Presidential Election Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

Even though we are still about 5 months away from the Presidential election, most of us policy analysts are being asked to analyze the different health care proposals from each of the Candidates. I wanted to give you some of my thoughts on various aspects of the Candidates’ proposals, starting with Democratic Presidential Candidate Biden’s health care proposal.

Will a “Public Option” Lower Costs for ACA Exchange-Planholders?

To date, most people are getting information about Candidate Biden’s health care proposal from media outlets. Here is how Vox characterized Candidate Biden’s proposal to incorporate a “public option” health plan into the Affordable Care Act’s (ACA’s) “individual” market: “His plan would add a public option to the Affordable Care Act Exchanges, an old progressive proposal from the 2009 debate, which should lower costs for people shopping on the Exchanges.”
- Analysis: BUT, would a “public option” really “lower costs for people shopping on the ACA Exchanges”? My answer: NO. Why? Because the ACA Exchanges – and the government subsidy that people purchasing a plan through an ACA Exchange can access – does NOT work that way. Whaaaaatt?!?!? It is important for everyone to understand that the ACA’s “individual” market has 2 markets – (1) the ACA Exchange market and (2) the off-Exchange market. The ACA Exchange market is a market where individuals – depending on their income – are eligible for a government subsidy. In other words, the ACA Exchange market is a “subsidized” market. The off-Exchange market, on the other hand, is a market where NO government subsidy is available. As a result, the off-Exchange market is an “unsubsidized” market. How does the “subsidized” ACA Exchange market work? As you may know, the drafters of the ACA tied the “amount” (or “size”) of the government subsidy to a person’s income. In other words, the lower your income on the Federal Poverty Level (FPL) scale, the BIGGER your subsidy “amount” will be. Vice versa if your income is closer to 400% of FPL (i.e., your subsidy “amount” gets smaller). BUT, what you might not know is this: The ACA drafters ALSO tied the “amount” (or “size”) of the subsidy to the cost of the underlying health plan (in particular, the second-lowest-cost “silver” plan”). This is very important to understand. Why? Because as the cost of the underlying “silver” plan goes up – OR – down, the “amount” of the government subsidy goes up – OR – down. For example, as the premiums for the underlying “silver” plan go UP from year-to-year, the “amount” of the subsidy correspondingly goes UP. The practical effect of this is that a “subsidized” Exchange-planholder NEVER experiences the premium increases from year-to-year. Instead, the government subsidy absorbs the premium increase. As a result, a “subsidized” Exchange-planholder does NOT ever care if premiums for their Exchange plan spike in a particular year (because they are shielded from the adverse effects of any such spike). Here is ANOTHER example of this: If premiums for the underlying “silver” plan go DOWN, a “subsidized” Exchange-planholder is ALSO shielded from the decrease in cost. In other words, the “subsidized” Exchange-planholder NEVER experiences the premium reduction because the government subsidy absorbs any such decrease. Based on all of that, will a “public option” really “lower costs for people shopping on the Exchanges”?? Answer: NO. Why? Because even if premiums go DOWN (which is what a “public option” is intended to achieve) the “amount” of the government subsidy will absorb the premium DECREASE such that the “subsidized” Exchange-planholder will NEVER experience the premium reduction. Last comment: The Kaiser Family Foundation estimated that in the 1^st Quarter of 2019, there were 13.7 million people enrolled in an “individual” market plan. Out of this 13.7 million, Kaiser estimated that 9.3 million of them purchased a “subsidized” Exchange plan. Based on Kaiser’s estimates, this means that 9.3 million people (out of 13.7 million) in the ACA’s “individual” will NOT see “lower costs” because of the “public option.” Note, this number is likely (slightly) higher as more people have likely purchased a “subsidized” Exchange plan between 1^st Quarter 2019 and now.

What About “Unsubsidized” People In the “Individual” Market?

Kaiser also estimated that 1.3 million purchased an “unsubsidized” plan through an Exchange, while 3.2 million purchased an “unsubsidized” plan off-Exchange. This amounts to 4.5 million people, which means that about 30% of the ACA “individual” market is made up of people purchasing “unsubsidized” plans.
- Analysis: Based on this estimate, it is 100% CORRECT to say that about 30% of the people – or 4.5 million – purchasing an “individual” market plan would see “lower costs” because of a “public option.” Why? Because they are currently paying for 100% of the cost of the plan on their own (i.e., they are “unsubsidized”) – AND – if premiums go DOWN because of a “public option,” these people would be paying LESS out-of-their-own-pocket for their health coverage. How would a “public option” “lower costs” for these 4.5 million people? As you may know, a “public option” would reimburse medical providers at a lower rate than what “private” insurance currently reimburses these providers. Lower reimbursement rates means you can charge lower premiums for the health plan. Lower premiums for the health plan means “lower costs” for people (relative to current premium rates). Last comment: You may be thinking that I am over-analyzing things, and that I am simply being a pointy-headed geek as I break-down the general statement: A public option “should lower costs for people shopping on the Exchanges.” BUT, here is my response: You MUST be accurate when talking about the “public option.” Why? Because when you say such a general statement, you are informing John and Jane Q. Public that a majority of the people in the ACA’s “individual” market will be HELPED by a “public option.” This is WRONG. Yes, a “public option” will help SOME people, but ONLY ABOUT 30% (which ONLY includes 1.3 million people “shopping on the Exchanges”).

Candidate Biden’s Health Care Proposal Does Indeed Help “Subsidized” Exchange-Planholders

Look, I am NOT trying to bash Candidate Biden’s health care proposal. Again, I just want people to be accurate. Actually, here is something that is 100% accurate. The following is an explanation of how Candidate Biden’s health care proposal would indeed help “subsidized” Exchange-planholders:
- Analysis: Candidate Biden proposes to tie the “amount” (or “size”) of the government subsidy to the COST of a “gold” plan – INSTEAD OF – the cost of a “silver” plan. This would effectively INCREASE the government subsidy “amount,” which would mean that an Exchange-planholder would be able to “buy-up” to a more comprehensive “gold” plan WITHOUT paying more money out-of-their-own-pocket (because the percentage of premium the Exchange-planholder would be required to pay would remain the same). Just like I explained above, if the premiums of a “silver” plan – which is currently the “benchmark” plan for determining the “amount” (or “size”) of the subsidy – goes UP, so does the government subsidy “amount.” This is the same thing that would happen under Candidate Biden’s proposal, but instead of the “amount” of the government subsidy going UP because of a premium increase, the “amount” of the subsidy is going UP because it is tied to a more expensive costing plan (i.e., a “gold” plan has higher premiums than a “silver” plan). So again, this would allow an Exchange-planholder who currently purchased a “silver” plan to purchase a “gold” plan at ZERO additional cost to the Exchange-planholder. This Exchange-planholder could ALSO remain in their current “silver” plan, and have the government subsidy cover more of the premium than their current subsidy covers. In this case, the Exchange-planholder could actually REDUCE the amount of money they are paying out-of-their-own-pocket simply by staying enrolled in their current “silver” plan. It also follows that this Exchange-planholder could “buy-down” to a “bronze” plan and this increased premium subsidy “amount” could cover 100% of the “bronze” plan’s premiums, meaning this Exchange-planholder could pay $0 for their “bronze” plan. So again, it is 100% accurate to say that by tying the “amount” (or “size”) of the government subsidy to the COST of a “gold” plan – INSTEAD OF – a “silver” plan, this will help “lower costs for people shopping on the Exchanges.”

Could a “Public Option” Actually Help Promote a “Republican Policy” Idea?

Here’s something that will bake-your-noodle. Assuming a “public option” will indeed lower premiums for the cost of an “unsubsidized” individual market plan, won’t “individual coverage HRAs” (ICHRAs) become that much more attractive to employers?
- Analysis: As I have told you in the past, the idea of allowing employers to give their employees a tax-free contribution to purchase an “individual” market plan has been a long-standing “Republican policy” goal. It just took a Republican President (who happened to be President Trump) to get it into the law through the ICHRA regs. In my opinion, it would have happened had we had any other Republican President. As I explained in my most recent update, one of the reasons why employers are choosing NOT to discontinue their “group health plan” – and shift to ICHRAs – is because the current ACA “individual” market is still dysfunctional. As I noted, the “individual” market is getting better – and it likely will continue to get better – BUT, it still is NOT very good with its “narrow network” plans and its high costs. BUT, if Candidate Biden were to become President Biden – and if a “public option” were finally introduced in the “individual” market – this would reduce the cost of those “individual” market plans sold in the “unsubsidized” market. And, if costs in the “unsubsidized” individual market goes DOWN – well then – it is more likely that some “large” employers would start offering ICHRAs to their “non-traditional employees,” like part-time, seasonal, and foreign employees. It is also more likely that “small” employers would find ICHRAs a more economical way of helping their employees pay for health coverage, while still taking advantage of the tax preference for employer-financed health coverage. AND, employers in low-income, high-turn-over industries would be more likely to flip-the-switch and discontinue their “group health plan” and start offering ICHRAs – AGAIN – on a tax-preferred basis. As I have opined, the more people you have entering the “individual” market, the better the “individual” market is likely to become. And the better the “individual” market becomes, the more attractive ICHRAs will be to employers. HOWEVER, regardless of whether the “individual” market becomes a more functional and affordable market, a high number of employers are going to CONTINUE to offer their employees a “group health plan.” BUT, if we did see a more functional and affordable “individual” market, I believe we would definitely see a lot more ICHRAs. And again, all of this could happen if a “public option” were introduced to the existing ACA “individual” market. Oh the irony…

How Can You “Lower Costs” for People In the “Unsubsidized” Individual Market?

Look, I am by no means endorsing a “public option.” In my opinion, a “public option” is a government-designed, cookie-cutter health plan that reimburses providers at a lower rate than current “private” insurance. How else do you think you get lower premiums with a “public option”?? As I have said, come 2030 (when we have a HUGE “spending” problem, more so than today), maybe government price “setting” is the only way to lower health care spending. BUT at this point, I do NOT believe we should give up on a private-market-based health care system.
- Analysis: One private-market-based solution is incorporating a reinsurance program or hybrid high-risk pool (like an “invisible high-risk pool”) into the “individual” market. As you know, the ACA had a temporary reinsurance program that produced mixed results. Currently, we are seeing reinsurance programs similar to the ACA’s temporary program being re-created through a Section 1332 Waiver. These programs are producing a one-time reduction in premiums of around 15% or more, but arguments have been made that these programs do little in containing premium increases after the one-time reduction. Congress has also flirted with the idea of incorporating an “invisible high-risk pool” into the “individual” market. It is believed that through the “invisible high-risk pool,” this program can help contain costs over the long-term. However, there are detractors who question whether this type of program can even control costs and/or they say this type of program will cost too much money to fund. Short of a “public option” OR a reinsurance program/“invisible high-risk pool,” I do NOT see how costs for the 4.5 million people in the “unsubsidized” market can be reduced. And if we CANNOT get a “public option” OR a reinsurance program/“invisible high-risk pool” added to the “individual” market, what might be the next best thing? Offer the 4.5 million people in the “unsubsidized” individual market OTHER health care options?? The Trump Administration has allowed insurance carriers to offer short-term health plans as an OTHER health care option for the 4.5 million people in the “unsubsidized” individual market. Why is this helpful? Weellll, short-term plans cost much, much less than an ACA-compliant “individual” market plan. BUT, short-term health plans often times do not provide comprehensive coverage and/or people with health conditions may get denied coverage under a short-term health plan. As I have told you, I am NOT a big fan of short-term health plans, but I do believe people should have a “choice” of purchasing a lower costing, less comprehensive health plan OR a more costly, more comprehensive ACA-compliant plan. Irrespective of what I – and others – think about short-term health plans, there is no doubt that any health care proposal that we may see in President Trump’s re-election campaign will promote the sale of short-term health plans. There is an OTHER health care option that I am partial to, and this OTHER option is an Association Health Plan (AHP). Unlike short-term health plans, AHPs – as a “group health plan” – are REQUIRED to provide comprehensive coverage (on account of the ACA and ERISA). In addition, most if not all of the AHPs we see today are voluntarily doing things like covering the ACA’s “essential health benefits,” offering broader provider networks relative to ACA-compliant “individual” and “small group” plans, and also offering AHP participants access to telehealth services and other wellness programs. Although the Trump Administration expanded the type of people who may be eligible to participate in an AHP, the idea of an AHP is not a Trump Administration idea. AHPs have been around even before the ACA was enacted, and there are a number of AHPs today that provide health coverage to hundreds of thousands of employees and their dependents. However, if and when we ever see a health care proposal from President Trump, AHPs – that cover small employers in different industries, as well as self-employed individuals – will certainly be a part of that proposal.

Association Health Plans Should Be Available to Self-Employed Individuals

Speaking of self-employed individuals, these folks make up a large portion of the 4.5 million people in the “unsubsidized” individual market. And again, if you cannot “lower costs” for them through a “public option” or a reinsurance program/“invisible high-risk pool,” is it so wrong to allow them to enroll in an AHP?? My answer: NO.
- Analysis: Critics of AHPs have long-argued that (1) AHPs will discriminate against people, (2) AHPs will provide “skinny” coverage, and (3) AHPs will segment the existing “individual” market. First off, AHPs CANNOT discriminate against people. The law does NOT allow it. Any AHP critic who says otherwise is just plain WRONG. Yes, I am that adamant about this point that I am actually willing to criticize anyone for this view (and you know me as a person who is NOT quick to criticize others). Second, I have evidence that I can show you that illustrates that AHPs are providing comprehensive coverage (i.e., the coverage is NOT “skinny”). I also have evidence that shows that this comprehensive AHP coverage is more affordable than an existing “individual” market plan (and I think you all know me well enough to know that I do NOT say things unless I have something to back them up). Third, if the AHP coverage is comprehensive – while also being offered at a lower cost – then a less healthy self-employed individual is going to be attracted to an AHP to the same extent healthy self-employed individuals will be attracted. Soooo, the less healthy risk will be leaving the “unsubsidized” individual market, thereby improving the existing market or at least holding it harmless. In addition, there are hundreds of thousands (and maybe even millions) of self-employed individuals who are currently going WITHOUT health coverage. If these individuals are NOT in the market to begin with, how can they adversely impact the existing market if they enroll in an AHP? That’s right…they can’t.

Here Is an Idea for BOTH Democrats and Republicans to Consider

Critics bash AHPs because AHPs are NOT required to cover the ACA’s “essential health benefits.” AND, critics bash AHPs because they are NOT required to apply a 3 to 1 age band when varying premium rates.
- Analysis: Here is a proposal for the critics to consider:

- - An AHP that covers self-employed individuals MUST treat all of the self-employed individuals participating in the AHP as one, single risk pool.

- - The AHP must develop a “base” premium rate (1) based on the collective health claims experience of ALL of the self-employed individuals in this single risk pool and (2) based on the average age of ALL of the self-employed individuals in this single risk pool. EACH AND EVERY self-employed individual would then be charged the SAME “base” rate.

- - Once this “base” premium rate is developed, the AHP can vary this “base” rate up or down based on a 3 to 1 age band.

- - Although the AHP would be treated like a “large group” market plan, the AHP MUST cover the “essential health benefits.”

- - The “sponsor” of this AHP can ONLY be a member-based organization. The member-based organization must have been in existence for at least 2 years, and the organization must be created for reasons other than offering health coverage to its members. The member-based organization must also set up a governing Board to manage and operate the AHP. This governing Board would be subject to ERISA’s fiduciary duties, requiring the Board to act in the best interest of the AHP participants or be subject to a lawsuit filed by the participants.

Some may look at this proposal and say that this is just like the ACA’s “individual” market because of the required coverage of the “essential health benefits” and the 3-to-1 age band. In a sense, they are correct. Others may ask: How would the AHP coverage that is governed this way have a lower cost than an ACA-compliant “individual” market plan? Here’s my response:

- - First, the AHP would be treated like a “large group” health plan, and the administrative costs in the “large group” market run 3% to 4% lower than the current “individual” market (maybe even more in some markets).

- - Second, as a “large group” plan, the AHP is not subject to the ACA’s “risk adjustment” program. It is well-accepted within the industry that “risk adjustment” artificially inflates premiums because of “defensive pricing.”

- - Third, an AHP must be sponsored by a membership-based organization, and the member-based organization will negotiate with an insurance carrier to ensure that the AHP is charged competitive rates based on the AHP’s participants’ collective health claims experience and age, or alternatively, the AHP may be self-insured and its Board would develop competitive rates based on the collective health claims and age.

If you add up all of these factors, you would likely see at least 5% to 10% savings even if the AHP is subject to some of the same rules applicable to an “individual” market plan. That’s nothing to sneeze at. In addition, the membership-based organization (similar to a large employer) will have the incentive to adopt cost-containment strategies like disease management programs, offering access to telehealth and wellness programs, and offering value-based insurance designs to encourage participants to utilize high-value medical services as opposed to low-value medical services. In essence, the AHP would compete against the “individual” market NOT because of different rules, but because the member-based organization is being innovative and looking out for the best interest of their members participating in the AHP. Something we do NOT see in the current ACA’s “individual” market (although there are some exceptions). Here’s another idea: Instead of seeing this proposal advanced by one (or both) of the Presidential Candidates, how about Congress includes this proposal in the forthcoming “4^th Stimulus Package”?? After all, BOTH Democrats and Republicans have recently recognized that a self-employed individual is BOTH an employer AND an employee for (1) paid sick and FMLA leave benefits, (2) unemployment insurance benefits, (3) eligibility for SBA loans, and (4) and eligibility for tax preferences. Heck, the Internal Revenue Code has long-treated a self-employed individual as an employer and an employee for purposes of contributing to a 401(k) retirement plan (where the self-employed individual can make the “employee” deferral up to $19,500 and then an “employer” profit-sharing contribution up to $6,500). From my perspective, I see NO reason why BOTH Democrats and Republican should refuse to allow self-employed individuals to access health coverage through the type of AHP described above. It will definitely lower their costs, while also providing the type of coverage critics of AHPs have been calling for.