March 28, 2017

How the ACA could 'explode' under Trump—if he wants it to

Daily Briefing

After the GOP health reform effort failed last week, President Trump signaled he would wait until the ACA "explodes" before working on another replacement plan. Most experts doubt such a catastrophic failure is likely—but they say the ACA's future is now largely in the Trump administration's hands.

What it would mean for the ACA to 'explode'

Trump's reference to an "explosion" suggests he believes the law's insurance exchanges will enter a death spiral in which ever-rising costs drive more and more healthy patients from the market—leaving only the sickest and costliest patients to purchase insurance.

While some analysts, including the Congressional Budget Office, are doubtful the exchanges will enter a death spiral on their own, there are several ways the Trump administration could—through action or inaction—undermine the exchanges.

Further, although other aspects of the law, such as restrictions on state Medicaid programs, aren't vulnerable to death spirals, they still could face significant changes under the Trump administration.

How the Trump administration could undermine the ACA's exchanges

For instance, the Trump administration could take steps to end cost-sharing payments to insurers that help lower the cost of copayments, coinsurance, and deductibles for about six million exchange customers.

Those payments have faced legal challenges, and according to the Journal, the Trump administration could drop an appeal of a ruling in the lawsuit House v. Price that said the Obama administration lacked the authority to make the payments.

If the administration did so, the lower court's ruling would stand, and insurers would lose out on billions of dollars in promised funding. Some analysts say that likely would prompt insurers to significantly raise premiums or exit the exchanges. That could cause the individual market to "collapse because the insurers will have to keep helping low-income enrollees whether they're getting the payments or not," Caitlin Owens reports for Axios.

As of Monday, the administration was still considering its options, according to a White House spokesperson.

Other changes that the administration could make that would affect the individual market, for better or for worse, include:

  • Declining to enforce the individual mandate, although that approach could face legal challenges;
  • Expanding or narrowing individual mandate hardship waivers;
  • Reducing reimbursement payments made to insurers;
  • Eliminating or extending an administrative fix that allowed consumers to keep so-called "grandfathered" plans—those sold before the passage of the ACA on March 23, 2010;
  • Pulling advertising intended to encourage signups for the 2018 open enrollment period;
  • Narrowing the ACA's essential health benefits rule by limiting prescription drug coverage or the number of visits allowed for mental health services or physical therapy; and
  • Limiting special enrollment periods.

Washington University School of Law professor Rachel Sachs and University of Michigan Law Professor Nicholas Bagley write for the Incidental Economist, "The [Trump] administration may come to believe that it's in its political interests to make the exchanges work. But if it doesn't, it has the power to inflict a lot of damage."

Short of an 'explosion,' Trump could shift the ACA in a more conservative direction

While the non-exchange aspects of the ACA aren't as vulnerable to "explosions," the Trump administration could still shift them in directions favored by GOP lawmakers.

For instance, the administration could use the ACA's state innovation waivers to give states more of the flexibility Republicans hoped to achieve through the American Health Care Act (AHCA). The waivers allow to states to use federal funding to overhaul their entire health insurance markets if they can demonstrate their plans meet certain requirements.

HHS Secretary Tom Price already has signaled to state governors that his agency would be open to waiver proposals that include high-risk pools and state-operated reinsurance programs. According to NBC News, governors who strongly oppose the ACA also could try to use the waivers "to chip away at requirements for what health insurance companies must cover."

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Similarly, Trump could allow states to alter their Medicaid programs to pursue conservative-backed proposals, such as cost-sharing models similar to health savings accounts, premiums, and work requirements for able-bodied Medicaid beneficiaries. In a recent letter, Price and CMS administrator Seema Verma signaled the Trump administration would support such initiatives.

Will Trump actually push for an 'explosion?'

While experts agree Trump has the power to change or even undermine the ACA, they are split on whether or not he will do so.

David Cutler, the Harvard health economist who helped the Obama Administration craft the ACA, said of Trump, "If he wants to blow it up, he can." But if the Trump administration goes that route, "they alone will own the failure" because the administration "could take many steps to stabilize things," he added.

However, some experts and industry stakeholders said they believe the administration ultimately will prop up the law.

Federation of American Hospitals President and CEO Chip Kahn suggested that policymakers must find a way to bolster the exchanges because so many Americans rely on them for coverage. "There always has been an individual market made up of entrepreneurs who own small businesses, and farmers and ranchers, and it's sort of mandatory that there be policies available to them," Kahn said.

(Steenhuysen, Reuters, 3/27; Goldstein/Eilperin, Washington Post, 3/24; Sanger-Katz, "The Upshot," New York Times, 3/24; Tracer, Bloomberg, 3/24; Armour, Wall Street Journal, 3/25; Fox, NBC News, 3/27; Armour, Wall Street Journal, 3/27; Hagen/Kamisar, The Hill, 3/28; DeBonis, "Power Post," Washington Post, 3/27; Boyer, Washington Times, 3/27; Zermike et al., New York Times, 3/27; Owens, Axios, 3/28; Bagley/ McIntyre, The Incidental Economist, 1/23; Bagley/Sachs, The Incidental Economist, 3/28).

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