Since we last spoke with Professor Gunnar Almgren about his book Health Care as a Right of Citizenship: The Continuing Evolution of Reform, congressional Republicans again attempted, and failed, to pass a repeal of the Affordable Care Act. Shortly after, President Trump issued two executive orders impacting insurance markets and access to health care. We met up with Professor Almgren at a café on the Ave to talk about the impacts of Trump’s health care orders. “The ultimate losers,” says Professor Almgren, “are the older and sicker, and low-income families.”
What has Trump done and what some of the possible impacts?
There were two executive orders about a week apart.
The first executive order was to deregulate insurance markets so that employer associations could band together and market their products across state lines, which has long been argued, since before the Trump administration, as a strategy or reducing health insurance costs. There are two arguments for its ability to do that, one is to expand the insurance pool for relatively small employers and give them more purchasing power. The other of course is that they could then circumvent individual states’ health insurance commissioners and the regulation of insurance markets within states so that you could sell insurance markets that have skimpier basic benefits. The argument for the proponents of this is that it gives individual more freedom of choice in terms of the kind of insurance coverage that they wish to purchase. It clearly does make health insurance less expensive for the young and the healthy. They are less risk-averse for big health care expenditures because they are on average healthier. A 25-year-old can bet on their health, a 55-year-old can’t.
The downside of it is that for one thing, it does circumvent the ability of states to regulate their own insurance markets, to sustain a state consensus on the minimal protection of its citizens. The commissioners are there for a reason. The other effect is that it will drive up the insurance costs on the small employer market for older employees and lower-income employees because when you drain off the younger and the healthier, the risk pool then contains more of the lower-income, older, with higher health needs. That destabilizes markets in some states, that’s the general overview. It raises some real questions, of course, about the state versus the federal government’s authority to regulate insurance markets, so it is likely that there will be litigation to sort that out.
This idea has had a lot of popular appeal among more conservative health policy advocates, in particular those with more libertarian leanings. The win for Trump seems to be that he can do a concrete thing to appear to make health insurance look cheaper for a share of his political base. It gives him a win. The other seems to be that it is another way of undermining the Affordable Care Act. President Trump seems to have two core motivations: one is to be able to advance an alternative to the ACA with which he has joined hands with the Republican party. But the other, by a lot of observers, is that they see Donald Trump wanting to undo everything that Obama has done, and that it seems very personal.
There are other consequences to this first executive order, and that is that when you have a larger share of your population who has purchased insurance coverage that is inadequate, it induces for them a higher risk of catastrophic expenditures, leading to medical bankruptcies. And as far as the hospital industry is concerned, it leads to a higher risk of bad debt. People who come in looking insured but in fact their insurance is inadequate for catastrophic expenditures, and hospitals’ uncompensated care costs go up. This is particularly detrimental to the so-called “safety net” hospital sector, those hospitals that serve a disproportionate of poor, low-income and uninsured patients. Their uncompensated care costs go up. Many safety net hospitals are already on the margins of solvency as it is. So that is a real concern, and that is a real worry. It is very difficult to tell how this move will play out. I speculate that a lot of people who, to the extent that some sectors of the insurance industry take advantage of this opportunity, the consequences won’t immediately be apparent, but over time people will discover that their policies are providing inadequate coverage, or that the costs of health insurance for the older and the sicker working for small employers will be prohibitively expensive and they will just drop out of the insurance market entirely.
So that’s one of the executive orders creating a lot of uproar in the nation’s insurance market.
What’s the other one?
The other one is the halting of subsidy payments to underwriters offering individual policies with a larger share of lower-income individuals and families. There’s two kinds of subsidies in play here. One subsidy goes to the insurance company, a subsidy for their taking added risk by enrolling a large share of low income individuals and families in their insurance coverage. These are the subsidies that the executive order is discontinuing. The claim by the Trump administration, and by the GOP majority in Congress, has been that these subsidies were never appropriated. There was a federal court decision that upheld that position, but it never worked its way through the appeals process. The claim by the Obama administration was that these subsidies not only in fact were written into the ACA, which they were, but that the funds were appropriated for these subsidies. But Trump’s issuing this executive order makes all of that moot.
So what are the consequences of this? Well a curious thing happens, and that’s that even though the subsidies for the insurance underwriters that are enrolling lower-income individuals and households, to I think 250% of the poverty level, are eliminated, the federal subsidies to lower-income individuals and households are still in place. So what happens is, the insurance underwriters raise their premiums to off-set the loss of those federal subsidies, right? But then the federal subsidies that go to individuals and households go up to off-set the increase in those premiums. So the CBO actually had done a report last August assessing the effects of the removal of these subsidies to insurance companies. It estimated that between now and 2026, assuming it would be implemented in 2017, that the effect of this would be to increase the deficit by $194 billion dollars. That’s for two reasons. One is that premiums go up, so the federal government has to come in—yeah, you save some money, it seems, by not providing these subsidies, or as President Trump puts it, “bailing out the insurance companies.” But on the other hand, at the household level you increase the subsidies to offset the rising costs of premiums.
So it’s like a shell game.
It’s like a shell game, but it’s a very costly shell game to the taxpayers. Because it actually ends up costing us more. It costs us more not only because the insurance premiums go up, so we give households increased subsidies to make up for that. But also then more households qualify for the subsidies, because the insurance premiums have gone up relative to what their income is. So you’ve actually expanded the number of households participating in those subsidies.
There’s another consequence to this second executive order which could be truly disastrous for some communities and some households. There are many insurance markets in the country where you only have a single insurance underwriter still in the market, and they may pull out because of the uncertainty of all of this. Not knowing what the Trump administration will do next, and looking at all of this, they could rationally decide, “we just can’t afford to be in this market any more, we just can’t take the risk.” So if you’re living in an insurance market where you don’t have any policy, even if you’re eligible for a federal subsidy you can’t get an insurance plan. This is something that the Trump administration has railed against, and talked about the crisis with the ACA and the number of insurance markets where you can’t get policies, but they are pushing the insurance market over the cliff and then saying, “Oh my god, the ACA is a disaster.” And that seems to be the game.
This doesn’t affect enrollment in the Medicaid expansion, that’s the largest share of expanded insurance coverage. Nor does it affect other areas of the ACA. All the drama has been about the individual insurance market. That’s where all of these efforts seem to be aimed. Quite literally the jury is out on whether the Trump administration will be successful, in the sense of creating in the majority of insurance markets an untenable situation for even federally subsidized policies. The jury’s out, because insurance markets are volatile, each insurance underwriter is making their own decision under their own sense of how much risk they’re willing to assume. It’s also willing to say the jury’s out because state attorneys general are suing over this, and it’s hard to predict how that will come out as well. All we can say is we’re in for a ride.
Who are the winners and losers from these orders?
The political calculus for all of this is really interesting in my mind. The sentiment among many in the GOP is that, “if we break the ACA without an alternative, we own it.” And it’s becoming increasingly clear that that is exactly what’s happening here. Following the public opinion polls on two topics is going to be really important over the next six months or so. One is, to the extent that this component of the ACA unravels, what share of the public view this as a consequence of the actions of the Trump administration, and more generally the Republican party. The other thing to watch is just generally how much the public becomes increasingly disenchanted with the Republican majority in Congress’s inability of for that matter, unwillingness, to come up with fixes to the ACA, making it work. So those are the two things to watch.
The losers in this are the individuals and families residing in parts of the country where the insurers just bail out of the market, and they can’t acquire insurance even with the offer of federal subsidies to them. These are the people that have an income and a household composition that might exceed eligibility for Medicaid by a little bit, but they truly aren’t in a position to afford insurance coverage. They literally are without insurance. They are the losers. The hospitals that share a disproportionate share of those groups are the losers. We the taxpayers are the losers in the sense that, at least the CBO estimates, there will be enough impact on individual insurance markets where they’ll have a lot of individuals and households purchasing individual policies at a higher premium price, and getting subsidies in turn to do so, which again, adds some $194 billion to the budget deficit. So there’s a lot of losers.
The ultimate losers are the older and sicker, and low-income families. They are being pushed back, through another mechanism, to the margins of being able to get health care. So we as a society, aside from the individual tragedies, we also are the losers.