Obamacare lives on in a kind of limbo. On the left, there is a growing conviction that single-payer health care is the only way forward and that Obamacare is a well-intentioned half-measure on the road to Berniecare. On the right, Obamacare is as loathed as ever, despite congressional Republicans’ failure to unite around a replacement. Yet because Obamacare remains the law of the land, skeptics in the Trump administration find themselves charged with filling in its many regulatory blanks. Will they wind up putting insurance markets on a more stable footing, or will they contribute to cratering them? We’re about to find out.
On Thursday, the Trump administration issued an executive order that will, in effect, make it easier to do an end-run around some of Obamacare’s regulations. Among other things, it will allow small employers to join together to purchase insurance as though they were large employers, which are subject to less stringent rules under Obamacare. More importantly, it will ease the way for individuals to buy short-term insurance policies that are less comprehensive than Obamacare-compliant policies, provided it’s made clear to those who go this route that they’ll still be subject to the mandate penalty if they do so.
The New York Times reports that Democrats and many state insurance officials fear the executive order will destabilize and undermine the Obamacare exchanges. Given the president’s frequent denunciations of Obamacare, it would be understandable to view this executive order as a not-so-secret plan to destroy Barack Obama’s signature legislation. My sense, though, is that this proposed measure is less likely to undo the law’s protections than it is to entrench them.
No, I’m not arguing that President Trump is secretly more Obamacare-friendly than he’s been letting on, nor do I believe that senior administration officials harbor a deep love for the exchanges. It's just that as a practical political matter, the mere existence of the exchanges isn’t the problem for Republicans. Rather, it’s that Obamacare-compliant insurance policies have proven extremely unattractive to many middle-class Americans, including many GOP voters.
One of the central ideas behind Obamacare is that, given the right mix of carrots and sticks, the federal government could compel uninsured adults to sign up for reasonably comprehensive health coverage. For low-income adults, the legislation relied more heavily on carrots, with those morsels coming in the form of robust subsidies to buy coverage. For those further up the income ladder, Obamacare relied more on sticks, at least in theory. If you have a household income that’s above 400 percent of the federal poverty level, or FPL, and you’re thus not eligible for any subsidies, Obamacare pushes you to sign up for coverage by threatening to impose the mandate penalty.
This mandate penalty stick, though, wasn’t punitive enough to get large numbers of relatively affluent, healthy people to sign up for coverage, especially since many of the people in this cohort were confident they could sign up in the future if need be. Insurance industry expert Robert Laszewski has observed that as of 2016, 81 percent of the low-income households eligible for exchange coverage have signed up for it. The same is true for only 2 percent of households above the 400 percent of FPL cutoff (who are completely unsubsidized) and 17 percent of households between 300 and 400 percent of FPL (who receive comparatively modest subsidies).
Why would so many better-off households be going without exchange coverage? Consider that while the average premium on the Obamacare exchanges is $5,712, median health care costs for Americans who aren’t covered by Medicaid or Medicare are $702, according to Chris Pope of the Manhattan Institute. You might be thinking: “That’s the whole point of insurance, you idiot. You don’t spend a lot when you’re healthy, and then you spend a lot when you’re sick. No duh.” Great point! But without a more stringent mandate penalty, lots of people who aren’t eligible for subsidies are deciding to take their chances, based on the reasonable expectation that they can get away with spending less. Damning these people as fools hasn’t changed their behavior in the past, and I doubt it’ll do so in the future.
Meanwhile, Obamacare-compliant plans provide great value for the chronically ill, who can have annual health care costs in the tens of thousands of dollars, as well as heavily subsidized low-income households. As a result, the exchanges have attracted a sicker, older population than the law’s champions had hoped, which in turn has meant unsubsidized premiums have been higher than expected.
This is not where Obamacare’s architects thought we’d wind up. Some believed employer-sponsored coverage would go away much faster than it has, a shift that would bring millions of people onto the exchanges. Others might have hoped that a less-punitive mandate penalty would’ve helped encourage people to buy reasonably comprehensive coverage. Regardless, without some kind of policy change, large numbers of better-off households will continue to face a choice between paying sky-high unsubsidized premiums or going without insurance. And going without insurance, including stingy, catastrophic insurance, can be terrifying.
So what are our options? The most politically appealing route for meeting the needs of unsubsidized households would involve making subsidies more generous further up the income scale. The Democrats embracing single-payer are headed in this direction. Needless to say, subsidizing more people more generously will be expensive, and voters might balk at the tax increases that would presumably follow. Alternatively, one could impose more onerous penalties on those choosing to go without insurance. It’s hard to imagine either Republicans or Democrats going that route, as it’ll leave them vulnerable to the charge of cruelly punishing middle-class families.
Once those two options are off the table, you’re left with the choice of either replacing Obamacare outright, which Republicans have tried and failed to do, or creating some escape valve for younger, healthier consumers who aren’t currently interested in buying coverage on the exchanges. Trump’s executive order represents the second path.
Assuming the executive order works as planned, everyone would still have access to the exchanges. If you like your Obamacare-compliant plan, you can keep it. But if you’re willing to go without subsidies, you could buy a skimpier plan for yourself and your family, one that’s renewable from year to year. And what if you decide that your short-term plan is inadequate or you lose access to an association health plan? You can always sign up for exchange coverage.
Won’t this destroy the exchanges? Not if Obamacare’s subsidies remain in place. Even if the risk pool gets sicker and older, Congress is obligated to keep increasing subsidies in line with premiums. The exchanges would evolve into a safety net for low-income households and for those who’d otherwise be uninsurable. This is a far cry from the original Obamacare vision, in which more and more people would join the exchanges over time. Yet it’s a workable compromise that protects the interests of those who need the exchanges most as well as millions of those who are now going without coverage.