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Posts Tagged ‘advance premium tax credit subsidies’

Non-group market faces decidedly mixed outlook for plan year 2018 — and possible demise in 2019.

April 27th, 2017 Comments off

Several recent positive developments point toward plan issuers staying in the non-group or individual market next year.

  • The Trump administration finalized its Market Stabilization rulemaking intended to build confidence among plans by affording them more predictability and reducing the possibility of consumer gaming that plans say have increased their loss exposure.
  • On April 7, Standard & Poor’s opined that the individual market is showing signs of stabilizing in its fourth year based on its analysis of Blue Cross Blue Shield plans that found loss ratios declined from 106 and 102 percent for 2015 and 2014, respectively, to 92 percent for 2016.
  • This week in a closely watched move, Anthem tentatively committed to the individual market in 2018, but warned it could change its mind or raise premium rates by 20 percent or more depending on the outcome of pending litigation over cost sharing reduction subsidies that the Patient Protection and Affordable Care Act makes available to households earning between 100 and 250 of federal poverty levels for silver actuarial value plans sold on state health benefit exchanges.

Which brings us to the negatives. If the litigation, House v. Price, is not resolved by early June, Anthem could execute the aforementioned steep rate increases and possible state market withdrawals. The likelihood is high. The reason is neither the House of Representatives nor the Trump administration has sufficient motivation to resolve the case. The House prevailed when the U.S. District Court where the case was brought issued a ruling one year ago agreeing with the House that the Obama administration unconstitutionally infringed on the House’s appropriation powers by funding the cost sharing reductions administratively.

The district court held the ruling in abeyance pending appeal by the administration. That decision is likely to become final and go into effect following a status conference with the parties late next month. The Trump administration isn’t likely to appeal the decision and would be happy to see a final ruling “blow up” the Affordable Care Act’s individual insurance market reforms in President Trump’s words. The House for its part isn’t likely to dismiss the case because it sees the ruling in its favor as an important precedent to check executive branch authority from impinging on its powers of appropriation.

In addition, Congress and the Trump administration are unlikely to moot the case by enacting their own health care reform legislation in place of the Affordable Care Act’s insurance market reforms in the current congressional term due to heavy reliance on the limited scope budget reconciliation process, intra-party squabbling, lack of bi-partisan support and the inability or unwillingness of the Trump administration to articulate clear guiding policy principles.

The loss of the cost sharing subsidies would blow a hole estimated at $10 billion in exchange finances. That could well prompt Anthem and other plan issuers to head for the exits just as their plans must be finalized for 2018. That could effectively end the exchanges and the individual market as a whole next year. The more likely scenario is the plans as Anthem indicated it would price in the loss of the cost sharing subsidies in their final premium rates.

That would keep the individual market alive and on life support for 2018. But it would face a possible demise in 2019, with shrunken statewide risk pools and increased risk of the dreaded death spiral of adverse selection. The number of covered lives would decline both inside and outside of the exchanges. Outside the exchanges, the 401 percenters – households earning more than 400 percent of federal poverty levels and ineligible for premium tax credit subsidies for qualified health plans sold on the state exchanges – would likely bolt from the individual market after getting notice of another 20 plus percent premium increase for the second consecutive year. (California’s exchange, Covered California, estimates the loss of reduced cost sharing subsidies would boost premiums double that amount, 42 percent on average and as many as 340,000 Californians would drop out of the individual market in 2018.) They will file for exemptions from the individual mandate based on unaffordable premiums, seek alternatives such as health sharing ministries or simply go bare in the hope the Internal Revenue Service under the Trump administration won’t enforce the individual mandate penalties for not having coverage.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

State health benefit exchanges not out of the woods yet

March 28th, 2017 Comments off

State health benefit exchanges dodged a legislative bullet last week that would have eliminated advance premium tax credit (APTC) subsidies to help low and moderate income households purchase non-group coverage. The nation’s largest exchange, Covered California, estimated the tabled budget reconciliation bill replacing the subsidies with an age-based tax credit beginning in 2020 would on average amount to only 60 percent of that provided under the APTC subsidies. That would have made coverage for less affordable for many households and potentially led to a dramatic drop in enrollment qualified health plans sold on the exchanges, shrinking the non-group risk pool and reducing spread of risk.

The exchanges now face a more immediate threat that could significantly disrupt plan year 2018 and potentially current year enrollees: the loss of cost sharing reduction (CSR) subsidies for silver level plans sold on the exchanges. The subsidies are available to households earning between 100 and 250 percent of federal poverty levels. By reducing out of pocket costs for eligible households, the subsidies effectively increase the actuarial value of silver plans that cover on average 70 percent of medical care costs.

A U.S. District court ruling issued last May found the Obama administration acted unconstitutionally in funding the subsidies without an explicit appropriation by Congress. The decision was put on hold pending appeal, where it sits pending possible action to resolve the underlying fiscal issue by the Trump administration and Congress. Without federal funding for the CSR subsidies, health plan issuers participating in the exchanges would incur billions in losses, according to an analysis prepared earlier this month by The Commonwealth Fund. There is no requested appropriation to cover the CSR subsidies in the Trump administration’s 2018 budget blueprint. As last week’s failed attempt to advance the budget reconciliation legislation illustrates, the Trump administration and Congress are unlikely to achieve a rapid agreement resolving the litigation as they struggle to form a majority party governing coalition.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

November elections increase likelihood of California revisiting single payer

December 21st, 2016 Comments off

Various media accounts report that California of all states stands to lose the most federal funding for health care coverage under the Patient Protection and Affordable Care Act – 20 to 25 billion dollars annually – if the law’s health insurance reforms are repealed as expected next year. The large majority of that sum comes from enhanced federal cost sharing under the law’s Medicaid eligibility expansion, representing more than $18 billion this year, according to this issue brief by the State Health Reform Assistance Network. Accounting for the balance are advance premium tax credits and cost sharing subsidies to offset the cost of qualified health plans purchased on the state’s health benefit exchange, Covered California.

Other media accounts portray California’s state policymakers as circling the wagons to fight this substantial loss of federal dollars given the potential for many low and moderate income households not covered by employer group plans to lose health coverage as well as extensive fiscal damage the state budget. But they are unlikely to prevail against the political will of Washington under the new administration and Congress and will have to consider alternatives. One likely candidate would be some form of single payer coverage, perhaps utilizing an all payer Accountable Care Organization (ACO) structure to hold down rising health care costs and financed by income, payroll and self-employment taxes.

In the previous two decades, single payer failed to gain voter approval when proposed as a ballot measure or as legislation. This time, however, with a supermajority vote margin gained in the November elections, legislative Democrats along with incumbent Democratic Gov. Jerry Brown could enact a single payer measure with — or without — support from Republican lawmakers. It would represent a far more radical reform than the Affordable Care Act. However, among the states, California has a sufficiently large population base and economy to go single payer if it chooses. The Golden State may well have to if it wants to carve out its own health reform destiny in the post Affordable Care Act era.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Key factors driving perception of poor value in individual health insurance market

October 26th, 2016 1 comment

The law “requires you and each member of your family to have qualifying health care coverage (called minimum essential coverage), qualify for a coverage exemption, or make an individual shared responsibility payment when you file your federal income tax return,” the tax agency says on its website.

Some consumers who buy insurance on the exchanges still feel vulnerable. Deductibles are so high, they say, that the insurance seems useless. So some feel that whether they send hundreds of dollars to the I.R.S. or thousands to an insurance company, they are essentially paying something for nothing.

Obama administration officials say that perception is wrong. Even people with high deductibles have protection against catastrophic costs, they say, and many insurance plans cover common health care services before consumers meet their deductibles. In addition, even when consumers pay most or all of a hospital bill, they often get the benefit of discounts negotiated by their insurers

Source: Health Law Tax Penalty? I’ll Take It, Millions Say

Perception as political pundits often say is reality, particularly so when it comes to pocketbook issues. At the root of this perception is the more generous HMO plans that came about in the 1970s and 1980s that offered little or no out of pocket costs. That conditioned consumers to think of health insurance as pre-paid medical care rather than an insurance product. High deducible plans by comparison are predicated on a basic principle of insurance: to cover the risk of high and unexpected costs — and not to protect consumers from paying out of pocket to see a medical provider for routine care.

So not surprisingly, plans that come with high deductibles are seen as a poor value since consumers aren’t going to see any of their premium dollars returned to them unless they need high cost care such as hospitalization. Back in the pre-HMO days of the 1950s and 1960s, hospitalization and other “major medical” costs as health insurance policies were termed then was the main point of coverage and not primary care physician office visits. Hence, those policies came with high deductibles that were only triggered by high cost care.

A closely related perceptual problem with the return of the major medical model and high deductibles relates to high premiums for high deductible plans. That violates the established expectation of a tradeoff for accepting higher deductibles in exchange for lower premiums since less first dollar risk is being assumed by health plans. This is a huge issue for consumers in the individual market in age rating bands 50 and older but whose household incomes exceed 400 percent of federal poverty levels, thus disqualifying them for tax credit subsidies offered for coverage purchased through state health benefit exchanges. It has led to proposals such as allowing fifty somethings to buy into Medicare earlier than the minimum eligibility age of 65.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Bill Clinton criticizes ACA gaps

October 5th, 2016 Comments off

At a campaign event for his wife in Flint, Mich., Bill Clinton had praised the law for insuring millions of Americans, but noted that many middle-class Americans were still unable to afford coverage and talked up his wife’s plan to allow those close to retirement age to buy into Medicare.

“The people who are getting killed on this deal are small business people and individuals who make just a little too much to get any of these subsidies because they’re not organized,” he said. “They don’t have any bargaining power with insurance companies so they’re getting whacked.

“So you’ve got this crazy system where all of a sudden 25 million more people have health care and then the people who are out there busting it, sometimes 60 hours a week, wind up with their premiums doubled and their coverage cut in half. It’s the craziest thing in the world.

Source: Bill Clinton’s Obamacare remarks put Hillary on the hot seat

The former president’s talking about shortcomings in the Patient Protection and Affordable Care Act relative to making health coverage more accessible and affordable for individuals and small employers. Regarding the former, I’ve referred to them as the “401 percenters” — those who exceed the household income cutoff of 400 percent of federal poverty for advance premium tax credits for individual qualified heath plans sold on state health benefit exchanges. There have been numerous accounts that even those with household incomes between 300 and 400 percent of federal poverty levels get too little in the way of subsidies to make coverage affordable or even worthwhile, federal income tax penalties for going bare notwithstanding.

As for Bill Clinton’s reference to small business, the Affordable Care Act envisioned small businesses organizing to gain some degree of bargaining power in the health benefit exchange’s Small Business Health Options Program known as SHOP. In theory, the SHOP was to enable small business to aggregate their market power, aided by the law’s creation of a single statewide risk pool for the small group market segment. In reality, it didn’t work out that way. SHOP turned out to be a flop, with little interest among small employers and insurance brokers in participating in the program.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Exchange subsidies, narrow managed care networks credited for stabilizing individual market

May 19th, 2016 Comments off

Before the majority of the individual market reforms of the Patient Protection and Affordable Care Act took effect in 2014, the individual health insurance market was mired in a death spiral of adverse selection and rapidly rising, unsustainable premiums. Now those reforms have brought stability to the market, with little risk of the market segment destabilizing, concludes a McKinsey & Company analysis. (h/t to Liz Osius of Manatt).

Key to achieving that stability are subsidies offered households with incomes not exceeding 400 percent of federal poverty levels and health plans’ use of managed care plans and narrow provider networks. The brief notes that an estimated 69 percent of households in the individual market qualify for premium and out of pocket cost sharing subsidies.

The individual market has little risk of entering a classic insurance ‘death spiral’ as long as the federal government continues to offer subsidies to those with incomes below 400% of the federal poverty level. Given the unique regulatory conditions of this market, the key determinants of its stability are not the traditional factors (risk and cost of care for this segment), but rather the ongoing subsidy payments.

McKinsey & Company’s review of plan issuer profitability correlated narrow networks with comparatively better loss experience and profitability compared to plans with wider networks as well as the ability of these plans to set lower premium rates. “The combination of the improving relative pricing of narrowed networks and their superior financial performance suggests that they may be emerging as one sustainable element of exchange plan design,” the McKinsey issue brief states.

Although the individual market has regained stability, profitability remained elusive in the first two years of the major reforms:

Our initial perspective, based on emerging financial results reported for 2015, is that aggregate losses in the individual market may have doubled from 2014, with post-tax margins between –9% to –11% (Exhibit 6). The larger losses are most likely the result of two primary factors: higher year-over-year medical loss ratios (MLRs) (around 4.5% to 5% margin reduction) and lower reinsurance payments (another 3.5% to 4% margin reduction).

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

San Francisco offers additional subsidization for exchange plans

January 25th, 2016 Comments off

Covered California premiums are relatively affordable. The cheapest one for single San Franciscans earning $58,850 — the cutoff for the new city subsidy — would cost roughly $202 a month. But the cheapest plans have the highest deductibles, out-of-pocket expenses for doctor visits, hospital stays and drug prescriptions, potentially totaling thousands of dollars per year. And the subsidies for these expenses that are available in states with market exchanges, like California, come only with plans on the costlier “silver” tier. As a result, many residents choose to remain uninsured, said Colleen Chawla, deputy director of health at the San Francisco Public Health Department. This means people eligible for Covered California are turning to clinics intended for people who can’t get insurance at all or who have Medi-Cal, the state’s version of free medical insurance for very low-income residents.

Source: San Francisco to Expand Health Insurance Support – New America Media

In high cost areas like the San Francisco Bay Area, the Affordable Care Act’s advance premium tax credits and subsidies for out of pocket costs for silver tier qualified health plans aren’t enough of a positive incentive to encourage people to sign up for coverage.

The implication is in these very expensive localities, the cost of housing and other necessities of life simply leave no room to pay for health care and insurance. Since going without coverage subjects medically uninsured San Franciscans to the ACA’s federal income tax penalties, the city’s Bridge To Coverage rolling out this year provides an additional local government subsidy to defray the cost of plans purchased on the Golden State’s health benefit exchange, Covered California, for households below 500 percent of federal poverty level — a multiple higher than the ACA’s 400 percent cutoff for advance premium tax credit subsidies.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

The paradox of Affordable Care Act individual health coverage affordability

November 2nd, 2015 Comments off

The Patient Protection and Affordable Care Act at Section 1401(b)(3)(a) provides advance individual health plan premium tax credit subsidies within six household adjusted gross income tranches between 100 and 400 percent of the current year federal household poverty levels. At the low end, the subsidies are calculated so that households with incomes between 100 and 133 percent of federal poverty pay no more than two percent of their incomes for a health plan. At the upper end, tax credits are applied so that households earning between 300 and 400 percent of federal poverty levels would pay no more than 9.5 percent of income. The subsidies are only available for health plans sold on state health benefit exchanges.

While designed to make individual health coverage more affordable to low and moderate income households, the subsidies employ a one size fits all approach that doesn’t easily achieve that goal in some parts of the nation such as those with high housing costs. Particularly for those over age 50, given the law allows health plan issuers to base premiums in part on age, and who earn close to or slightly above the 400 percent household income subsidy cutoff. And when their individual plan premiums rival or equal a significant portion of their monthly mortgage or rent payment. When that happens, the house payment is going to win out over the health insurance premium every time.

Case in point is San Jose, California resident Miguel Delgadillo, as reported by the San Jose Mercury News:

Until the price of health insurance comes way down, he said, don’t bother him.

“What little income there is after taxes goes to my house payment — that’s my top priority,” said the 55-year-old part-time teacher.

He said he likes the idea of a national health care law, but not the $451 he would have to pay each month for health insurance. That’s the cost of the lowest price plan available to him.

Delgadillo, who has been uninsured for seven years, shares a dilemma with tens of thousands of other Californians: He’s a middle-class person who narrowly misses the income threshold that would qualify him for a subsidized health plan.

That leaves Delgadillo potentially subject to the Affordable Care Act’s individual shared responsibility penalty for not having some form of minimum essential health coverage, which for 2016 is the higher of 2.5 percent of adjusted gross income or $695 per adult and $347.50 for children under 18, up to a household maximum of $2,085. Similarly situated individuals might do the math and figure it would cost less to pay the penalty than purchase coverage. Delgadillo and other similarly situated households may be able to avoid paying the penalty when filing their income tax returns if they can show that the lowest cost plan available to them would exceed 8 percent of actual household income.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Debate over future of ACA shifts to adequacy and affordability of coverage

July 30th, 2015 Comments off

Henry J. Aaron of the Brookings Institution has boiled down the future policy debate around the Patient Protection and Affordable Care Act. Now that the law is firmly in place – at least for the near term – and is meeting a primary policy goal of reducing the number of medically uninsured Americans, the next debate will be over the adequacy and affordability of coverage. Specifically, whether it’s too much, too little or just about right.

Conservatives, Aaron writes, prefer increasing the financial exposure of patients when they buy insurance and when they use care. By comparison, those of a more liberal bent prefer no insurance whatsoever to protect against financial exposure to medical bills but rather Canadian-style “single payer” where a government monopsony pays the nation’s collective health care bill.

Likely to fuel the debate are reports like this recent Kaiser Health News item. It reported that even with advance tax credit premium subsidies for coverage sold on state health benefit exchanges, premiums alone for some moderate income households approach nearly a tenth of their gross incomes and can really add up when out of pocket costs are included:

For instance, families of three earning $73,000 have to pay nearly $7,000 on premiums despite also receiving subsidies They still face deductibles, which this year averaged around $2,500 for the most common types of insurance plans, known as silver tiers. If a family required extensive medical care and reached the maximum they would be held responsible for—$13,200 this year—their total health care-related bills, including premiums, would exceed $20,000, or 28 percent of their gross incomes. “Even some of those who are eligible for financial assistance are still finding the coverage not to be affordable for them,” said Linda Blumberg, a senior fellow at the Urban Institute, Washington think tank.

All individual and small group plans that originated after the enactment of the ACA now basically operate as major medical plans of the pre-HMO days, minus the lifetime limits. They do so by virtue of calendar year maximum out of pocket limits: $6,600 for self-only coverage $13,200 for family coverage for 2015 plans (rising to $6,850 for self-only coverage $13,700 for family coverage for 2016). The annual premium is partly to cover catastrophic risk above these amounts. The amount of the premium paid by individuals and families depends on how much risk short of the calendar year OOP limits they want to assume. If they want less exposure to co-insurance, deductibles and co-pays, the premium is higher. If they’re willing to assume more, the premium is lower and lowest for “bronze” rated plans that cover 60 percent of expected annual medical utilization as well as pure catastrophic plans available to individuals under age 30 or households that would have to spend more than eight percent of their incomes to buy the lowest cost bronze plan offered in their area.

Herein is a primary element of the near term debate over the ACA: whether it provides affordable coverage regardless of whether households assume a high deductible and pay more out of pocket for non-catastrophic care or pay a higher premium in order to pay less out of pocket for these services. In a still fraught economy that has placed particular financial stress on moderate income households falling somewhat below and above the 400 percent of federal poverty cut off for advance tax credit subsidies for coverage sold on state health benefit exchanges – and those that have not or cannot easily afford to set aside money in health savings accounts to defray out of pocket costs — these costs and tradeoffs come into sharp focus.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

SCOTUS takes holistic, broad contextual reading of ACA in rejecting challenge of exchange tax credit subsidies

June 25th, 2015 Comments off

The U.S. Supreme Court adopted a holistic, broad contextual reading of the Patient Protection and Affordable Care Act in ruling today in King v. Burwell that premium tax credits to subsidize the purchase of individual health coverage are available on all state health benefit exchanges, including those states that opted to allow the federal government to set up the exchange.

The majority opinion by Chief Justice John Roberts is the second major decision he authored turning back significant challenges to the law. In June 2013, Roberts upheld the Affordable Care Act’s requirement that all individuals have some form of health coverage or pay a tax penalty.

The petitioners argued the Affordable Care Act permitted the tax credits only in states that established an exchange through direct state action rather than defaulting to the federal government operation of an exchange. The majority opinion however took a three-legged stool analysis in concluding the tax credit subsidies are one of three critical elements of the law’s reforms of the individual health insurance market that work together in a unified manner. Removing the subsidies in some states would thus collapse this tripartite reform scheme and result in the failure of the market that Congress clearly intended to remedy, the majority concluded.

“The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral” of adverse selection, Roberts wrote for the majority. “It is implausible that Congress meant the Act to operate in this manner.” Roberts noted Congress passed the Affordable Care Act “to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is con­sistent with the former, and avoids the latter.”

Two words trump four: The petitioners’ challenge turned on the last four words at Section 1311(d)(1) in the Affordable Care Act, defining an exchange as a governmental agency or nonprofit entity that is “established by a State.” But the law’s general reference to the mandatory exchanges using the term “such exchange” trumped those four words, the majority reasoned, creating parity between exchanges created by state action and those set up by the federal government: (The Affordable Care Act requires exchanges operate in all states from 2014-16 with provisions for a waiver beginning in 2017)

If a State chooses not to follow the di­rective in Section 18031 to establish an Exchange, the Act tells the Secretary of Health and Human Services to establish “such Ex­change.” §18041. And by using the words “such Exchange,” the Act indicates that State and Federal Exchanges should be the same. But State and Federal Exchanges would differ in a fundamental way if tax credits were available only on State Exchanges—one type of Ex­change would help make insurance more affordable by providing bil­lions of dollars to the States’ citizens; the other type of Exchange would not.

The majority’s legal analysis was not based on the doctrine of deference to reasonable regulatory agency interpretation of ambiguous statutory law under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837. While that analysis is based on the premise that Congress delegated interpretation of a statute to regulators, it is not appropriate in this case, Roberts wrote:

“In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation.” This is one of those cases. The tax credits are among the Act’s key reforms, involving billions of dollars in spending each year and affecting the price of health insur­ance for millions of people. Whether those credits are available on Federal Exchanges is thus a question of deep “economic and political significance” that is central to this statutory scheme; had Congress wished to assign that question to an agency, it surely would have done so ex­pressly.

The full opinion as well as a dissenting opinion authored by Justice Antonin Scalia is available here.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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