The Trump administration has made radical changes in the health care system by stretching the limits of executive authority – much more so than Barack Obama did.
Although these changes have been largely ignored by the mainstream media and even the health care media, they have the potential to transform the health care system without any real revision of Obamacare. Two changes are particularly important.
The first change occurred last month. Employers can now make pre-tax dollars available to their employees to buy their own health insurance.
In an ideal world, most people would own their own health insurance and take it with them as they traveled from job to job and in and out of the labor market. Some employers may have better insurance than is available on the open market. But many would like to get out of the health insurance business altogether and make a cash contribution to help employees buy their own.
Some employers were actually doing that before Obamacare. They used an account called a Health Reimbursement Arrangement (HRA), providing tax-free funds employees could use to buy their own health insurance. But the Obama administration effectively deep-sixed this option by threatening to fine any employer caught in the act by as much as $100 per employee per day, or $36,000 per year. That was the highest fine imposed under Obamacare.
Thankfully, the Trump administration has reversed course. Employers can now use HRAs to help employees obtain their own coverage with the administration’s blessing. Borrowing a catch phrase from Barack Obama, “employees who like their health insurance will be able to keep it.”
The Council of Economic Advisers estimates this will eventually be a reality for 11 million workers. It would affect far more if Congress would enact a reform, described below.
The second major change relates to short-term insurance, an option that has been available in most states for many years. Historically, short-term insurance lasted up to 12 months, as a bridge for people who were transitioning – for example, from school to work or between jobs. It has one very attractive feature: Obamacare regulations do not apply, including the prohibition on pricing insurance based on the expected health costs of the buyer. Most state regulations don’t apply either. So, with short-term insurance, insurers are able to meet the different needs of different buyers, instead of the one-size fits-all approach of Obamacare.
Short-term insurance is the closest thing we have to free market health insurance.
The Obama administration didn’t like short-term insurance any more than it liked employee-owned health insurance. So, Obama used his regulatory authority to limit such policies to three months’ duration and prohibited renewals after that.
Trump once again has come to the rescue. Under new regulations, short-term insurance can now last up to one year, with renewals available for another two years. Plus, the administration has blessed what I call “health status insurance,” which protects you from premium increases in the next three-year period.
Say you buy both types of insurance and then you develop a costly illness. The insurer is prohibited from charging more because of a change in health condition during the first three years. But it can re-rate you and charge more when you apply for insurance in year four. That’s when the second type of insurance kicks in. It pays for any increase in premium that is caused by a change in health condition.
By stringing together these two types of insurance, people will be able to remain insured indefinitely, with affordable premiums for plans tailored to individual and family needs. The expected number of enrollees ranges from 1.9 million (Medicare’s chief actuary) to 4.3 million (Urban Institute).
These two reforms are really promising. But here’s the rub. They don’t fit together.
For the most part, the only insurance that employees can buy with employer money is Obamacare insurance. Employees can use no more than $1,800 of employer money to buy short-term insurance and they don’t get any other tax relief either. That’s not nearly enough to cover the cost of individual coverage, to say nothing of family plans.
The Trump administration thinks it has gone as far as it can on executive authority alone. (It is being sued by the hospitals and the drug companies for other executive changes). So, we need Congress to act.
An obvious solution would be to let employees use employer money to buy short-term insurance. But since sellers of short-term plans can “underwrite” buyers (that is, they can charge more for health conditions), this would be a problem for both Democrats and Republicans and even President Trump. Just about everybody has promised to protect people with pre-existing conditions.
In order to meet that problem, the opportunity to buy short-term insurance in a state could be made conditional on the state’s establishing a risk reinsurance pool – something several states have already done. Reinsurance would act like a risk pool that buyers might not even be aware of. It would compensate sellers for above-average costs. In that way, people with health problems would be able to buy short-term insurance for the same premium others are paying.
How would risk reinsurance be funded? Historically, risk pools were paid for by a small premium tax on all insurers. It could also be paid for by employers (and while they are working, by employees) as part of an employee benefits package.
Where would that leave us? Obamacare has been a disaster for middle-income families. Robert Laszewski gives the example of a family of four in northern Virginia that is among the 40% of families who do not qualify for a subsidy. They face a premium of $19,484 plus a $6,500 deductible. In essence, the family will have to spend $25,984 before they can collect any meaningful benefits.
Even then, most Obamacare insurance excludes the best doctors and the best hospitals from their narrow provider networks.
The reform described here would be a hugely beneficial alternative for middle-income Americans without a single change to Obamacare.
