The Impact of Recent Executive Orders on the Health Care System

This post was authored by Dan Colacino, Vice President of Underwriting and Compliance at Rose and Kiernan, Inc.

Earlier this week, we discussed what would come next in the battle over health care and the future of the Affordable Care Act (ACA.) One possibility that we mentioned was the use of Executive Orders (EOs) as a legislative option.

On October 12, President Trump did just that, issuing two EOs to alter the current health care marketplace. The first EO would allow two insurance practices, ostensibly aimed at making insurance more affordable, one beneficial element for short term medical policies and authorize employer funded Health Reimbursement Arrangements to pay for individual insurance. The second EO would suspend Cost Sharing Reduction (CSR) subsidies to carriers participating in the individual marketplace.

In order to provide a perspective on the EOs that were signed earlier this week, we are providing a summary of what we feel has actually occurred and what is likely to occur moving forward:

Short Term Medical: One piece of the EO is actually reasonable, if implemented, and that piece would allow expanded Short Term Medical to be sold once again. Under President Obama, Short Term Medical was prohibited from being sold if the policy, in any way, allowed the insurance to run more than three months.  This could possibly eliminate that specific regulation. The latest EO is more direct on Short Term Medical; it says specifically to lift the three-month cap.

Interstate Sale of Insurance: In a nutshell, an insurance company in Arkansas with much weaker insurance protections than New York, Connecticut or Rhode Island could enter the market and sell their Razorback insurance products to companies for what the Administration thinks will be much cheaper prices than the “mandate laden policies” that now exist. The flaw in this is obvious. First, mandates aren’t the main cause of high insurance prices — it’s the cost of health care.  So, when the Arkansas company tries to negotiate a discount with a major medical center, such as Hartford Healthcare or Albany Medical Center, that carrier with no membership and, therefore, no clout is unlikely to get anything other than a 5% prompt pay discount. Obviously, this leaves them with no ability to drive lower premiums since they would be paying 40% more than the established and licensed carriers like Blue Cross Blue Shield.  Interstate sale of insurance has been allowed in Georgia for six years now and the number of out of state carriers selling in Georgia has remained the same – zero.

Association Health Plans: This provision would allow groups of individuals or small businesses to band together to get lower prices for health insurance. Those could be sponsored by trade associations, professional groups or other community organizations. Senator Rand Paul has championed this as a cost reduction approach for years. In his words, “Association plans would let plumbers, carpenters, welders or any type of small business band together to get group health insurance. Literally any group — your church, the National Rifle Association, the American Civil Liberties Union — any group of people who choose to do so could offer cheaper, better health insurance.” The flaw in this is obvious; lower premiums will only occur for those selective Association Plans that enroll lower risk (healthy) individuals and the balance of people in the individual market would pay higher premiums as a result.

Subsidies for Cost Sharing Reductions (CSRs):  In the President’s second EO he said to scrap the subsidies paid to insurers for the CSRs in Silver Level Marketplace plans. Individuals who are below 250% of the Federal Poverty Level qualify not only for a subsidy but a reduction in deductibles and copays for a Silver Level plan. This particular EO is in for a battle as several states, including New York State, have promised to sue over the loss of the subsidies. Republicans have claimed, apparently correctly, that the subsidies were never authorized by the House of Representatives and, therefore, illegally appropriated. Payments have been made while a lawsuit which began in the House during the Obama administration progresses through the courts. The Trump Administration finds itself today defending the subsidies.

It remains to be seen if an Executive Order can override state insurance laws with regard to AHPs or interstate sales. The Employee Retirement Income Security Act of 1974 (ERISA) specifically reserves regulation of insurance to the states so the entire EO may amount to nothing.  The EO is not regulation and does not have the force of law in this case so it does nothing more than direct the agencies to consider ways they can issue regulations to accomplish his objective. Based on the regulatory process and the promised lawsuits, we don’t feel it’s likely anything will develop before next year and in all likelihood wouldn’t affect anything until the 2019 plan year.

The impact will be on individuals and small groups and is unlikely to impact the large group (> 50 in RI and CT, > 100 in NYS) market.

Stay tuned for more information.

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