.
But observers are divided over whether the Trump administration’s moves last week to allow states to sidestep certain aspects of the Affordable Care Act through new 1332 waiver guidance and allowing employers to pay for workers’ individual market premiums through health reimbursement arrangements will ultimately harm the marketplace and its enrollees. Ultimately, it will depend on how states and employers choose to exercise their newfound flexibilities.
Healthcare providers, too, worry that undermining the ACA in the guise of increasing choice could hurt their operations, both financial and clinical.
“The approach that will probably be taken by many states will be to turn the clock back in the individual markets with products that may appear to have a good price tag but will prove to be penny-wise and pound-foolish if consumers become sick,” said Chip Kahn, CEO of the Federation of American Hospitals, which represents investor-owned hospitals.
The CMS’ overhaul of the 1332 waivers states use to bypass or alter ACA elements like the individual and employer mandates replaces an Obama-era guidance—criticized by some states for being too rigid—and lifts several restrictions that limit the changes a state can make.
Among the biggest shifts, the federal government will now evaluate waiver applications based on how a state’s proposed changes would affect the availability of comprehensive and affordable coverage even if residents don’t enroll in that coverage. Previously, the CMS assessed a waiver application’s impact on the coverage people purchase. The new guidance also expands the definition of coverage to include short-term plans and association health plans, which don’t include all the consumer protections found in ACA-compliant plans.
And while waivers were denied under the previous guidance if a state’s plans would reduce coverage for the low-income, elderly or sick, the CMS will consider a proposal that “makes coverage much more affordable for some people and only slightly more costly for a larger number of people,” the guidance stated.
Matt Fiedler, an economist with the Brookings Institution, warned that the guidance would allow for waivers that shift costs from higher income people to those with lower incomes. He predicted some states could reduce or take away subsidies for ACA-compliant coverage and instead use it to subsidize people who enroll in short-term plans. As healthier people left the ACA exchanges, the ACA market would become sicker, prompting insurers to raise premiums that few could afford without federal financial assistance.
CMS Administrator Seema Verma confirmed last week that states could change who gets subsidies and potentially apply subsidies to short-term plans, which are not available to people with pre-existing conditions.
That worries healthcare providers. “We see patients when they are most in need, and if they were shortchanged in their insurance purchase then they are going to have unaffordable cost-sharing, or they may actually lack coverage for needed services when they are sick,” Kahn said. “That means we have to worry about the financial relationships between the hospitals, physicians and patients when all of us should be focusing on care for the patient only.”
Molly Smith, vice president for coverage and state issues at the American Hospital Association, said in an emailed comment that while the AHA supports the use of waivers, short-term plans “will lead to increased bad debt, with underinsured patients unable to afford the
care they need but that is not covered.”
Still, others doubted the guidance would harm the individual market. Doug Badger, a healthcare policy expert at the conservative Heritage Foundation, said similar fears were present when the individual mandate penalty was zeroed out, yet premiums next year are going down. A more pressing problem is that people are opting to forgo coverage rather than pay an unaffordable premium; the 1332 guidance “will let states be a little more creative to attack the problem,” he said.
The requirement that waivers continue to be budget-neutral could limit state actions that would increase individual market premiums, said Tricia Beckmann, a director at Faegre Baker Daniels Consulting, adding that as benchmark premiums increase, so do the amount of federal subsidies, and the state may have to figure out how to offset that cost.
Some doubt that many states will run with the increased waiver flexibility. Because of the guidance’s emphasis on promoting private coverage over public programs and decreasing regulation, Democratic-leaning states might have a harder time pushing public options or Medicaid buy-in programs through the waiver process. While some states may be very interested in pursuing a waiver, barriers may prevent them from making dramatic changes, said Joe Antos, a health policy expert at the right-leaning American Enterprise Institute.
For instance, the guidance allows governors to push a waiver without legislative action. But governors would still want to maintain the support of lawmakers and the industry or they’ll have trouble in the next election, Antos suggested.
Only eight states have obtained waivers so far and most of them were for reinsurance programs to lower premiums. Idaho and Iowa both abandoned efforts to establish alternative insurance models under 1332 waivers.
Idaho Insurance Department Director Dean Cameron said he is unlikely to pursue a 1332 waiver under the new guidance. The state’s push for a dual 1332 and 1115 Medicaid waiver failed to get through the Legislature this year. And Cameron won’t pursue a waiver for Idaho’s “state-based plans” that would allow insurers to get out of some ACA rules if they also offered ACA-compli- ant plans. He said the guidance changes don’t go far enough. Allowing states to bypass ACA rules including the requirement that insurers use a community rating to set premiums would save consumers the most money, he said.
Questions remain over how the guidance jibes with the law. Katie Keith, a health policy expert at Georgetown University, said 1332 waivers do not allow states to waive consumer protections including the ban on pre-existing condition exclusions and underwriting based on health status. Yet the guidance allows the expansion of short-term plans, which do both of those things.
Nick Bagley, a University of Michigan law professor, expects to see lawsuits once HHS grants a waiver.
More options for employers
Whether many employers jump at the chance to ditch their group health plans and send workers to the individual market to buy coverage with a tax-free health reimbursement arrangement is also in question.
Employers with fewer than 50 workers already have this option, thanks to the 21st Century Cures Act. But a proposed rule issued last week by HHS and the departments of Labor and Treasury would allow companies of all sizes that don’t have group health plans to pay for employees’ individual premiums through HRAs, and doing so would satisfy the requirement that employers with more than 50 workers offer health insurance, federal officials said.
The proposed rule would also allow employers that do offer group health plans to fund HRAs with up to $1,800 that workers could use to buy certain benefits, like dental insurance or pay for short- term plan premiums. The U.S. Treasury expects 10 million employees spread across 800,000 employers would have insurance through HRAs, and almost 1 million would be newly insured.
Some employers could find the flexibility attractive, particularly those in industries like retail or hospitality with high employee turnover or lots of seasonal workers, said John Barkett, senior director of policy affairs at Willis Towers Watson.
On the other hand, employers that have long offered healthcare benefits to attract and keep their talent may stick with their current strategies.
Some critics worry that integrating HRAs with individual coverage would lead employers to dump their sickest workers into the individual marketplace. That would lead to a sicker individual market overall and higher premiums as a result. That concern led the Obama administration in 2013 to forbid such a move.
It’s logical that employers would dump the unhealthy, but “I think it’s similarly easy to conclude your startup company with 28-year-olds doesn’t want to offer a group health plan,” said Chris Condeluci, a health policy consultant and former GOP Senate staffer. “They just want to give their employees money to purchase a health plan. So now you have a bunch of 28-year-olds entering the individual market and that arguably has a positive effect on the risk pool.”
To mitigate the incentive to dump the unhealthy, the proposed rule prevents employers from offering both a group health plan and an option to seek individual coverage with an HRA. It’s one or the other. It also stipulates that employers who opt to provide HRAs for individual coverage must offer the same terms to all in a class of employees, such as fulltime or seasonal workers.
Even so, Kahn said, under HRAs employers could shift more costs onto their employees. While giving workers more “skin in the game” in choosing how to access care might sound like a good idea, “frequently employees aren’t able to build up enough funding to have the kind of resources they need when they are sick.” ●
Uncompensated care provided by hospitals