Following Congress’ failed attempts to repeal Obamacare this year, President Donald Trump is considering changing the law on his own — but his plan could open up a loophole in Obamacare so large that it would threaten to destroy the individual and small group markets altogether.
The plan involves letting people pool together and buy unregulated insurance plans exempt from both state laws and the Affordable Care Act’s consumer protections. When attempted in the past, this has led to healthy people fleeing the markets for cheaper, unregulated plans, leaving behind sicker people who faced spiraling costs.
“It is clear that this approach undermines the individual and small group markets. It just does,” said Kevin Lucia, a professor at Georgetown University’s Center on Health Insurance Reforms.
Others experts go even farther.
“If they were able to find some way to do that, it would completely destroy the individual market,” said Tim Jost, a health expert at Washington and Lee University.
It’s not official that Trump is pursuing this policy, though signs are pointing that way. He declared last week he intends to sign an executive order on health reform as early as next week — utilizing a power he and congressional Republicans repeatedly criticized former president Obama for using when Congress failed to act, most recently on the issue of DACA.
Trump’s language was vague but his statements seemed to align with a proposal being pushed by Kentucky Senator Rand Paul. Paul said this week he has been working with the White House for six months and it is indeed his plan that will be the basis of the executive order (the White House has not confirmed this and did not respond to requests for comment on the planned executive order.)
Paul’s proposal would allow people to pool together under something in common — whether it be a group of baristas or used car salesmen or National Rifle Association members — and buy insurance as a group.
On Thursday, Paul provided more details, telling telling BuzzFeed News that these groups would be able to buy a specific form of insurance — self-insured health plans under a law known as ERISA.
The implications of this are massive because these ERISA plans do not have to comply with Obamacare rules or state regulations. Plans could charge lower premiums because they do not cover treatments that are mandatory under Obamacare, such as maternity care, mental health services, addiction treatment and prescription drugs. These plans could also potentially jack up premium prices on specific people or businesses with higher costs, driving them out of the associations and back to the regulated markets.
Essentially, this would open a door for healthy people who don’t use much insurance to exit the individual and small group markets while people who need those services would face rising costs.
“I would compare it to repealing the ACA without Congress," said Mila Kofman, executive director of the District of Columbia health exchange.
“If you allow these entities to cherry pick the healthy people out of the individual market … you’ll have marketplaces with only sick people left in them. And a market risk pool can’t survive with only sick people in it.”
Kofman previously conducted extensive research into health associations as a professor at Georgetown University. It showed that in the past, exempting associations from regulations has led to market collapse and a spike in fraudulent insurance plans run by scam artists.
Ironically, the poster child for this is Paul’s home state of Kentucky. In the mid-1990s Kentucky enacted a series of consumer protections on its health markets in the vein of Obamacare, which came many years later. But it also left open a loophole for associations to fund their own insurance plans outside the regulated markets, just as Paul is now proposing.
It didn’t take long for healthy people in Kentucky to join together in associations and flee for unregulated insurance plans. Association membership doubled in just the first 90 days. This left behind more sick — and thus expensive — people in the regulated market. Prices rose and created what’s known as a death spiral.
“Essentially they set up an uneven playing field,” said Kevin Lucia of George Washington University. “Very quickly the healthy risk moved to the association market, leaving behind spiraling premiums.”
The reforms in Kentucky eventually collapsed altogether. Other states, such as Washington and Vermont, similarly watched reforms dodged by associations that had broad freedom to self-select membership. (There was a joke at the time about buying insurance through the Air Breathers Association, a group of people united by the fact that they breathed air.)
“We’ve seen this happen time and time again. It’s a lesson we should have learned long before,” said Mark Hall, director of health law at Wake Forest University. “I can only hope those putting together this approach have studied the lessons of the past.”
Proponents of the plan argue this allows individuals to pool their purchasing power and avoid regulations, leading to cheaper plans tapered to the actual desires of consumers. Trump seems to agree, saying that his upcoming executive order “will take care of a tremendous number of people with regard to health care.”
Though this would be a massive transformation of the American health care system, it appears possible that the White House can do this without passing any legislation through Congress. In fact, it wouldn’t even have to change the Affordable Care Act at all. Instead it would go through a different law — the Employment Retirement Income Security Act of 1974, known as ERISA.
ERISA lets employers create and fund their own insurance plans for employees outside of state insurance regulations (key Obamacare rules, such as what essential health benefits must be covered by insurance, also do not apply). These plans have largely worked well and today millions of Americans get health insurance through them. However, practically all of those are through large companies with the cash flow needed to keep plans solvent.
The trouble has come when smaller groups used these unregulated plans. Some have gone insolvent, leaving individuals with large, unpaid medical bills. But ERISA also led to a spike in scam health insurance plans. Because they operate outside of state oversight, there have been instances of plan administrators skipping town with the insurance money. During one spike of fraud from 1988 to 1991, 400,000 people were left with $123 million of unpaid medical bills.
ERISA allows these unregulated plans to be sold not just to employees but to associations of people that have a “commonality” of interest. But traditionally this has been strictly interpreted. For example, the department of Health and Human Services may allow a collection of farmers to form a co-op through which to buy insurance, but not just any group of people can do so.
But “commonality” is open to interpretation by the administration of the day. If the Trump administration takes an extremely lax interpretation — thus the “Air Breathers Association” joke — it could allow for essentially any group of people to gather together and buy unregulated insurance.
Whereas the entire focus of Obamacare was to push everyone into a single risk pool in the hopes of keeping costs down for everyone, this would allow associations to self-select and enter into their own risk pools.
"It seems they're trying to accomplish through executive order some of the more radical things that they were trying to do through legislation,” said Larry Levitt of the Kaiser Family Foundation.
"This would certainly not be what ERISA was intended to do originally."
However, Paul argues the opposite. He said he believes ERISA was always meant to allow for great flexibility in who can can join together to buy insurance.
“The way we read the original bill, we believe it’s much more expansive than has been interpreted in the past. We think that if you actually interpret it to the original intent of the law, that it’s a much bigger understanding of who can join a health association,” said Paul.
Kofman disagrees with this interpretation, and points out ERISA was amended in the early 80s to crack down on an epidemic of fraudulent insurance plans. She said the executive order could face legal challenges if the administration exceeds its interpretive authority, but that’s impossible to say without seeing the order itself. Either way, said Kofman, the order would be so transformative it would be essentially akin to writing a whole new health law.
“No administration has the authority to write new laws,” she said. “That’s what Congress does.”