Trump Signs Executive Order Directing Overhaul of ACA Regulations, Announces End of CSR Payments

On Thursday this week, President Donald Trump took two decisive actions related to the Affordable Care Act (ACA) which are likely to send health insurance marketplaces into turmoil. Earlier in the day, President Trump signed an executive order directing key agencies to issue new regulations and guidance related to provisions of the ACA. Later, the White House announced it would no longer provide cost-sharing reduction (CSR) payments to health insurance companies which are used to help cover out-of-pocket costs for low-income individuals. Below, we detail both actions:

Executive Order

Trump’s executive order issued Thursday is largely expected to give rise to less expensive and loosely regulated health insurance plans that do not have to comply with certain ACA protections or benefits. Health policy experts have warned that by taking such action, ACA markets could spiral out of control; younger and healthier individuals would be expected to flock to leaner health plans which would leave older and less healthy individuals in ACA markets facing rapidly increasing costs and fewer insurers willing to cover these populations.

The executive order focuses specifically on:

• Association health plans – Typically used by small business owners, trade groups, and others to group together to purchase health insurance

• Short-term health insurance plans – Provides temporary, narrow health insurance during unexpected coverage gaps

Association health plans would be federally regulated and permitted to be sold across state lines. Notably, these plans would also be exempt from certain ACA regulations, including required coverage of essential health benefits such as mental health services and prescription drug coverage. These plans would also not have to cover a minimum percentage of enrollees’ health care costs.

Reports suggest the Trump Administration is reinterpreting provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which sets minimum standards for health plans and governs a series of workplace benefits. The Administration is working to redefine what constitutes an “association,” which could include small businesses, trade groups and unions, and even groups of self-employed individuals. This definition is particularly significant as it will determine the number and types of individuals eligible for such plans.

Short-term insurance plans are currently limited to three months of coverage and do not meet minimum essential health benefits under the ACA, including coverage of pre-existing conditions and most other costly benefits. These plans are strictly intended for stopgap coverage for individuals in times of transition and may incur a tax penalty as a result of the ACA’s individual mandate provision. Under Trump’s executive order, the ACA’s three month coverage limit could be extended to as long as one year.

The extent of the impact of these directives will largely depend on how far the Trump Administration and its agencies push to rewrite current regulations and guidelines. According to senior officials, any changes to ACA regulations would go through the traditional rulemaking process that involves public comment and could take months to complete.

Regardless, the expansion of association health plans and extended short-term health insurance plans are likely to spur the emergence of a larger deregulated health insurance system that competes for the same individuals as ACA marketplaces, leading to a potentially destabilizing result across the country.

End of Cost-Sharing Reduction (CSR) Payments

In an additional change to the ACA, the White House indicated that it “cannot lawfully” continue the payment of CSRs to insurance companies to help cover out-of-pocket costs for low-income individuals, despite having done so for eight months of this year. CSRs were started under the Obama Administration, though the payments were never authorized by Congress. Consequently, House Republicans sued the Obama Administration in 2014 and pending litigation has since been ongoing.

CSRs were expected to total approximately $7 billion this year and have been paid in monthly installments. CSRs are designed to assist people earning between 100 and 250 percent of the federal poverty level (FPL) to pay for health insurance accessed through ACA health insurance exchanges. Without CSRs, insurance markets are expected to quickly unravel. Health insurers have indicated they will need to charge significantly higher premiums and potentially even exit the ACA marketplace altogether.

Recall late this summer, the Congressional Budget Office (CBO) released a report analyzing the potential impact of terminating CSRs. The CBO estimated that ending CSRs after December 2017 would:

• Increase Health Insurance Marketplace premiums by approximately 20 percent in 2018 and 25 percent in 2020;
• Increase the federal deficit by $194 billion over the next decade
• Increase the number of uninsured Americans by 1 million in 2018; and
• Result in approximately 5 percent of Americans living in areas without any insurers willing to sell plans in the Health Insurance Marketplace for the next year

Another analysis by the Kaiser Family Foundation has estimated that ending the payments could cost the government $2.3 billion more than it would otherwise spend in 2018 and result in skyrocketing premiums.

Given that Congress did not appropriate funds, the Trump Administration determined it will stop CSR payments effective immediately. Health policy experts have indicated Trump’s move on CSR payments are likely to result in greater instability and uncertainty across all health insurance marketplaces, particularly in those that are already experiencing challenges with rising premiums and exiting insurers.

With the immediate end of CSR payments and insurance exchange open enrollment beginning on November 1, health insurance companies will have the option to adjust their rates or completely pull out of the market. At this time, it is unclear if or how many insurance companies may leave markets. Making adjustments to exchange health plans is expected to be a lengthy process of working with state regulators and could vary by state.

A handful of state attorneys general, including California’s Xavier Becerra, announced their intention on Friday to file a federal lawsuit against the Trump Administration arguing that withholding CSRs is unlawful and violates mandate provisions of the ACA.

Many members of Congress, including Republicans, have expressed worry about the sudden end of CSR payments. Complicating potential Congressional action, the Trump Administration announced on Friday opposition to any bipartisan attempt to reinstate funding for CSR payments. This latest announcement deals a significant blow to the ongoing work of Senators Lamar Alexander (R-Tennessee) and Patty Murray (D-Washington) to strike a bipartisan deal on fixing components of the ACA to stabilize markets and continue health insurance subsidies for low-income Americans.

Uncertainty around federal health insurance marketplaces is perhaps at one of its greatest points given Trump’s executive order and announcement on CSR payments this week. It remains to be seen what impact these actions will have on insurance marketplaces, coverage rates, and legislative attempts to stabilize the ACA.