President Trump’s latest executive order on Obamacare was issued last Thursday. While the media focused almost entirely on the elimination of cost-sharing subsidies for low-income individuals, the order contained three implications for small businesses. Not all will have a huge impact, but they are worth noting.
In addition to eliminating cost-sharing subsidies until Congress can appropriate the funds for them, Trump has ordered the following:
- Allowing small businesses to pool together to purchase health insurance.
- Restoring the ability of individuals to buy short-term plans exempt from some Obamacare rules.
- Examining ways to increase flexibility in employer-funded health savings accounts.
Are these mandates a big deal? Yes and no. Here’s why.
#1: Association health plans
Association health plans allow small employers -- or voluntary associations like church groups -- to pool together to buy insurance and other benefits and receive the same price and tax breaks as large companies that provide health coverage directly. It’s not a new idea. Lawmakers have proposed association coverage since the late 1980s as a way of covering the uninsured and helping small businesses cope with rising premiums. President Bush’s (#43) 2007 health-reform proposal is perhaps the most notable.
President Trump’s executive order claims to legalize association health plans. That’s great news, right? Sure, but association health plans are already legal. Small businesses have always had the ability to pool together to buy insurance and other benefits through professional employer organizations, or PEOs. The Employee Retirement Income Security Act of 1974 (ERISA) enables these “multiple employer welfare arrangements,” whereby the PEO becomes the “employer” for purposes of providing health coverage and other fringe benefits. In fact, millions of Americans get their health insurance through associations already. So what’s the impact?
It’s likely not much unless association plans come to be exempted from Obamacare rules, which I think is a distinct possibility as Trump seeks to “ease the burden” of Obamacare. If for example, association plans did not have to cover pre-existing conditions or could offer less comprehensive care (i.e. the old “catastrophic plans”), their costs would plummet, and I’m certain we’d see an increase in the number of enrollees. That would complicate things for other types of insurance forced to play by Obamacare rules and potentially destabilize the market as healthy individuals leave plans in search of lower prices. We’ll just have to wait and see on this one.
#2: Short-term, limited duration insurance (STLDI)
If you’ve ever been between jobs, you’ve likely had (or at least explored the possibility of having) an STLDI policy. STLDIs are designed to cover very for short periods of time and are exempt from Obamacare rules. They’re supremely cheap, much more so than traditional COBRA plans that retain all the coverage you had as an employee.
In April of last year, the Obama administration issued a rule prohibiting STLDIs that lasted longer than 3 months. It also barred individuals from renewing their STLDI policies.
Trump’s executive order Thursday simply reverts back to pre-2016 rules. This is good news if you are personally in need of temporary coverage or if you’re an employer that does not offer benefits beginning on the first day of employment. New employees can join your firm and have viable, affordable gap health coverage. They’ll have to buy it themselves (this is NOT an employer-sponsored plan), but having the option will surely make joining your ranks without immediate employer-provided coverage an easier decision.
#3: Health reimbursement arrangements (HRAs)
HRAs are similar to Health Savings Accounts (HSAs) in that they can be used to pay for co-pays, coinsurance, deductibles, and other services not covered by the employees’ health insurance plan. But unlike HSAs, HRAs aren’t portable. In other words, if the employee leaves the company, the HRA account stays with the old employer. (For more on HRAs, see our blog here.)
Trump’s executive order last week seeks to “increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage.” It’s that last part that’s critical.
If federal regulations are revised to allow HRAs to be used to buy nongroup (i.e., individual-market) coverage, then the ability of patients to control their own health care dollars and shop for coverage on the open market would be wide open. That would strengthen the individual market by dramatically increasing the number of people who buy coverage that way, and it would provide fiscal certainty to businesses, who could offer a defined contribution—say, $6,000 per worker or $12,000 per family—for that worker to buy health insurance on his own. It’s for that reason that I think this aspect of Trump’s order is the most important for small businesses.
Perhaps the most important takeaway from all of this is Trump’s unilateral action. Efforts to repeal Obamacare through procedural means in Congress have failed, and the president seems intent on making his campaign promise of eliminating Obamacare a reality. The “power of the pen” may prove to be the only way to do it. And while he certainly can’t repeal all of Obamacare by executive order alone, he can certainly undermine it. Expect more changes.
