President Donald Trump on Thursday signed an executive order on the Affordable Care Act that could potentially destabilize already-fragile American healthcare markets. However, the long-term ramifications of the order remain to be seen.
The order, which Trump teased earlier this week, instructs administration departments to "consider" drafting new rules governing the healthcare industry, such as expanding association health plans for small business, extending the parameters of short-term insurance, and changing health reimbursement arrangements between employees and their employers.
"Today is only the beginning," the president said in a signing ceremony at the Oval Office, appearing alongside Vice President Mike Pence and Senator Rand Paul (R-KY), among others.
The order could inject disrupt the U.S. healthcare market, though the magnitude remains to be seen.
"Depending on any resulting regulations surviving likely legal challenges and also actual market uptake of new products (both of which are uncertain), the order could eventually have negative impact on market stability...but we view the order more as general policy uncertainty/overhang," said Evercore ISI analyst Michael Newshel in a note on Thursday.
The order is a "very watered-down version" of what it could have been, said Alex Cynamon, deputy director of research at Height Securities.
The order opens the door for agencies to take steps to make it easier for small businesses to band together and buy insurance through association health plans, which is what Trump appears to be referring to when he discusses selling plans across state lines.
Prior to Obamacare, national associations were able to pick and choose which states' rules they wanted to follow and use those rules to guide the plans they offered nationwide. The ACA changed guidelines so that they were instead treated as small businesses and required to cover all of the ACA's mandated requirements, such as essential health benefits.
"The order pushes for a longstanding Republican priority to allow purchase of health insurance across state lines, which is not something health plans have asked for or have pursued in the handful of states that currently allow it," Newshel wrote. "Having a local provider network remains the primary barrier to entry in a new market and allowing sales across state lines does not change that."
Trump's Thursday order focuses on small employers joining association plans but doesn't ask the Labor Department to market to individuals. That indicates the administration has thought about major legal challenges that could come with marketing such plans to individuals and doesn't want to risk it.
"I bet they realized pretty fast that they'd have to break the law -- in particular, ERISA -- in order to do so," wrote University of Michigan law professor Nicholas Bagley on Twitter. The Employee Retirement Income Security Act of 1974 (ERISA) sets minimum standards for private health plans.
Bagley said the "most significant portion" of the executive order relates to short-term limited duration insurance, plans that, as Vox explains, typically have higher out-of-pocket costs and cover fewer services than traditional insurance. They were previously allowed to last as long as 364 days but under the Obama administration were shortened to three months.
Expanding short-term plans would suck healthy people out of the individual market and risk bifurcated pools with younger, healthier people in one pool and older, sicker people into another.
"While stable, this is not a great outcome," said University of Southern California health economist Darius Lakdawalla. "Healthy people end up with poor insurance that provides much less financial protection. Sick people pay higher premiums; the burden falls disproportionately on the most disadvantaged sick patients in the marketplace."
"Here's my take-home message: 'Make Garbage Insurance Great Again,'" Bagley wrote.
Any real-life effects of Trump's Thursday executive order are likely months away. "It doesn't direct implementation timing, which means it's very unlikely to take effect in 2018 and destabilize the markets," Cynamon said.
"Further destabilization of the individual market could be a result of enticing young, healthy individuals into these cheaper plans," said Arthur Tacchino, chief innovation officer at ACA compliance technology firm SyncStream. "Then they would leave the individual market, thus increasing the risk of the overall pool of people. Then carriers have to underwrite a higher risk when setting premiums, which correlates to higher premiums for all.
"The executive order envisions loosely regulated plans that offer cheaper and skinnier insurance to those who are healthy," wrote Larry Levitt, senior vice president at the Kaiser Family Foundation, on Twitter. "How much damage the executive order can do to insurance markets under the ACA will depend on arcane details in the regulations yet to come."