I don’t really have to explain to you why the Trump administration’s latest attack on Obamacare is a bad idea. That’s because they’ve done that for me.
On Tuesday, the administration officially followed through on Trump’s executive order from October, and proposed a regulatory change that would give Americans more leeway to buy inexpensive, temporary insurance plans, which don’t adhere to the Affordable Care Act’s consumer protections. The move sounds a bit dry and technical. But it could potentially rattle Obamacare’s insurance exchanges while adding an extra dollop of spending to the federal deficit.
Under the new rule, insurance companies would be allowed to sell short-term health plans that last up to a year, instead of the three-month plans permitted by current law. These plans aren’t bound by Obamacare’s regulations, because they aren’t technically considered coverage—people who rely on them are legally treated as uninsured and have to pay a tax penalty under the ACA’s individual mandate. Instead, the temporary plans are meant to be stopgap options for people who need to fill a brief hole in their coverage, such as after they’ve lost a job. The policies don’t have to include all of the ACA’s essential health benefits, and insurers are allowed to consider preexisting conditions, and charge sicker patients more for them. Selling a “short-term” health plan that lasts for a full year might sound like a bit of an oxymoron. But companies were allowed to do it in some state until the Obama administration dropped the time limit to 90 days in late 2016. That move was meant to discourage individuals from buying the bargain basement policies instead of the more comprehensive coverage offered on Obamacare’s exchanges, which many young adults without serious medical needs were choosing to do, even though it meant getting whacked by the individual mandate’s tax penalty. (The temporary plans were cheap enough to make the penalty tradeoff worthwhile for healthy patients.) Obama wanted to put a stop this practice because the exchanges need a critical mass of healthy customers to keep down the average price of insurance.
The Trump administration argues that allowing carriers to resume selling short-term plans that last a year would provide affordable coverage options for customers who currently get a bad deal in Obamacare’s marketplaces. That may be true. But it would also undermine the exchanges by letting healthy customers jump ship, leaving behind a pool of older and sicker customers with higher health spending. Now that the individual mandate has been repealed thanks to the GOP’s tax bill (it disappears in 2019), young adults will have even less reason than before to purchase coverage on Healthcare.gov. All told, the cost of insurance will likely go up, and the number of people buying it will likely go down.
But don’t take my word for it. Just read the proposed rule. It estimates that 100,000 to 200,000 Americans will drop exchange coverage for short-term plans. “Most of these individuals,” the proposal states, “would be young or healthy and only about 10 percent of them would have been subsidized by [Obamacare] if they maintained their Exchange coverage.” In other words, the change would mostly help middle to upper-middle-class Millennials. The analysis continues:
Allowing such individuals to purchase policies that do not comply with [Obamacare], but with term lengths that may be similar to those of [Obamacare]-compliant plans with 12-month terms, could potentially weaken States’ individual market single risk pools. As a result, individual market issuers could experience higher than expected costs of care and suffer financial losses, which might prompt them to leave the individual market. Although choices of plans available in the individual market have already been reduced to plans from a single insurer in roughly half of all counties, this proposed rule may further reduce choices for individuals remaining in those individual market single risk pools.
The tl;dr version: With sicker patients to cover, insurers may lose more money on the exchanges and drop out, leaving customers with even fewer carriers to pick from.
If premiums on Obamacare’s exchanges rise, the government will also get stuck paying more to subsidize coverage for lower-income enrollees. The proposal estimates that this will end up costing Washington between $96 million to $168 million. Is that a lot of money? No. But spending more cash so that Americans can get worse health coverage is a pretty perverse policy goal—one that our president is openly chasing like a deranged Olympian.
The Trump administration isn’t admitting all of this out the goodness of its heart. The federal rule-making process requires agencies to offer a somewhat honest cost-benefit analysis of their regulatory proposals. It’s also possible that the Trump administration is underestimating the damage that their rule will do; if more than 200,000 young adults drop Obamacare coverage for short-term insurance, it could be even more damaging to the exchanges and add extra dollars to the deficit. But even with its best case scenario, the White House can’t cover up the downsides of what it’s trying to do to our health care system.