Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

The executive order President Donald Trump signed Thursday has the potential to disrupt the Affordable Care Act's individual insurance exchanges. His move Friday to immediately stop paying an important subsidy for insurers will disrupt them; the next payment is due in five days. 

This action makes the Trump administration's hitherto abstract sabotage efforts immediate, to the serious detriment of insurers participating in the market. 

Bad to Worse
The end of a government subsidy is the latest blow to ACA-exposed insurers
Source: Bloomberg
Percent change in share price from previous day

The ACA requires that insurers subsidize the out-of-pocket health-care costs of some low-income patients, and the government reimburses them -- until now.

Congress has not appropriated funds to pay these subsidies, so their continuation has been at Trump's pleasure. He has repeatedly threatened to end these payments, and insurers have already increased premiums as a result; they must pay out of their own pockets if the government stops helping.

Shutting off these subsidies is the most direct ACA sabotage Trump has attempted so far. His administration's various cuts to programs that help people sign up for the ACA may reduce enrollment, but those could be countered somewhat by outside groups and states. And insurers probably weren't counting on an exceptionally robust enrollment season anyway. Thursday's executive order -- if carried out to its fullest possible extent -- could siphon young and healthy patients out of the ACA's exchanges and create an individual-market death spiral. But the order is vague and subject to likely legal challenges, and the rules will take too long to write to have a huge effect on next year's market.  

But Friday's action means insurers on the exchanges will start bleeding money right away. Insurers in general have thin margins, and they tend to be even thinner for those with ACA exposure. They set many premiums preemptively high, and you can bet they'll climb even higher in subsequent years. But most rates are locked in for 2018; insurers that didn't adequately account for this possibility may face losses. 

Tough sledding
Small insurers with ACA exposure already have below-average operating margins
Source: Bloomberg Intelligence

Insurers could seek to pull out of the market, which would have an even larger negative impact. If there's no exchange insurer available in a particular area, then people don't have access to a separate subsidy (unaffected by Trump's order on Friday) that a substantial majority of ACA enrollees use to afford insurance. 

There's still a chance Trump might reverse course. The blowback to scoring political points with people's lives could be fierce; the administration will be responsible for causing premiums to rise, disproportionately affecting older, middle-class Americans.

And there are definitely fiscal consequences. The Congressional Budget Office has estimated that stopping these payments will increase the deficit by $194 billion through 2026; when premiums go up, so does government spending on the subsidies that help people pay them.

States plan to sue the government over these payments, and insurers may, too. And Congress could be pressured to finally act to fund these payments, which would take the decision out of the president's hands. 

But it's hard to be optimistic in the face of an administration that has effectively declared war on the ACA, human consequences be damned. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net