In Part II of our blog series, Very Opaque to Slightly Transparent: Shedding Light on the Future of Healthcare, we considered potential healthcare market consequences of a partial repeal of the Affordable Care Act (ACA). In this Part III, we explore several potential “repeal and replace” scenarios that could unfold under the Trump Administration.
Tom Price Plan
Tom Price, President-Elect Trump’s nominee to lead the Department of Health and Human Services, unveiled in 2015 the “Empowering Patients First Act” – legislation that would fully repeal the ACA and replace it with a comprehensive healthcare reform package. Among the core tenets of the Price plan are:
- Individuals who purchase health insurance through the individual market would be granted refundable tax credits for purchasing health insurance ranging from $1,200 to $3,000, depending on their age, although these tax credits would not be available to those receiving federal or other benefits, including Medicare, Medicaid, SCHIP and TRICARE. Similarly, individuals in employer subsidized group plans would be ineligible.
- People with pre-existing conditions could not be denied coverage if they maintain “continuous coverage” for 18 months before choosing a new policy. However, if an individual ceases to maintain such coverage, insurers can (i) impose pre-existing condition exclusions for up to 18 months, and (ii) raise premiums up to 50% for up to three years. In addition, some federal funds would be available to the states to partially offset the cost of state-sponsored high-risk pools.
- The amount of money that companies would be permitted to deduct from their taxes for employee health insurance expenses would be capped at $20,000 for a family health insurance plan and $8,000 for an individual insurance plan.
- The Secretary of Health and Human Services would collaborate with various physician/medical organizations to develop clinical guidelines for the evaluation and/or treatment of medical conditions. Such clinical guidelines would provide a safe harbor for medical malpractice defendants who adhered to the guidelines absent clear and convincing evidence establishing liability otherwise. In addition, the Secretary may award grants to states for the development and implementation of administrative healthcare tribunals.
- The use of health savings accounts (HSAs) – a mechanism that permits people to contribute pre-tax dollars to accounts dedicated to covering healthcare expenditures – would be incentivized in a number of ways (e.g., availability of a one-time $1,000 tax credit, increase in the allowable HSA contribution limits, ability to roll over an HSA to a surviving spouse and/or other family members).
- Insurers licensed to sell policies in one state would be permitted to sell such products in other states.
- The expanded Medicaid coverage under the ACA would be eliminated.
Paul Ryan Plan
Paul Ryan, Speaker of the U.S. House of Representatives, also has a widely discussed ACA replacement plan. Titled “A Better Way,” Paul Ryan’s proposal – which is a more of a set of guiding principles than fully developed legislation – has many elements in common with Tom Price’s plan. In particular:
- Refundable tax credits of an indeterminate amount (but scaling up with age) would be available to individuals buying insurance plans in markets regulated by the states, not the federal government.
- Insurers would be permitted to sell plans across state lines.
- Insurers would not be permitted to discriminate against individuals with pre-existing conditions so long as such individuals maintain continuous coverage. A one-time open enrollment period would be available for individuals to join the health care market if they are uninsured, regardless of how healthy they are.
- The plan would promote wider use of HSAs.
- States would be able to choose whether to accept federal Medicaid funding as a block grant or a per capita cap, with federal funding based on 2016 spending adjusted based on general inflation.
- The plan would encourage employers to support and adopt wellness programs.
- Changes to medical liability laws would limit the amount of money plaintiffs could recover in malpractice lawsuits.
- The government would fund, to some degree, high-risk insurance pools for the sick.
- Tax breaks on employer-based premiums would capped.
Richard Burr, Orrin Hatch and Fred Upton Plan
Senators Richard Burr and Orrin Hatch, together with Representative Fred Upton, have also proposed a comprehensive replacement for the ACA. The “Patient Choice, Affordability, Responsibility and Empowerment Act,” also known as the “Patient CARE Act,” has a number notable provisions, many of which align with the Price and Ryan proposals. Specifically:
- Insurers would not be permitted to discriminate against individuals with pre-existing conditions as long as such individuals maintain continuous coverage, and there would be a one-time open enrollment period to enable individuals to obtain insurance, regardless of how healthy they are.
- Americans would be permitted to purchase coverage across state lines.
- Individuals who do not receive employer-sponsored coverage through a large employer (e.g., small business employees or unemployed individuals) would be eligible to receive an age-adjusted, advanceable, refundable tax credit, which would also be scaled to income relative to the federal poverty level.
- Reforms would help to expand eligibility for and the use of HSAs.
- States would be allowed to utilize default enrollment – e.g., states could create a default enrollment option with premiums equal to the value of the tax credit so that the individual assigned to the plan would not be charged any additional premium. However, individuals would be able to switch plans or opt-out of coverage altogether.
- States could leverage high-risk pools with targeted federal funding.
- Medical liability reforms would place caps on non-economic damages and limitations on attorneys’ fees. In addition, states could elect to establish “health courts” presided over by judges with health care expertise.
- States would receive capped allotment federal Medicaid grants.
- Employers’ deductions for employee health insurance expenses would be capped at $30,000 for a family health insurance plan and $12,000 for an individual plan.
Healthcare Market Impact
As outlined above, many of the Republican ACA replacement proposals have common elements. While it is impossible to forecast with any certainty the full effect of any replacement legislation, one can surmise the potential consequences of healthcare legislation modeled off of the above proposals.
One commonality among the plans described above is the enactment of changes to how the federal government funds state Medicaid programs. Generally speaking, Republican healthcare proposals would replace existing federal Medicaid funding structures and move towards block grants or per capita caps. On the one hand, proponents of such a shift in methodology contend that block grants and/or per capita caps would provide states with financial predictability and flexibility in designing and operating their programs in ways that improve the quality of care offered to beneficiaries and reduce costs. On the other hand, critics worry that such a shift could result in insufficient funding, which would force states to take steps to limit enrollment, reduce covered benefits, increase state revenue, and/or lower provider payments. Depending on funding levels and the political tendencies of state legislatures, providers in certain jurisdictions could be at risk for reduced Medicaid revenue.
The proposals described above also would permit insurers to sell insurance plans across state lines. Those in favor of such an idea believe that it would encourage competition by allowing consumers to shop for cheaper insurance policies while simultaneously simplifying operations for insurers. Opponents of such an approach fear a “race to the bottom,” in which insurers seek to locate to states with the least stringent regulations and sick people are priced out of coverage. Regardless of the impact on consumers, such a policy shift could prove to be a boon to companies wishing to enter the health insurance space, as the high costs and regulatory burdens that provide a barrier to entry, at least to some degree, theoretically would be reduced.
Another common element of the plans discussed above is medical malpractice liability reform. Such reforms, proponents argue, would reduce the practice of “defensive medicine” and reduce costs associated with medical malpractice coverage, resulting in overall healthcare cost savings. While the plaintiffs’ bar would certainly not welcome malpractice liability reform, and some consumers (or victims of professional negligence) would likely take umbrage as well, providers could potentially see cost savings and, all things being equal, increased profit margins as the cost of professional liability coverage decreases (though detractors may disagree).
As noted in the last installment in this series, barring a massive shift in the composition of legislature (e.g., Senate Republicans obtaining a filibuster-proof majority in 2018), the buy-in of Congressional Democrats almost certainly will be required to pass legislation to replace the ACA. Consequently, the Republican proposals discussed herein are likely to undergo substantial modification if they are to attract the requisite Democratic support. Nonetheless, healthcare market participants looking to plan for the future could be well-served by understanding the general principles underpinning Republican healthcare reform proposals.