When President Barack Obama and Congressional Democrats passed the Affordable Care Act in 2010, they probably weren’t aware they placed a booby trap in the law.
President Donald Trump has now found the trap, and Thursday set it off — which could undermine the law and possibly hurt some of the Americans the ACA is supposed to help.
The most controversial part of the ACA was Obama’s claim that “if you like the plan you have, you can keep it. The only change you’ll see are falling costs as our reforms take hold.” He was wrong about that. One provision of the ACA required all insurers to offer “essential health benefits,” such as maternity and pediatric care and mental health services. That was meant to eliminate limited-benefit plans — sometimes derided as “junk” plans — that didn’t provide all the services some patients needed.
But those types of plans happened to be popular among people who didn’t get coverage through an employer and bought insurance on their own, a group that numbered at least a few million Americans. They preferred limited-benefit plans because they only had to pay for coverage they needed. When the ACA went into effect, limited-benefit plans disappeared, and most people who had been purchasing them had to pay considerably more for plans that offered more coverage than they wanted. It was like being forced to buy a Cadillac when you only wanted a Chevy.
Providing lower-cost plans with fewer benefits
The problem persists to this day, and it’s acute among middle-class professionals who earn too much to qualify for ACA subsidies and typically work as independent contractors or small-business owners. Those between the ages of 50 and 64 are hit the hardest, because their age allows insurance companies to charge them the most. Earlier this year. Yahoo Finance profiled several people who paid well over $10,000 per year for insurance that doesn’t even kick in until deductibles of $5,000 or more are met.
Trump has now addressed this problem through an executive order, signed Thursday, that will open the door for people not covered by an employer to buy lower-cost plans that offer fewer benefits. One method is to explicitly allow “association health plans” that can cover groups of small businesses, pooling purchasing power and lowering costs. Another would be loosening rules on short-term health plans, making them a viable alternative to ordinary policies, which they aren’t now.
Such moves, in effect, would allow healthy people who find insurance too expensive to purchase stripped-down plans that cost less and cover less. That might sound reasonable. But insurance only works if it pools healthy and sick people together, with healthy policyholders who need less coverage than they pay for subsidizing sicker ones who need more coverage than they pay for. If the healthy bolt, and only the sick remain, costs could rise to the point that even the cheapest policy becomes unaffordable — even with subsidies. As premiums rise, more and more people would bail, resulting in the Obamacare “death spiral” insurance analysts worry about.
There are other ways to deal with the legitimate problem of sky-high insurance costs for people overlooked by the ACA. Federal subsidies could be extended to people with higher incomes. In conjunction with that, there could be out-of-pocket maximums, as a percentage of income, that limit the amount any individual must fork over for insurance costs in a given year. At a broader level, Congress could pursue pathways to universal coverage, with a government backstop for people with exorbitant costs. Bernie Sanders’s idea of “Medicare for all” might be one way, but it’s also possible to craft universal coverage in a way that isn’t completely government-controlled and relies on parts of the private health care market that already work reasonably well.
That’s not where Trump is heading, however, and the Republican-controlled Congress has proven itself inept at fixing the flaws in the ACA. So, it may have to get worse before it gets better — and maybe it will never get better.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman