ACA “Repeal and Replace” Update
ACA “Repeal and Replace” Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
A New ACA “Repeal and Replace” Effort?
- There have been some behind-the-scenes talk about pursuing another ACA “repeal and replace” exercise this year, but we haven’t heard publicly about these efforts…until last week. So what is this new ACA “repeal and replace” effort? Answer: Graham-Cassidy 2.0.
- Analysis: What’s in Graham-Cassidy 2.0? Based on a one-pager that has been floating around, Medicaid reforms are NOT a part of it. As you know, proposals to convert Medicaid into a per-capita cap or block grant program essentially deep-sixed last year’s ACA “repeal and replace” efforts. So why do it again? It appears Republicans asked themselves this question, and chose to side-step the issue. BTW, I think this is most noteworthy part of the Graham-Cassidy 2.0 proposal because it lends to the argument that Senate Republicans could actually pass ACA “repeal and replace” this time around (because the primary reason why Sens. Collins (R-ME), Murkowski (R-AK), and McCain (R-AZ) opposed last year’s “repeal and replace” bills was due to the Medicaid reforms, which are NO longer present under Graham-Cassidy 2.0). But, I am skeptical that Graham-Cassidy 2.0 will ever be enacted before the mid-term elections. But you can never-say-never in this town. So what else is in Graham-Cassidy 2.0? Well, like the original version of Graham-Cassidy, the proposal would take all of the Federal money under the ACA, and it would give that money to the States. Meaning, the States would get in one, big block grant the following: Federal spending on the premium subsidies, Federal spending on Medicaid, and depending on how CBO wants to “score” the cost-sharing subsidies, Federal spending on the cost-sharing subsidies. A State can essentially use all of this money any which way it wants. For example, the State can develop its own structure for Medicaid, and fund that program with ACA Medicaid “expansion” dollars. States could also come up with their own premium subsidy and/or cost-sharing subsidy structure. BUT, the State – at a minimum – would have to use at least 50% of all of these Federal funds to subsidize “private” coverage for individuals. The State would also be required to use 15% of these funds to establish a reinsurance program or “invisible high-risk pool.” Speaking of reinsurance/“invisible high-risk pool,” Graham-Cassidy 2.0 would include the Alexander-Murray proposal of 2 year’s worth of funding for the cost-sharing subsidies, and 2 years of Federal funds for reinsurance/“invisible high-risk pool.” Graham-Cassidy 2.0 would also repeal the employer mandate, and allow short-term health plans (lasting up to 364 days) to be “guaranteed renewable.” Lastly, Graham-Cassidy 2.0 would include HSA policy changes. First, the HSA contribution limits would be increased to equal the current out-of-pocket maximums (for 2018 that is $6,650 for single and $13,300 for family coverage). This is not a new proposal. Also, consumers in the individual market could use their HSA dollars to pay for premiums. This also is not new, as it was something that conservative Senators like Sen. Cruz (R-TX) successfully got into the Senate ACA “repeal and replace” bill. Finally, an HSA could be paired with ANY health plan that has an 80% “actuarial value” (AV). This one is a brand-new proposal.
Graham-Cassidy 2.0 and HSAs (no news story)
- As stated, Graham-Cassidy 2.0 would allow an HSA to be paired with ANY health plan that has an 80% “actuarial value” (AV). It is important to understand that AV is a measure of cost-sharing (or co-insurance) under a health plan. What I mean is, AV measures (1) how much the health plan pays for a covered benefit or medical service and (2) how much the planholder is responsible to pay. For example, under an 80% AV plan, the planholder is responsible for 20% of the cost of a covered benefit or service, while the plan pays for 80% of the cost.
- Analysis: Currently, if a person is covered under a high-deductible health plan (HDHP) as defined under the HSA rules, this person is eligible to contribute to an HSA (for 2018, an HSA-qualified HDHP has a deductible of $1,350 for single and $2,700 for family coverage). Interestingly, most – if not all – health plans with an 80% AV qualify as an HSA-qualified HDHP (i.e., 80% AV plans have at least a deductible of $1,350 for single and $2,700 for family coverage). Soooooo, if an 80% AV plan is in most – if not all – cases an HSA-qualified HDHP, why not just change the law to say that? It makes a lot of sense doesn’t it? I will tell you another reason why this makes sense: The reason why HSAs were created – and then tied to an HDHP – was to encourage people to enroll in an HDHP by giving them access to a tax-advantaged account (which would allow them to save money – tax-free – to pay for medical expenses). The theory was – and still is – if you get people into an HDHP, they will have “skin in the game,” and they will in turn become a better consumer of health care, which will in turn reduce utilization, which will in turn lower health care costs for everyone. Personally, I buy-into this theory of wanting more people to have “skin in the game,” which I believe in turn, will reduce costs. There are a number of people out there – I call them “HDHP purists” – who shutter at any suggestion of “de-linking” HSAs from HDHPs as defined under the HSA rules. They argue that allowing health plans with deductibles lower than the HSA maximums (described above) will defeat the purpose of pairing HSAs with HDHPs in the first place (which is requiring planholders to have “skin in the game”). They also argue that if an HDHP pays first-dollar for certain medical services that do not qualify as “preventive care,” then you are rendering the HDHP ineffective because, again, you are watering down this “skin in the game” concept. Admittedly, I do not disagree with these points of view. BUT – think about it – an 80% AV plan is always going to have a high deductible. And, because there is material cost-sharing here, the planholder is by definition ALWAYS going to have “skin in the game.” As a result, the “HDHP purist” theory STILL holds in cases where any 80% AV plan is paired with an HSA. That is, the policy goal of encouraging more people to enroll in a health plan where they have “skin in the game” (by giving them access to a tax-advantaged account like an HSA) is STILL present under this 80% AV HSA-qualified plan idea. Here is a reason why I think this idea is a good one: Under the current HSA rules, if an HDHP planholder is covered by another health care arrangement that pays for “medical care” before the HDHP’s deductible is met, the planholder is NOT eligible to contribute to an HSA. Also, if a planholder’s HDHP pays first-dollar coverage for certain medical services that are NOT considered “preventive care,” the planholder is NOT eligible to contribute to an HSA. This “eligibility rigidity” (as I refer to it) currently limits an employer’s ability to offer their employees benefits that pay for things like specified chronic care services – either through a separate plan or the HDHP itself – before the HDHP deductible is met. In addition, this rigidity prevents an employer from adopting value-based care strategies and other cost-containment benefit offerings that pay for “medical care” before the HDHP deductible is met (like telehealth or direct primary care services). Under, this 80% AV plan idea, however, this “eligibility rigidity” goes away. And, employers can be creative in developing various HDHP plan designs to make HDHPs more consumer-friendly and to use HDHPs as a tool to lower health care costs. This can all be done to the satisfaction of the “HDHP purists” because – at the end of the day – regardless of when and how the HDHP makes payments for certain medical services, the planholder will ALWAYS have “skin in the game” due to the cost-sharing that MUST be present under an 80% AV plan.
ACA Individual Market Update
Insurance Carriers Are Now Profitable
- If you have been following the evolution of the “individual” market over the past 4 years, you know that 2014 and 2015 were losing years for the insurance carriers, where we saw significant financial losses that led to carriers exiting the markets and other carriers folding due to solvency issues. 2016 was still not good, but it was better than the years prior, with many carriers breaking-even or experiencing only minor losses. 2017, however, appears to be a bounce-back year. And Kaiser just released an analysis on how the carriers finally turned a profit selling individual market plans.
- Analysis: Why did the carriers selling individual market plans lose money in the first place? Well, we have come to learn that the insurance carriers “guessed wrong.” What I mean is, the insurance carriers – either due to political pressure or actuarial mis-calculation (or both) – developed premium rates that were well-below where they should have been from an actuarial perspective. Which meant, the premium rates were way-low relative to the amount of health claims that consumers filed for medical care, resulting in negative income. In addition, the amount of health claims that did come through the door was much higher than most expected. The spike in health claims in the early years has been attributed to the fact that there were a lot of consumers who could not get health insurance prior to the enactment of the ACA, and once the ACA became effective – where carriers could not deny health coverage to people with pre-existing conditions – consumers “rushed in” because this was really the first time most of them could get medical attention for their medical conditions. There was also a lot of “gaming of the system.” You have heard me talk at length about how consumers “gamed the system” due to lax enforcement during “special enrollment period” enrollment. We also saw third-parties pay for the premiums for Exchange plans on behalf of certain consumers. This “gaming of system” led to increased utilization, which resulted in increased health claims that substantially exceeded the premium revenue that was coming in the carriers’ door. Lastly, the individual mandate penalty tax has not been effective. As you know, I have cited objective data that illustrates that the penalty tax has not encouraged younger/healthier consumers into the markets, although I have recently heard some push back from various ACA supporters on my opinion here. I still stand by it though. So how have things changed? Well, we have seen the Trump Administration take steps to crack down on some of the “gaming of the system” by requiring pre-verification to determine whether a consumer is actually eligible to enroll in an Exchange plan during a “special enrollment period.” But, there still continues to a problem with third-parties paying for the premiums for Exchange plans on behalf of certain consumers, which is arbitrarily increasing utilization. I believe repeal of the individual mandate is a non-issue because the penalty tax was ineffective in the first place (again, my opinion). So how and why are the insurance carriers turning a profit, especially when the individual market – while stabilizing – has stabilized into an un-balanced market that is not getting any younger or healthier? The Kaiser analysis tells us 2 reasons. First, the amount of health claims coming through the door is no longer spiking. Rather, the higher health claims levels we saw in 2014 and 2015 have simply remained constant (which means, we are seeing a constant stream of health claims that is not getting any better or any worse). BUT, the real reason is this: The insurance carriers are collecting more premium revenue per consumer. That is, compared to the health claims that consumers are incurring, insurance carriers are collecting premium revenue per consumer that exceeds the amount of money that is going out the door to pay for health claims (e.g., Kaiser tells us that health claims only increased by 5% from 2016 to 2017, but premiums increased by 22% – a delta of 17% of “pure” premium revenue). So what does that mean? It means that all of the premium increases that consumers experienced in 2015, 2016, and 2017 are finally producing positive returns. Stated differently, the whole reason why the insurance carriers are finally profitable is because they increased premiums significantly over the past 3 years. Some would say that the carriers are finally “guessing right.” To an extent, they would be correct. But, despite the carriers’ profits going up, it is not as if the individual market is improving. As stated, health claims in 2017 are generally the same as they were in 2014 and 2015 (actually they are a bit higher due to medical inflation). So I think the good news out of the Kaiser analysis is this: The individual market does not appear to be getting worse. Rather, the individual market seems to be stabilizing. But here is the bad news: This so-called “stable market” is still an un-balanced market with older, less healthy individuals. And, it does not appear that the markets are going to improve any time soon (i.e., there are no indications that younger/healthier individuals are going to enter the risk pool to help balance things out). But query why the carriers need to ask for such BIG premium increases for 2019, especially when health claims in the individual market – according to Kaiser – are only increasing each year by medical inflation??
The California Exchange Projects an Average Premium Increase of 11% for 2019
- To my question above, why do the carriers need to ask for such BIG premium increases for 2019 when health claims in the individual market – according to Kaiser – have generally stabilized? After all, it appears that the carriers are finally “guessing right,” so there is NO need to have a 17% delta of “pure” premium revenue per consumer. Based on this, an argument can be made that the carriers should give back at least 10% of this premium revenue to consumers in the form of lower premiums.
- Analysis: BUT, that is NOT what the carriers are doing. Instead, the carriers are increasing premiums, and citing repeal of the individual mandate and new competition from products like short-term health plans as reasons for the premium increases. You know me, I am dubious of the claim that carriers need to increase premiums substantially because the penalty tax is going away for 2019. CareFirst in Maryland seems to agree with me, at least to an extent. For example, CareFirst recently explained that only 5% of the carrier’s proposed premium increases are attributed to repeal of the penalty tax. That is much lower than what the Congressional Budget Office (CBO) has been saying (i.e., CBO has said a 10% increase would follow repeal of the penalty tax). California also told us that premiums will increase on average by 6% due to repeal of the penalty tax in 2019. Make no mistake, 5% and 6% are material increases, but these increases are not as high as some (e.g., CBO) have projected. The introduction of short-term health plans will also have an impact. While California did not seem to quantify the premium increases due to the introduction of short-term health plans as an option to both people in the “subsidized” and “un-subsidized” individual market, the “independent” actuary for CMS just released a report indicating that if HHS’s short-term health plan regulations are finalized (allowing short-term health plans to provide coverage for up to 364 days), younger/healthier consumers will exit both the “subsidized” and “un-subsidized” individual market. Which – according to CMS’s independent actuary – would increase premiums by 3% in 2019. 6% + 3% = 9% (math skills), which seems to tell us that absent repeal of the penalty tax and the introduction of short-term health plans, the premium increases in California would only amount to 2% (11% – 9% = 2%…psst, skiiills). Query whether this 2% accounts for the introduction of “association health plans” (AHPs)? Unfortunately, California did not mention the impact of AHPs at all. As you know, I do not think AHPs are going to have a significant impact on premiums because I believe AHPs – unlike short-term health plans – will attract less healthy people (in addition to healthy people), which – in the end – will likely cancel out any premium increases in the individual market on account of AHPs.
Association Health Plan Update
A Growing “Gig Economy” and AHPs
- Speaking of AHPs – as I have told you – the proposed AHP regulations would allow self-employed individuals with no employees (I will refer to them as “independent contractors”) to participate in an AHP and receive “large group” fully-insured or self-insured group health plan coverage. In my opinion, the main reason why this policy change showed up in the proposed AHP regulations was in recognition of our nation’s growing “gig economy.”
- Analysis: What do I mean? As the article in the embedded link explains, statistics show that 36% of the U.S. workforce is made up of independent contractors. Among working millennials, 47% of them are independent contractors. By 2027, over half of the U.S. workforce will be made up of independent contractors. These numbers suggest that something has got to be done to keep up with our evolving economy, especially as it relates to employee benefits, which includes both health care AND retirement. I mention “retirement” because we could see a similar association health plan-like proposal from the Trump Administration, allowing independent contractors to band together to set up a retirement plan. I do not yet know the details of a proposal like this, but I bring it up as an example illustrating that this Administration is cognizant of the growing “gig economy” and employee benefits. But let me pivot back to health care. Why is allowing independent contractors to get health coverage through an AHP such a big deal? In my opinion, it is all about “choice.” What I mean is this: Currently, Federal and State regulations force an independent contractor into the “individual” market. That is, in cases where an independent contractor is not married – or they are married but they are not offered “affordable” coverage through their spouse’s employer – the only health coverage option available to this independent contractor is an individual market plan. In many cases, the independent contractor earns too much to be eligible for a premium subsidy, so they are faced with paying the full-cost of an “un-subsidized” individual market plan or going without health coverage. An argument can be made that this is unfair. Especially when the Department of Labor (DOL) can modify its own regulations to give these independent contractors another “option” for health coverage. In particular, the option to enroll in a fully-insured “large group” or self-insured group health plan through an AHP. This way, even workers who make up the growing “gig economy” (i.e., independent contractors) can enroll in health coverage that is the same as – or very similar to – health coverage offered by a small or large employer. In essence, this “gig economy” worker (i.e., an independent contractor) can enjoy similar health care benefits that an “employee” typically receives, while maintaining their autonomy. Employers should be supportive of this policy change. After all, more and more employers are preferring that their workers take-on the status of an independent contractor (as opposed to a “common law employee”). This way, the employer avoids much of the administration that goes along with common law employees, like withholding taxes, offering employee benefits, and avoiding employer/employee legal disputes. In my opinion, policymakers should also be supportive of this change. As I have explained at length, I believe AHPs will offer comprehensive coverage at a lower cost than an “un-subsidized” individual market plan. And, I believe many independent contractors are currently “sitting on the sidelines” (and going without health coverage) because a health plan in the “un-subsidized” individual market is too expensive. Allowing independent contractors to participate in an AHP will – at least in my opinion – give these individuals a new coverage option that will allow them to obtain health coverage, which is a good thing! Yes, there are some down-sides to allowing independent contractors to participate in an AHP, namely the potential for a negative impact on the individual market (something I discussed in last week’s update, which is attached). BUT, I believe the “pros” of allowing independent contractors to participate in an AHP outweigh the “cons.” The bottom-line is this: The status quo is NOT working for independent contractors, and the fact that our “gig economy” is growing – and will continue to grow – necessitates a policy change like allowing independent contractors to receive large employer-like health coverage through an AHP.
- Speaking of independent contractors, farmers fall into this self-employed category. And, farmers have been one of the most vocal constituencies out there, asking for relief from the ever-increasing costs in the “un-subsidized” individual markets.
- Analysis: Farmers have also been the most proactive constituency when it comes to finding relief. As you know, Iowa recently enacted a law that will allow the State’s Farm Bureau to offer non-ACA-compliant plans not only to farmers, but to non-farmers who pay a membership fee to be a part of the organization. The Tennessee Farm Bureau has also offered non-ACA-compliant plans to farmers in their State ever since the ACA became effective in 2014. BTW, I am surprised that other States have not followed Tennessee and Iowa and enacted their own law that would allow their State Farm Bureau to sell non-ACA-compliant plans. Maybe it’s just a matter of time. One thing that will help farmers sooner-rather-than-later is the soon-to-be-final AHP regulations. If the final AHP regulations preserve what the proposed regs said, then self-employed farmers will be able to participate in an AHP established by organizations ranging from existing agriculture “cooperatives” with self-employed farmers as cooperative members to other ag-based organizations like the Dairy Farmers or the National Milk Producer Federation, just to name a few. Based on this, the entire farming/agriculture industry has been extremely supportive of the formation of AHPs. So much so that the “Farm Bill” that is currently being considered in Congress includes legislative language that would provide Federal funds that could be used to aid in the formation of an AHP for farmers and agricultural workers. The Farm Bill, however, has recently failed to get through the House, but the resistance to the Farm Bill is NOT over these Federal funds for ag-related AHPs (immigration issues and opposition to work requirements for food stamps are gumming up the works). Even if the Farm Bill gets through the House, the Federal funds for ag-related AHPs will probably fall out of the Senate’s version of the Farm Bill. The bottom-line is this: I fully appreciate many of the arguments against allowing self-employed individuals with no employees to participate in an AHP. BUT, when the entire farming/agricultural industry is clamoring for some sort of policy change that will allow farmers – nationwide – to access comprehensive health coverage at a lower cost than an “un-subsidized” individual market plan, I have a difficult time understanding how policymakers – and even critics of AHPs – can ignore the plight of farmers and undertake efforts to deny them access to additional health care options like AHPs (by, for example, trying to bring down the DOL’s AHP regs before those regs ever go into effect). Just sayin.’