DC Deciphered

Did Democrats win the Obamacare fight last month when Speaker Ryan was forced to pull the GOP replacement bill without even letting it go to a vote?  Obamacare supporters and Anti-Trumpers all over the country rejoiced at the bill’s failure, and plenty of fun was had on Twitter over Trump’s inability to get his own party to pass a bill.  But unfortunately, Democrats can’t really declare victory in this fight just yet.  While Democrats won that particular battle, the years-long war over Obamacare is still being waged.

Setting aside the Trump/GOP talk about bringing up a new Obamacare replacement bill in the near future (which for the moment, at least, seems unrealistic), let’s look at what Trump & the GOP are doing with Obamacare right now. This past Thursday, the Trump administration announced a new set of rules that will govern the Obamacare exchanges for 2018 (and some provisions will become effective in summer of 2017).   These rules are referred to by the administration as “market stabilization” rules. But when you consider Trump’s own statement that “the best thing we can do politically speaking is let Obamacare explode,” it’s hard not to wonder, are these rules really meant to stabilize the Obamacare markets?

To answer that question, these new rules must be viewed in the context of a number of other moves made by Trump and the GOP with respect to the Obamacare markets:  we must look at (1) actions taken by them in the past and (2) decisions still to be made in the future.  So Part 1 of this post will discuss the just-announced new rules. Part 2 will discuss actions taken in the past by the GOP and/or Trump that have unquestionably been intended to (and did successfully) damage Obamacare. Part 3 will look at some key decisions Trump & the GOP still have ahead of them regarding Obamacare implementation that could significantly stabilize (or destabilize) the markets depending on which choices they make.

The direction they choose to go on the decisions in Part 3 will help make clear whether the recently announced new rules are just a pit stop along the continuing route to sabotage, or whether Trump & the GOP are finally becoming a responsible governing party that will implement Obamacare the way it was intended. So which route will Republicans choose – sabotage or responsible governance??

New Rules for Obamacare Exchange Plans

On Thursday the Centers for Medicare and Medicaid Services finalized new rules applicable to the Affordable Care Act.  The new rules do give insurance companies some of the changes they requested in order for them to be willing to remain in the individual market. So on that count, if these changes help convince insurance companies to continue providing insurance on the exchanges for another year, that’s a good thing.* But many of these provisions will likely have the (unintended?) consequence of making it harder for customers to purchase insurance, and in particular it appears these rules will tend to push out younger, healthier, cheaper-to-cover customers.  So over time, these rules seem likely to have the perverse effect of destabilizing the markets and eventually causing more insurance companies to leave.

 

Both health policy analysts and some leading health insurance companies have  expressed concern that the new rules will significantly reduce enrollment in the exchanges.  Whether this effect is intentional or not on the part of the Trump administration, we will likely never know.   But as mentioned above, part of that assessment will depend on how the Trump administration answers questions about Obamacare implementation that still lie ahead, which I’ll discuss in Part 3 of this post.

The new so-called “market stabilization” rules include the following changes:

1.The open enrollment period will be shortened from three months to six weeks:   The Department of Health and Human Services says that this change will discourage people from waiting until they get sick to sign up for health insurance (i.e. if they get sick during the enrollment period).  But some experts say this could actually end up leading to a less healthy insurance pool, because in past years it’s been the younger, healthier customers who have tended to wait until the last minute to sign up.

Additionally, this new rule could mean much smaller insurance pools in general (which tends to mean less varied pools and less ability to spread the risk around), because it will be much more difficult for people to sign up in this new time span.  The old open enrollment period went from November 1^st to January 31^st.  The new one will be from November 1^st to December 15^th.  This is the busiest time of year for most people, with the holidays approaching.  For the same reason, it tends to be the time of year that people have the most trouble paying bills (the majority of people signing up on the exchanges are lower income).  So by limiting sign-ups to this time frame, when both time and money are short, a lot of people who would have signed up for insurance might be left out.

On top of that, the enrollment period will now almost perfectly overlap with the Medicare enrollment period.  Many insurance brokers, who help people through the complex process of choosing and signing up for an insurance plan, say they will likely focus their time and resources on signing up Medicare customers which is more lucrative for them.  This will leave Obamacare customers without assistance, causing them an even tougher time getting signed up for insurance.

And though six weeks may sound like more than enough time to choose an insurance plan, I can say from personal experience that it can take a very long time to wade through all the details of the various plans being offered on the individual market.  The specifics of the plans don’t come out until the day open enrollment begins (for the federal marketplace, you might get a few days advance preview, but some state marketplace give no preview at all).  So on November 1^st, you’re just beginning to get a look at the plans. 

Then you have to sort through the differences in coverage, deductibles, co-pays, etc.  And you also must figure out which plans take which of your doctors, what the prescription drug coverage is like, etc.  If you need to call one of the companies to ask a question, well, you’re one of thousands trying to get through at the same time, because everyone only has the same six weeks to get signed up.  So six weeks might sound like plenty of time, but it’s actually not much time at all to comb through a vast amount of complex information, and try to choose the plan that will determine your health coverage for the entire next year.

2. Special enrollments outside of the regular enrollment period will require extra verification: This change was requested by the insurance companies to make sure people aren’t gaming the system. Insurance companies are concerned that people are claiming special circumstances to sign up outside of the enrollment period when really they are just trying to sign up because they’ve gotten sick or injured.  Special enrollment is supposed to be allowed only when someone has a major change in life circumstances, such as getting married, losing other means of health insurance, or moving to a new state.

The Obama administration had been randomly selecting half of special enrollees for verification of their status.  The rest simply had to attest to their changed circumstances.  The new rule will require that 100% of special enrollees provide documents verifying their status before they can start coverage.  This rule will begin in June, 2017.  This provision seems reasonable, though some consumer groups are not happy with it.

3. Outstanding premiums from the prior year must be paid before the new year’s coverage can start: Currently, Obamacare allows a 3-month grace period for overdue payments before a customer loses coverage. So this means that a customer could owe premium payments from the end of one year and still begin receiving coverage for the next year without having made those payments.  The new rule says that insurance companies can refuse to sell a new policy to customers whose payments aren’t up to date. 

Consumer groups are concerned about this change because they argue that there are times that people might legitimately get behind on a bill due to a billing error or job loss, and that shouldn’t preclude them from being able to get coverage for the new year.  And like some of the other aspects of these rules, this provision could have the effect of pushing healthier people out of the pool.

If money is tight, a sick person who needs health insurance is more likely to find a way to come up with the money to pay their overdue insurance bills and retain insurance, while a healthy person is likelier to forgo insurance and use the money on other more urgent items.  Even the National Association of Insurance Commissioners has spoken out against this particular provision.  But again, insurance companies wanted this change because they were concerned about customers who would buy insurance just long enough to cover them while they were sick or injured.

4. Insurers will have more flexibility on coverage levels: This change could be really damaging to customers.  Obamacare plans are divided into tiers (Bronze, Silver, Gold, Platinum) that let customers know what proportion of their medical expenses will be covered by their plan. This is what’s known as “actuarial value.” A plan with an actuarial value of 60 will cover approximately 60% of the plan holder’s expenses.  Obamacare requires that all Bronze plans have an actuarial value of 60, all Silver have a value of 70, all Gold 80, and all Platinum 90.  This makes it simpler for people to compare and buy plans and know exactly what they’re getting.  (Plans are allowed a tiny bit of leeway of 2%, so a Silver plan could actually cover 68% – 72% of costs).  The new rules will expand these allowed values on the low end.  So a bronze plan can now have a value as low as 56%, Silver can be as low as 66% and so on.

The idea behind this is that insurance companies say it will allow them to attract younger, healthier customers who want less expensive plans.  But this is misleading because while this will allow providers to sell plans with lower premiums, all the other costs, such as deductibles and co-pays will go up.  That’s what happens when you lower the actuarial value of the plan, because it means the plan covers less of these out-of-pocket costs.  And this is a real problem, because many people will purchase the plans not realizing that they’re getting a plan with these higher out-of pocket costs.

Additionally, the premium subsidies that lower income customers get from the government to help them purchase plans will be lower as a result of this change.  The subsidy level each person receives is determined based on the price of a “benchmark” Silver plan (the second cheapest Silver plan) where they live.  That “benchmark” plan will now cost less (because it covers less), and as a result subsidies will be lowered.  But premiums will still be just as high if customers want to be able to buy a plan that covers as much as the old plans did.  The vast majority of people purchasing insurance on the Obamacare exchanges do so with the assistance of subsidies.

On top of all of that, this change will be especially confusing for people who have previously purchased insurance on the exchanges.  The plans were designed with these tiers for simplicity.  As intended, people have come to rely on the names (Bronze, Silver, etc.) to mean something.  Each one indicates a certain level of coverage.  Now, the plans will have the same names they’ve had for the last several years, but suddenly those names won’t stand for the same coverage anymore.  This could be very misleading to people who are used to buying a Silver plan and getting a certain product.  Now when they buy a Silver plan, they can no longer rely on getting the same product they’ve come to expect.

5. Insurance companies will be allowed to include fewer “essential community providers”: Many plans on the Obamacare exchanges have narrow networks of doctors and other health care providers in order to keep the costs of the plans down. However, as a protective measure, under Obamacare at least 30% of area providers that treat the “medically underserved” must be included in the network.  The new Trump rule reduces this requirement to 20% and also leaves it up to the states to determine whether this requirement is being met.

6. Outreach for sign-ups: The new rules commit the Trump administration to doing some sort of outreach to get people to sign up for health insurance, but there are no specifics here at all about what they’re committing to. The new rules barely say (PDF) more than that “we intend to conduct outreach.” (Whether the Trump administration truly performs meaningful outreach for the next enrollment period will be significant, because as I’ll discuss in Part 2, Trump pulled back the outreach for 2017 enrollments and it caused a real slump in sign-ups).

In Sum:  So overall, you can see that while these new rules may appease the insurance companies in the very short term (in Part 3, I’ll explain that the 2 big items the insurance providers want for reassurance are still up in the air, so these new rules may not even be enough to keep them around), in the long run the rules look more likely to decrease exchange enrollment, especially of healthier customers, which will eventually destabilize the markets further.

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Read Obamacare Wars – Part 2 in which I look back at some of Trump/the GOP’s past behavior toward Obamacare for hints about what their current intention is with these new rules.

Read Obamacare Wars – Part 3 in which I look at 2 key decisions re Obamacare implementation that Trump & the GOP are in the process of making right now which will determine the fate of Obamacare . . . and help tell us their real goal: stability or sabotage.

*****

Note:

*The main weakness in Obamacare right now is a lack of providers in certain markets.  Some markets are thriving and providing customers with a good number of insurance companies and plans to choose from.  But in other markets, numerous insurance companies have pulled out over the last year or two, leaving customers with only one or two insurance companies to purchase from.  Some of this is due to inherent flaws in the design of the program or the way the Obama administration implemented it.

For example, the individual mandate is not strong enough to bring enough customers into the market to keep the risk pools as large and varied as they’d ideally be.  The penalty is too low, and in particular, it was much too low the first couple years when penalty was being phased in at a lower level.  Additionally, there isn’t much of an enforcement mechanism for the individual mandate beyond withholding the penalty from an individual’s taxes.  So not enough people have been signing up, and in particular, there have not been enough young and healthy people.

Compounding this problem, the Obama administration bowed to political pressure when Obamacare was first being implemented and many people started to lose their old insurance plans.  Obama responded to the anger by allowing state to “grandfather” people into their old plans for several years.  This meant that most of the people who’d already had health insurance – and they tended to be healthier than those who’d been going without – didn’t join the new risk pools.

So there were some weaknesses in the law to begin with.  But these problems were surmountable and the markets were holding up, even under these conditions.  However, the problems in the markets have been made significantly worse by GOP attacks on the law, some of which I will describe in Part 2 of this post. As a result, the exchanges really began to suffer (though even with that, the exchanges are still functioning today, despite the many GOP claims of an Obamacare “death spiral.”)

Therefore, it is of utmost importance for the Trump administration to make it clear to the insurance companies – which are deciding right now whether to participate in the markets for 2018 – that they will continue to support and fully implement Obamacare.  The stance the Trump administration takes toward the law will make all the difference in determining whether insurance companies stay in or decide to bail.  And that will decide the ultimate fate of Obamacare.