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Everything You Need To Know About Trump's Executive Order On Association Health Plans

Nov012017

Recently, President Trump announced a new executive order that has the potential to radically transform the individual health insurance marketplace and give millions of Americans access to high-quality, low-cost health insurance.

The executive order, which was crafted with the help of Sen. Rand Paul, R-Ky., will empower individuals and small businesses in associations to purchase health insurance plans across state lines, potentially providing millions of people with access to cheaper, high-quality health insurance policies.

The executive order will also help increase access to health reimbursement arrangements; expand short-term, limited-duration insurance; and require the secretaries of the Treasury and Labor departments and the Federal Trade Commission to report to the president within 180 days on state and federal laws, regulations, and policies that hamper healthcare competition and choices, as well as provide potential solutions.

While all these policies will help consumers in the individual market have greater access to cheaper health insurance, the expansion of association health plans could be the most important. If fully taken advantage of, association health plans could have a substantial positive impact on the lives of millions of people, especially the 28 million people forced to get their insurance through an Obamacare exchange.

Thanks to Trump and Paul's policy change, individuals and businesses can join or create associations that can purchase health insurance as a group across state lines, just as large corporations do now.

This provides two extremely important advantages to the people in the associations. First, by allowing groups to purchase health insurance plans across state lines, there could be more options available, and health insurance companies in states that allow AHPs will have to compete with one another to provide the best plans possible.

Second, by allowing people to buy insurance in groups, some of which could have millions of members, consumers will have a lot more leverage when negotiating with insurance companies. (Note: In order for this plan to be really successful, some states must change their laws to allow their citizens to use the AHPs or Congress must pass a law requiring states who receive federal funds to do so.)

As Paul noted in an op-ed published this month, this important change could give individuals far more power than they have had under previous systems and is "among the biggest free-market reforms" in healthcare in decades.

This plan isn't just for middle-income Americans, either. As Paul wrote, "Many of the 28 million people left behind by Obamacare who still don't have insurance work low-wage jobs in our fast food restaurants. The President's decision today will allow workers from two million restaurants to come together to form a buying group and through sheer size get cheaper and better insurance."

And the same is true for virtually any other group in the U.S. as well, not just restaurant workers.

In addition to allowing people to have a lot more leverage when negotiating health insurance rates, the executive order also effectively allows associations to bypass many of the worst parts of Obamacare, especially the regulations and burdensome essential health benefits mandates. This is because association health plans, or AHPs, won't be purchased in Obamacare exchanges. Instead, associations will negotiate directly with insurance providers.

Association health plans may also provide a long-term solution to the preexisting conditions problem that has plagued lawmakers ever since the Affordable Care Act was passed. Despite its popularity, the ACA's preexisting conditions provision creates massive costs and uncertainties for health insurance providers, who then pass those costs on to everyone else. No one wants to leave sick people without access to health insurance, but if people can choose to wait until they get sick to buy insurance, then the system seeks to be "insurance" and instead becomes a rigged market.

Association health plans could solve the preexisting conditions problem because there are never preexisting conditions limits in group plans; the cost of adding people who are already sick is built into the plan from the beginning, providing greater price stability for everyone involved.

It's true some associations will be able to negotiate better rates than others, but that doesn't mean sick people will be left out in the cold. They will still be able to purchase health insurance from the Obamacare exchanges (and be eligible for Obamacare subsidies). And associations with a charitable mission could form that allow wealthier consumers to purchase plans that might be more expensive than what other associations are offering but have the added benefit of helping lower-income families pay for health insurance, thus helping groups of people take care of those in need without government intrusion.

The new White House executive order does not mean Congress and state lawmakers shouldn't enact additional reforms. Theoretically, the executive order could be reversed by a future administration and, as important as association health plans are, there is much that could be done to lower health insurance costs and provide greater access to care.

For instance, Congress and the states could expand health savings accounts, pass price transparency laws, allow providers to offer direct primary care agreements, and reduce unnecessary regulations and mandates, among many other policy changes.

After months of failing to enact real healthcare reforms, the White House, with the help of Paul, has hit a home run with this far-reaching policy change. Now, it's up to Congress and the states to finish what Trump started by passing laws that take advantage of association health plans and implementing additional free-market policies. Additionally, individuals, small businesses, and associations must also seize the opportunities that have just been made available to them by the Trump administration.