Column: Donald Trump’s executive order on Obamacare will cripple the health insurance market

The day after the election I wrote that Republicans would find it hard to repeal Obamacare — but not so hard to vandalize it.

In his first official action after being sworn in as president, Donald Trump applied the first smear of graffiti to a law that today brings health coverage to more than 20 million Americans.

The executive order Trump signed at the White House gives the Department of Heath and Human Services and other government agencies broad latitude to start undermining the law. It encourages them “to waive, defer, grant exemptions from, or delay” any provision of the law that would “impose a fiscal burden” on pretty much anyone — state, hospital, doctor, or patient.

In the first hours of the Trump administration, healthcare experts were divided about the impact of the order.

Sarah Kliff of Vox elicited some relatively sanguine reactions from healthcare experts Tim Jost of Washington and Lee law school and Larry Levitt of the Kaiser Family Foundation.

They pointed out that the order limits much of this activity to what’s possible within “the maximum extent permitted by law.” That means the regulators can’t unilaterally eliminate the taxes that fund the Affordable Care Act or abrogate the individual mandate, which requires most people to purchase insurance. They can’t single-handedly zero out the law’s subsidies. All that would require congressional action.

Any new rules would have to go through the gantlet of the Administrative Procedure Act — hearings, draft rules, feedback, etc., etc.

“I think he’s been advised that he can’t repeal the Affordable Care Act through executive action, and now we see where this goes,” Jost said.

We think Jost is too optimistic.

So does health insurance wonk David Anderson of Duke, who, writing pseudonymously as Richard Mayhew at his old post at balloon-juice.com, was rather more uneasy about how this will affect the risk pool. “Carriers will need to model a much sicker and more expensive single, unified risk pool as the non-subsidized portion of the risk pool will death spiral,” he observed.

Even Levitt became more doubtful on reflection. On Saturday, he tweeted that “the biggest effect of this executive order could be waivers from the ACA’s individual mandate penalty, with chaos in the insurance market.”

Trump’s executive order strikes at the Affordable Care Act in two important ways.

One is by messaging. The executive order signals the Trump administration’s open hostility to the individual market, with Trump’s “insurance for everyone,” trumpeted just last weekend, nowhere to be seen. The order treats the ACA as largely a burden on every stakeholder. We know from experience that the program works best when it’s supported by government officials and regulators — that’s why it’s been a great success in California and Kentucky, which embraced its provisions, and an abject failure in Mississippi, where it was fought at every turn by state government.

Without the support of HHS, the program’s in trouble. “Reading between the lines,” writes Nicholas Bagley of the University of Michigan, the order “may signal that Trump has no interest in trying to make the ACA work while Congress debates repeal.”

Then there’s the matter of waivers, alluded to by Anderson and Levitt. Insurers have groused from the start that the individual mandate is too easy for healthy customers to evade. There’s already a waiver for people facing financial hardship in paying for required insurance, as well as several provisions allowing those who miss the annual open enrollment period to sign up throughout the year — if they get married, have a baby, or move, for instance.

At the behest of insurers, who said these loopholes left the individual risk pool looking older, sicker, and more costly than they liked, the Obama Health and Human Services Department moved to tighten up the rules. Trump’s order potentially loosens them beyond recognition. Within broad limits, the rules can be manipulated by administrative fiat; Rep. Tom Price (R-Ga.), Trump’s HHS Secretary-designate and a sworn enemy of Obamacare, is capable of decreeing that just about any “fiscal burden” warrants a waiver.

“If the secretary of HHS determines that paying a dollar is an undue hardship, an exemption can be granted,” observes Anderson. “Under this executive order, the hardship exemptions will be freely and frequently issued.”

With loose waivers, Anderson reckons, “we should expect quite a few healthy people to leave the 2018 risk pool …. That means the average premium will increase much faster as the risk pool will be proportionally sicker and more expensive with fewer healthy people to insure the sicker and more expensive individuals.”

The consequence could be an enormous increase in premiums. That will hit the population not receiving subsidies the hardest, driving all but the sickest customers out of the pool.

Anderson notes that Obamacare customers receiving subsidies — more than 80% of them — might not feel a premium increase rate shock, since the subsidies are designed to rise in tandem with premiums. But paying those subsidies will come out of the federal budget, at higher cost than projected. Expect conservatives in Congress to start squealing, and soon. Insurers will be working on their 2018 rates within weeks.

What will insurers do? Those that have stayed in the market have done so because they expected costs and profits to stabilize, especially after a round of rate increases for 2017. Now chaos looks to be in the offing. Think of it this way: If you’re an insurance actuary and your CEO comes around tomorrow asking, “Obamacare for 2018 — in or out?” who among you would say, “Sure boss, things look great for 2018 — let’s stay in!” Expect more insurers to bail out, starting very soon.

Bagley sees the Trump order as an effort to undermine the individual mandate in the guise of “delaying” its implementation. “If the IRS ‘delays’ the individual mandate” he writes, “the insurance markets in many states could go into a tailspin.”

House Speaker Paul D. Ryan (R-Wis.) was seen recently wringing his hands and crying crocodile tears on CNN and the “Charlie Rose Show” over premium and deductible increases and the supposed flight of young healthies from the risk pool. He proclaimed the existence of a “death spiral” in which the flight of healthy customers drives premiums up for everyone else, prompting more flight, etc. etc.

That was an untruth, because there have been no signs of such a trend thus far. But there will be now. Republicans will find it very difficult to evade responsibility for the consequences, because they will emerge in direct response to Trump’s order.

Speaker Ryan hasn’t seen anything yet. Just you wait, Paul, just you wait. And everyone else should fasten their seat belts. The carnage is just beginning.

Keep up to date with Michael Hiltzik. Follow @hiltzikm on Twitter, see his Facebook page, or email [email protected].

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UPDATES:

9:34 a.m.: This post has been updated with comments from Nicholas Bagley.