By Sarah Kliff
The Trump administration issued its first Obamacare regulation early Wednesday morning. The 71-page document essentially outlines the rules that insurers need to play by if they want to sell coverage on the marketplaces. The rule suggests that the Trump administration wants to keep the marketplaces running but is also all right with enrollment shrinking in 2018.
The two-sentence summary: Health insurers are happy with this rule because they say it makes it harder for people to wait until they are sick to buy coverage. Consumer advocates are unhappy with the rule because they say it sets up too many obstacles to enrollment — and will likely reduce the size of Obamacare’s tax credits.
The three-section summary: The new Obamacare regulation essentially makes five changes to the marketplaces. Three of those, experts say, are likely to have the most significant effect, so we’ll dive into those in more detail.
1) It requires more documentation for people signing up during “special enrollment periods”
Most people have to sign up for Obamacare during the annual open enrollment period. But some people who have big life changes — who lose their job, for example, or move to a new state — qualify for “special enrollment periods.”
Historically, the Health and Human Services Department has let people sign up for coverage through these special enrollment periods and submit proof that they qualify afterward. The people who signed up during these special enrollment periods tended to have higher costs. Insurers worried that this showed people gaming the system, using the special enrollment period to buy coverage when they got sick.
Starting this June, the Trump administration will require all people signing up during a special enrollment period to submit proof before their coverage starts.
“We have consistently heard from issuers and other stakeholders that pre-enrollment verification of special enrollment periods is critical to promote continuous coverage, protect the risk pool, and stabilize rates,” the regulation says.
The Obama administration was open to moving in this direction. It had actually planned to run a pilot of these changes and see what happened to enrollment when some people had to go through a pre-verification process. The Trump administration is scrapping that pilot program and implementing the changes for everybody.
Insurers are generally happy with this change because they think it will create a healthier, less expensive risk pool.
2) It shortens the open enrollment period to 45 days, down from 90
The Obama administration has historically run open enrollment from November 1 through January 31. The Trump administration will shorten that to November 1 through December 15.
How this will change Obamacare is, at this point, really unpredictable. One of the things we’ve seen, historically, is that younger and healthier people tend to wait until the end of open enrollment to buy coverage. This chart, for example, shows what percentage of enrollees were young adults through the course of the 2015 open enrollment period.
Tightening up special enrollment periods seems like it really could make the risk pool healthier. But shortening the open enrollment period seems like it could have the opposite effect: It might only give the people who know they really need coverage enough time to sign up. So which way should we expect it to go?
To better understand how this would go, I asked Caroline Pearson at Avalere Health — she is one of the smartest observers of the ACA marketplaces out there. She thinks this change will likely reduce the number of people in the marketplaces.
“Shortening the open enrollment period could dramatically shrink the market,” she says. It might make the market less healthy, too. But she thinks insurers are okay with that and enthusiastic about this regulation — because coupled with the tighter special enrollment periods, insurers feel like they’ll have a better grasp on who is signing up.
“You can price for a smaller, sicker market,” she says. “Having people that are slightly higher-risk isn’t necessarily a problem if you’re setting premiums to cover the cost. The problem is when you have people coming in midyear with really high costs.”
3) It changes “actuarial value” regulations in a way that will likely reduce Obamacare subsidies
This particular change is important, and it will likely lead to millions of Obamacare enrollees getting less financial help. Understanding how it works, though, requires some pretty wonky background explanation.
The Affordable Care Act mandates that health plans meet specific “actuarial values.” An actuarial value is what percentage of medical bills an insurance plan covers for its average enrollee. So a plan that covers, on average, 70 percent of patient bills would have an actuarial value (or AV) of 70 percent.
Obamacare is essentially organized around these AV levels. The “bronze” plans on the marketplace have an AV of 60 percent, the silver plans have an AV of 70 percent, gold plans are at 80 percent, and platinum plans are at 90 percent.
Still, it can be hard to build a health insurance plan that covers exactly 60 or 70 percent of the average enrollee’s costs. So Obamacare gave insurers a bit of wiggle room and said insurers could have a “de minimis” difference between the mandated and actual AV.
The Obama administration interpreted “de minimis” to be 2 percentage points. In other words, your insurance plan counted as silver if had an actuarial value between 68 and 72 percent.
What the Trump administration does in this regulation is redefine “de minimis.” It says insurers can have a 4 percentage point difference from the AV standard. So now a silver plan can have an actuarial value as low as 66 percent and still be counted.
A plan with a 66 percent actuarial value, all other things held equal, would usually have a lower premium than a 68 percent actuarial value plan. It’s a plan that is shifting 2 percent more of the costs onto the enrollees, likely through higher deductibles and copayments.
This is something insurers like about the regulation: It will let them sell cheaper insurance plans that might be more attractive to consumers.
At the same time, it worries consumer advocates. Here’s the rub: Obamacare sets the size of its tax credits by using the cost of the second-cheapest silver plan as a baseline. The government provides tax credits to make this plan affordable to low-income Americans.
For example: If you’re someone who earns $23,540, the government will give you enough tax credit so that the second-lowest-cost silver plan doesn’t cost any more than 6.4 percent of your income. You don’t have to buy that plan — you could pick a cheaper plan and spend even less of your income, or pick a more expensive one and pay a bit more.
But the size of the tax credit is always tied to the premium of the second-lowest-price silver plan. And if the premium for that plans drops because it’s a lower actuarial value, then the size of the tax credit drops, too.
The left-leaning Center on Budget and Policy Priorities ran the numbers and estimates that this particular change will reduce the size of family tax credits by $327.
“The thing I found most startling is that there is a provision that will reduce premium tax credits,” says Aviva Aron-Dine, a senior fellow at CBPP. “That is surprising given that this is the first major executive action out of the gate.”