Tag Archive: advance premium tax credit subsidies

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

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

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. 

Amid slower growth, California’s Obamacare exchange cuts proposed spending – LA Times

Many Californians who signed up in 2014 were closer to the federal poverty line and often paid just a few dollars a month for health insurance, thanks to generous federal subsidies.The remaining uninsured were closer to the cutoff for those federal dollars, meaning they had to pay more of the premium themselves.”Those people may just be doing the math, and they simply cannot afford the premiums,” (Caroline) Pearson, senior vice president at Avalere said. (Covered California Executive Director Peter) Lee said the exchange is planning to survey consumers who have left the exchange to get a clearer picture of what’s happening in the market.

Source: Amid slower growth, California’s Obamacare exchange cuts proposed spending – LA Times

Lee told The Times his organization’s impression is few people are shunning exchange plans due to cost concerns. The survey should scrutinize a potential financial pain point: those in 50+ age rating bands who pay higher premiums and who earn more than 250 percent of federal poverty level (FPL) and particularly those earning between 300 and 400 percent of FPL.

Under Section 1401(b)(3) of the Patient Protection and Affordable Care Act, these households must pay between 8.05 and 9.5 percent of their incomes toward the premium cost of the index plan (second lowest silver-rated plan for a given plan year) compared to between 3.0 and 8.05 percent at lower income levels. The subsidies may be working well for those earning 250 percent or less of FPL but not as well for older Californians earning between 250 and 400 percent of FPL. Nearly half of Covered California enrollees for plan years 2014 and 2015 were age 45 and older. Also, some older Californians near the 400 percent FPL cut off for advance premium tax credit subsidies might have been offered subsidies too small to keep them in a Covered California plan and opted to purchase plans sold in the off-exchange market.

 


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 should issue ruling in King v. Burwell ASAP

The U.S. Supreme Court should issue its ruling in King v. Burwell regarding the availability of advance premium tax credits in the nearly three dozen states where the federal government operates state health benefit exchanges as soon as possible. Waiting to issue its decision at or near the expiration of its current term at the end of June will produce months of needless uncertainty adversely impacting the policy planning of the states with federally facilitated exchanges (FFEs), particularly given that many of their legislatures are in session now and considering contingencies including establishing state-based exchanges should the subsidies be ruled illegal in those states.

If the subsidies are found to be contrary to the Patient Protection and Affordable Care Act — even though there’s at least an even chance they will not — states will need sufficient time to authorize and set up their own exchanges and select exchange qualified health plans prior to the start of plan year 2015 open enrollment on November 1. Health plan issuers also need to know if the subsidies will be available in order to make decisions as to what if any plans they will offer in the affected FFE states. Finally, with Congress trapped in partisan gridlock, there is little likelihood of a quick fix from the legislative branch of the federal government if the subsidies are cut off in the FFEs. It’s up the the judiciary to end the uncertainty. A rapid ruling would also be consistent with the high court’s expedited decision to hear the case before a full split could develop among the U.S. circuit courts of appeal.

 


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. 

ACA’s Multi-State Plan provision could aid government’s case in King v. Burwell

The issue before the U.S. Supreme Court in King v. Burwell is whether the U.S. Treasury Department properly interpreted the intent of the drafters of the Patient Protection and Affordable Care Act regarding the availability of tax credit subsidies for health plans sold on state health benefit exchanges. More specifically, whether Treasury is correct in determining the subsidies are available to qualified individuals regardless of whether an exchange is established by a state or if the federal government operates the exchange under a default provision of the Affordable Care Act if a state opts not to do so.

The high court could look to other parts of the statute for context as it discerns Congress’s intent regarding the availability of the subsidies. One element of the law that could support Treasury’s position is at Section 1334 of the Affordable Care Act. Section 1334 creates a federally-chartered Multi-State health plan (MSP) that must be offered in all state exchanges by 2017. The policy intent is to bolster competition and consumer choice, particularly in states with smaller populations and fewer plan issuers.

In the context of the question before the Supreme Court in King, the government might argue Congress could not have intended that the subsidies are available only for MSPs offered in states that chose to establish an exchange but not in those that did not. Especially given the objective of MSPs to make individual and small group health coverage more widely available. In a proposed rulemaking issued last week, the federal Office of Personnel Management (which charters MSPs) noted it “intends to ensure that MSP coverage is available as expansively and as soon as practicable.”

 


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. 

If Halbig becomes law of the land, flight to bronze and cat plans could result

One potential outcome should the federal courts ultimately determine that advance income tax credit premium subsidies are available only to eligible households purchasing individual coverage in state-based health benefit exchanges and not in states that have opted to have the federal government run their exchanges is a flight to bronze. Bronze as in the metallic value of qualified health plans that have around a 60 percent actuarial value (AV), meaning they cover on average 60 percent of expected costs in a plan year. (Click here for more background the Halbig ruling)

Individuals may find the only way to comply with the requirement they have some form of health coverage or pay a tax penalty is to buy a bronze-rated plan since these plans offer the lowest premiums compared to richer plans with silver (70 percent AV), gold (80 percent AV) and platinum plans (90 percent AV). For many individuals and families not covered by employer-sponsored or government health plans, bronze plans may be the only ones they can afford without the offsetting effect of the premium subsidies — particularly older people in the top one third of the age rating bands who pay the highest premiums.

In addition to bronze plans, there could also be a growth market in catastrophic plans that are rated below 60 percent AV. These plans are available to those aged 30 and under and households that would have to spend more than eight percent of their income to buy the lowest cost bronze plan offered. The Patient Protection and Affordable Care Act also provides an exemption from the tax penalty for these households, which could result in some requesting the exemption and going without coverage, undermining the law’s policy goal to reduce the number of medically uninsured Americans.

A flight to bronze plans could also give a boost to direct primary care (DPC) where patients pay advance monthly or annual fees for primary care since bronze and catastrophic plans aren’t designed for those who are frequent users of primary care services.

 


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. 

Contradictory exchange language in Affordable Care Act causes latest uncertainty over law

Today’s 2-1 ruling by the District Of Columbia Circuit U.S Court of Appeals in Halbig, et al v. Burwell holding that the Internal Revenue Service incorrectly interpreted Patient Protection and Affordable Care Act provisions governing advance tax credits for individual health plans purchased though state health benefit exchanges — regardless of whether a state has opted to operate its own exchange or defaulted to having the federal government do so — stems from two contradictory provisions in the law.

Section 1311(b)(1) of the law requires all states to establish an exchange, stating that “Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an ‘‘Exchange’’) for the State…” (Emphasis added)

When the word “shall” appears in a statute, it’s a mandate or obligatory requirement. It’s not an option or a suggestion.

However, the Court of Appeal also reviewed another section of the Affordable Care Act at Part 3 that gives the states flexibility in implementing the exchange mandate. This is where the trouble lies. Section 1321(b) states:

 (b) STATE ACTION.—Each State that elects, at such time and in such manner as the Secretary may prescribe, to apply the requirements described in subsection (a) shall, not later than January 1, 2014, adopt and have in effect—

(1) the Federal standards established under subsection (a);
or
(2) a State law or regulation that the Secretary determines implements the standards within the State. (Emphasis added)

Among the federal standards established under subsection (a) is the establishment and operation of exchanges.

Note the use of the word “elects.” Elect means to choose or opt to take (or not take) an action. It is not a requirement unlike the clear “shall” of a mandate. That implies that despite the clear mandate of Section 1311(b)(1), a state could theoretically opt not to establish an exchange under Section 1321(b).

The Court of Appeal apparently picked up on this distinction in its ruling:

The crux of this case is whether an Exchange established by the federal government is an exchange established by the State under section 1311 of the [ACA].” We therefore begin with the provisions authorizing states and the federal government to establish Exchanges. Section 1311 provides that states “shall” establish Exchanges. 42 U.S.C. § 18031(b)(1). But, as the parties agree, despite its seemingly mandatory language, section 1311 more cajoles than commands. A state is not literally required to establish an Exchange; the ACA merely encourages it to do so. And if a state elects not to (or is unable to), such that it “will not have any required Exchange operational by January 1, 2014,” section 1321 directs the federal government, through the Secretary of Health and Human Services, to “establish and operate such Exchange within the State.” Id. § 18041(c)(1).

This is likely to be a critical analysis determining the fate of the subsidies in the three dozen states that have elected not to operate their own exchanges as the case moves forward to a potential en banc review by the District Of Columbia Circuit U.S Court of Appeals. The matter could end up before the U.S. Supreme Court after another circuit of the Court of Appeals panel today unanimously upheld the IRS’s interpretation of the advance tax credit subsidies as applying to all states, regardless of whether they elected to establish their own exchanges. That ruling was in King et al v. Burwell. The conflicting rulings leave a cloud of uncertainty hanging over the federally operated exchanges that is unlikely to be resolved in the less than four months remaining to plan year 2015 enrollment that opens November 15.

The potential for the Supreme Court to intervene increases in light of this analysis by the law firm of Epstein Becker Green noting similar cases pending before other federal appellate courts that could leave the issue unresolved:

The Obama administration has already indicated it will seek en banc review of the Halbig decision by the entire D.C. Circuit. If the full D.C. Circuit reverses the Halbig panel decision, the existing “circuit split” would be resolved, potentially making Supreme Court review less likely. It should be noted that there are similar cases pending in district courts in the 10th and 7th Circuits, that if decided in favor of the challengers could create a circuit split even if the full D.C. Circuit reverses Halbig.

If issue comes before the Supreme Court and it upholds Halbig, it would throw the individual health insurance market in the majority of states with federally-operated exchanges back into market failure since without the advance tax credit subsidies that are propping it up, low and moderate income earners would once again be priced out of the market, especially those in the highest age rating bands. It could also severely erode the Affordable Care Act’s shared responsibility provisions by exempting individuals from the coverage mandate based on unaffordable premiums and mooting fines levied on large employers that don’t offer minimum affordable coverage and an employee obtains subsidized individual coverage in a state health benefit exchange since the subsidies would no longer be available in the federally-operated exchanges.

 


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. 

AHIP’s catastrophic plan proposal needs rethinking

America’s Health Insurance Plans (AHIP) has proposed the creation of a new Patient Protection and Affordable Care Act-compliant catastrophic individual health plan. (Link here) According to AHIP:

The new catastrophic plan would offer an AV (actuarial value) just below the current minimum requirement (covering an average of 60 percent of medical utilization costs) allowing for lower premiums, but would still include coverage of the law’s mandated essential health benefits, have no annual or lifetime benefit limits, and cover all preventive health services with zero cost-sharing for consumers. This would allow individuals and families eligible for premium subsidies to use that financial assistance to purchase the new plan, an option currently unavailable to consumers purchasing the ACA catastrophic plan.

Since bronze plans and catastrophic plans are quite close in actuarial value, have the actuaries found any potential for meaningfully lower premiums for these proposed catastrophic plans? In other words, is the medical services utilization of a population covered at 57 percent AV, for example, significantly lower than one covered at 60 percent such that it can produce meaningfully lower premiums? Especially given that the Affordable Care Act limits annual maximum out of pocket costs for in-network providers?

Not likely. But the apparent goal isn’t so much to reduce premium rates but rather to make catastrophic plans eligible to become qualified health plans (QHPs) sold in the state health benefit exchange marketplace and thereby eligible for advance premium tax credit subsidies. That has raised criticisms from some quarters that proposed catastrophic plans would not be beneficial to lower income individuals and families since the plans’ high cost sharing (deductibles, co-insurance and co-pays) would discourage their getting necessary care. But lower income people and especially those who utilize a lot of catastrophic (i.e. hospital inpatient) care aren’t likely to choose catastrophic plans and instead opt for plans with at least 70 percent AV (this level includes additional cost sharing subsidies for lower income earners).

If the goal however is to bring more relatively healthy people into state risk pools who are comfortable covering their own out of pocket costs for non-catastrophic care and using tax deductible health savings accounts to cover them, a more appealing catastrophic plan would be one that provides lower cost sharing for hospitalizations and other unexpected high cost medical events. Even with annual out of pocket cost limits of $6,350 for an individual plan and $12,700 for a family plan, a hospitalization can result in large medical bills, particularly for out of network hospitals used in an emergency situation that can double those limits.

 


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. 

Hospitals Begin Subsidizing Exchange Premiums via Third Parties

Hospitals are concerned the carrot of advance premium tax credit subsidies for individual coverage offered in the state health benefit exchange marketplace and the stick of a tax penalty for being medically uninsured may not be enough incentive to ensure every patient coming through their doors is insured. Particularly for households earning between 100 and 150 percent of federal poverty, even though they pay no more than 2 to 4 percent of their incomes for an exchange qualified health plan and are eligible for cost sharing subsidies for plans with 70 percent actuarial value.

Cheryl Clark of Health Leaders Media reports hospitals in Wisconsin and Florida are teaming up with charities to supplement the exchange premium subsidies and have received approval from the federal Health and Human Services Department to do so. Click here for the story.

Apparently the hospitals’ economic calculation is it’s a better deal to get a tax write off to contribute to the charities to help cover premiums for exchange coverage than to run the risk some patients will allow their exchange coverage to lapse. That in turn increases the risk hospitals will have to retain collection agencies to dun patients for charges arising from uninsured care or write them off.

While it’s still early going with the Patient Protection and Affordable Care Act’s individual market reforms, this development shows hospitals — a primary beneficiary of expanding coverage to reduce those lacking health coverage — aren’t completely confident in the law’s ability to achieve this goal. Some observers note that while the Affordable Care Act provides low income people access to health insurance, many have never had coverage and have habitually sought care in hospital emergency rooms where federal law requires their medical condition be assessed and stabilized if necessary regardless of ability to pay for services.

 


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. 

%d bloggers like this: