On Monday, March 6, 2017, House Republicans released the long awaited proposed legislation to replace the Affordable Care Act (ACA).
The GOP bill, the “American Health Care Act” (AHCA), repeals or significantly changes major portions of the ACA involving the individual and employer mandates, subsidies, and Medicaid expansion, among others. The AHCA, which is already facing political headwinds and healthcare industry objections, has not yet been scored by the Congressional Budget Office (CBO), so the economic effect and the potential change to the number of people covered by health insurance have not been officially quantified. However, the AHCA’s overall philosophy and goals are clear, and it signals areas of concern for healthcare providers and Medicaid expansion States. In this article in our series on the effect of a “slow repeal” of the ACA, this week’s discussion focuses on the significant aspects of the proposed AHCA, potential concerns for healthcare providers, and likely next steps.
Individual Mandates Repealed The AHCA would repeal the individual mandate to obtain health insurance and the employer mandate to provide health insurance. To stem the loss of healthy individuals from the risk pool, the AHCA includes a one-year, 30 percent late enrollment penalty, which acts as a surcharge, on monthly premiums for people who have a gap in insurance coverage for more than 63 consecutive days. The surcharge applies to all, regardless of health status. In contrast to the ACA, employers who choose to offer health insurance may provide some of the lower-cost plans prohibited under the ACA.
Insurance subsidies phased out and replaced by tax credits – age factored premium allowed – local cost not considered
Currently, the ACA provides subsidies on a sliding scale based on income to ease the cost of health insurance premiums and deductibles. The AHCA replaces that with tax credits based largely on age, ranging from $2,000 for people under 30 to $4,000 for people over 60, and capped at $14,000 per family. While providing higher subsidies for older Americans than younger ones, the AHCA also allows insurance companies to charge older Americans five times more than younger Americans for similar plans; states are given the flexibility to set their own ratio. Under the ACA, older Americans could not be charged more than three times that of younger Americans.
The current sliding scale is replaced by a phasing out of subsidies for individuals earning $75,000 or more or families earning $150,000 or more. Unlike the ACA, the AHCA does not consider local healthcare costs in setting the level of subsidy.
Expansion of HSAs and FSAs
The ACHA dramatically expands the use of Health Savings Accounts and Flexible Spending Accounts by increasing the annual tax free contribution limits ($6,550 for individuals, $13,100 for family coverage in 2017). Persons over age 55—and each spouse—can add another $1,000.
Taxes on high income earners eliminated
The AHCA eliminates taxes on investment income and wages that affect individuals making $200,000 or more and couples making $250,000 or more, specifically including the 0.9 percent payroll tax on higher-income workers, which have been used to fund the ACA.
Medicaid – State Expansion – after 2020 per capita funding – States to design benefits – new Fund
The AHCA ends Medicaid expansion in 2020. Until that time, Medicaid expansion is optional for states, and federal funding will continue as under the ACA. Starting in 2020, federal funding for Medicaid would be on a fixed per capita basis, with each state’s allotment determined by spending in a base year by different enrollee categories. In 2020, the AHCA also eliminates the requirement that state Medicaid plans provide the same essential health benefits required by plans on the exchanges. The AHCA requires that states with Medicaid expansion populations confirm expansion enrollees’ eligibility every six months.
The AHCA creates a new Medicaid fund, the Patient and State Stability Fund, which is intended to support state efforts to:
- Provide coverage to high-risk individuals who do not have access to employer-based health insurance
- Stabilize premiums in the state’s individual market
- Promote access to preventive services
- Help reduce out-of-pocket costs
Annual funding is approximately $15 billion in 2018 and 2019. In 2020 the fund is reduced to $10 billion and a state match is then phased in.
Public Health Programs – repealed – funding frozen to “prohibited entity” Beginning in FY2019, the AHCA would repeal funding for the Prevention and Public Health Fund established under the ACA to support prevention, wellness, and public health initiatives. In 2017 funding is expanded for Federally Qualified Health Centers. A one-year freeze on funding to organizations deemed a “prohibited entity,” defined as “an essential community health provider primarily engaged in family planning and reproductive health services,” that “provides abortions in cases that do not meet the Hyde amendment exception for federal payment,” and that “received over $350 million in federal and state Medicaid dollars in fiscal year 2014.”
THE AHCA KEEPs…
ACA’s popular features pertaining to insurance coverage and costs:
- Coverage of dependents on their parents’ health insurance policies until age 26
- Ban on insurance companies denying coverage based on pre-existing conditions or charging more based on health history
- Prohibition on insurance companies setting annual or lifetime limits on payments for a person’s health benefits
Implications for Healthcare Providers – Back to the Past – But What About the Funding? Until the AHCA is scored by the Congressional Budget Office (CBO), it is unknown exactly how these policies might affect the number of people with insurance coverage or how expensive it will be to implement. However, the initial concerns expressed in a letter to Members of Congress on March 8, 2017, from the American Medical Association, the American Hospital Association, the Association of Medical Colleges, the Catholic Hospital Association of the United States, the Children’s Hospital Association, the Federation of American Hospitals and the National Association of Psychiatric Health Systems suggest that healthcare providers anticipate sector-wide negative impacts.
Uninsured patients – some pre-ACA reimbursement restored – but some not The net impact of the Medicaid and individual market changes would likely be a rise in the number of uninsured patients and thus costs for uncompensated care. The AHCA would restore Medicaid DSH payments to pre-ACA levels and would provide some additional funding for safety net providers. That would help mitigate the financial challenge, but it likely wouldn’t be sufficient to fully offset other losses.
Also, the AHCA would not roll back the Medicare Inpatient Prospective Payment System (IPPS) payment cuts that were included in the ACA to pay for coverage expansion.
Lower Subsidies to Purchase Insurance for Those in Need The shift in approach to subsidies would mean less support for those who are older, have lower incomes, or live in regions that have higher premium costs, while providing more support for people who are younger, have higher incomes, or live in areas with lower healthcare premiums, according to a new Kaiser Family Foundation analysis showing the AHCA’s potential effect.
Potential Loss of Insurance for Those Covered under Medicaid Expansion
A Commonwealth Fund study suggests that millions of people currently covered under Medicaid could lose coverage due to common events in people’s lives, such as changing jobs, doing seasonal work, or getting a raise. Such changes could result in income temporarily rising above the eligibility threshold, which would result in a loss of coverage that, under the AHCA, they may not be able to recover even if their income drops back below the threshold. The analysis points out that this sort of “churn” is common: In 2016, 31 million adults reported a gap in coverage, about one-quarter of who had been enrolled in Medicaid before that gap. Among those, roughly 3.4 million people reported losing their Medicaid coverage within the past 12 months.
Potential Reduction in Benefits and Payment Converting Medicaid support to a fixed per capita approach would very likely reduce the level of federal funding for Medicaid, leaving states with substantial challenges to maintain services at current levels. For example, states that are unable to increase their contribution to Medicaid without cutting other necessary programs may be forced to reduce eligibility, benefits, and provider payments. The most vulnerable providers in this scenario are those that serve “poor children, the elderly and individuals with disabilities, [like] nursing home and community-based long-term care providers, and safety-net hospitals and clinics,” according to an analysis on federal Medicaid funding by the Kaiser Family Foundation.
Slow ACA repeal with piecemeal replacement has political consequences
The AHCA represents a compromise among various perspectives within the Republican Party, but the bill still faces headwinds. Some news sources have reported on GOP factions objecting to the AHCA’s retaining much of the ACA’s basic structure. Both Republican and Democratic governors have objected to the end of Medicaid expansion and potential disruption in coverage. Many object to the elimination of selected taxes on the wealthy.
Given the immediate reaction, even within the Republican Party and President Trump’s constituency, the AHCA faces a long climb. Members of the Freedom Caucus, the Republican Study Group and other conservative factions have already signaled their displeasure with the proposal. Following a pre-dawn vote earlier today, the House Ways and Means Committee approved a series of the provisions necessary to set the stage for the “repeal and replace”. The House Energy and Commerce Committee is also expected to complete its “mark up” this week, with a likely vote along party lines to advance the bill out of Committee. The coming days and weeks will see review of the AHCA on the House floor, with the possibility of a House vote in early April before the bill moves to the Senate.
Although the AHCA sponsors are pushing to vote the bill out of Committee before the CBO “scores” the bill and provides formal analysis of the budgetary and insurance coverage impacts, it is likely that the CBO report will influence the legislative process. If the CBO’s analysis shows that millions of Americans will lose their health insurance, that may push the GOP to adjust elements to fit within traditional congressional budget rules.
The AHCA introduction is just the first step in a complex process. Legislators would likely make significant modifications to the AHCA to meet political and legislative demands in the budget reconciliation process. In particular, some Republicans have already voiced concerns about components of the proposal, further complicating the approval process if congressional Democrats oppose the AHCA en masse.
The AHCA will face additional hurdles in the Senate. In particular, the Senate Parliamentarian will need to rule on which provisions meet the complex requirements to pass via reconciliation in the Senate. In addition, the same day the AHCA was introduced, four moderate Senate Republicans sent a letter to Majority Leader Mitch McConnell expressing concerns about the Medicaid provisions in the AHCA. To pass the measure, Republicans will need party unity—particularly in the Senate, where they only have a two-vote margin.
Also, the AHCA would ultimately need to be implemented at the state level. This added flexibility would mean that the effects on individuals and providers will depend to a large extent on state funding and policy. Regional differences in demographics, health status, and healthcare costs will also have a major influence.
Finally, the ACHA will need the support of employers. Over 150 million Americans now receive their health care through their employers’ plans, and the lynchpin of the ACHA—average tax credits set at about $3,000—may impact the number of employers choosing to continue providing healthcare.
The AHCA signals the basic shift in philosophy and direction of health policy and contains significant elements for healthcare providers to monitor. A possible increase in the number of uninsured and underinsured people, and a reduction in access to preventive services, could result in providers treating more patients who are sicker, along with an increase in uncompensated care and bad debt. Reductions in federal funding for Medicaid may well lead states to reduce payments to providers.
President Trump told reporters that efforts to repeal and replace the ACA were hampered by the complexity of the industry itself. That view is shared with the majority of Americans, including healthcare providers, who believe it is beyond their ability to navigate our health system effectively without help. The “slow repeal” of the ACA has begun, and if anyone doubts the impact of this draft legislation, just track the big health care ETFs (like XLV, XHS, PJP, XBI and IHI) over the coming days and weeks—the markets are already deciding who will be a winner or loser under the ACHA.