Tag Archive: Patient Protection and Affordable Care Act

Tax bill’s evisceration of individual mandate will shrink, bifurcate non-group market

Reforms of the non-group market aimed at revitalizing it as it faced the death spiral of adverse selection at the start of the decade have reached a turning point. A major tax reform bill almost certain to be signed into law this month effectively cancels out one of three foundational elements designed to rescue the market contained in the Patient Protection and Affordable Care Act: the tax penalty levied on households that go “bare” without medical coverage.

The Affordable Care Act reforms effectively force buyers and sellers together to sustain a functional non-group market. Plan issuers must accept everyone applying for coverage without medical underwriting. On the buyer side, the thinking was the penalty would provide incentive to purchase an individual plan, with the segment acting as a residual market for those without access to other forms of coverage. In retrospect, turns out the incentive wasn’t strong enough, particularly to improve the spread of risk by creating a diversified risk pool of young and old and those in good and ill health. Many households found the tax penalty the superior option over purchasing coverage, eroding the intended effect of strengthening the market and ensuring a good spread of risk.

Zeroing out the tax penalty as the pending tax bill does would not collapse non-group into a rapid adverse selection death spiral, accounting to the Congressional Budget Office. The CBO projects the negation of the tax penalty will cut the estimated 15 million Americans in the individual market by one third by 2027. Nevertheless, the CBO said, the segment “would continue to be stable in almost all areas of the country throughout the coming decade.” In other words, a shrunken but not a fatally crippled market over the near term.

Going forward, a couple of factors not addressed in the CBO analysis could further downsize the non-group segment:

  • The exit of households earning in excess of 400 percent of federal poverty and therefore ineligible for premium subsidies offered though state health benefit exchanges, particularly for family plans and for individuals aged 50 to 64. Premium rates are already considered out of reach for many of these households. According to the CBO analysis, premiums will continue to rise by 10 percent a year over the next 10 years. The CBO analysis notes non-enforcement of the tax penalty would help drive the increases as healthier people would be less likely to obtain insurance, requiring plan issuers to make up the lost premium revenue by raising rates.
  • The replacement of Affordable Care Act compliant individual plans with short term plans. In October, the Trump administration directed three federal agencies to consider new regulations or guidance that would expand the availability of short term policies beyond the current 90 day limit. If short term policies are defined as up to 12 versus three months and be renewable for another year, they would offer a medically underwritten, lower cost alternative to those who can pass underwriting standards. That would reintroduce medical risk selection mostly barred by the Affordable Care Act, which permits premium rating based only on age, location, family size and tobacco use. According to  Modern Healthcare, at least two plan issuers – UnitedHealth and Aetna – are looking into issuing short term plans, potentially offering covered benefits on a par with individual plans. That would create a bifurcated non-group market rather than the single state risk pooling under the Affordable Care Act’s reforms and has raised concerns among stakeholders and state regulators according to Modern Healthcare.
 


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. 

Non-group segment clouded in uncertainty amid questions of market and actuarial sustainability

Four years after the start of open enrollment under the Patient Protection and Affordable Care Act’s reformation of the non-group medical insurance market, the market’s future is clouded in uncertainty. The biggest questions are whether it can sustain itself as a market and as a functional risk pool.

First the market. Alarm bells are being sounded that that the segment will undergo buy side market failure as households with incomes exceeding 400 percent of federal poverty levels that don’t qualify for premium subsidies on state health benefit exchanges will no longer be able to keep up with large premium rate increases. This is complicated by the fact that these households perceive low value in high deductible plans that have become commonplace. Their expectations of fair value are under assault by high premiums for high deductible plans. The expectation is high premiums should have an inverse relationship with out of pocket costs such as deductibles and co-insurance as they historically have. That’s no longer the case.

Many of these 401 percenters ineligible for premium assistance have income tax incentives to continue to purchase non-group plans. For all of them, there is the stick of the tax penalty for going without coverage. For the many that are self-employed, there is the carrot of being able to deduct premiums from taxable income on their Form 1040. Both of these incentives however can only go so far if premium costs are unaffordable. The perception of poor value due to high plan deductibles might be enough to push a vacillating 401 percent plus household to make the decision to go without coverage and pay the tax penalty instead. Particularly if that self-employed household has dependent children or is comprised of adults over age 50. Premiums hit these households particularly hard since household size and age are two key premium rating factors in the non-group market.

The out migration of the 401 percenters combined with the reluctance of under 30 “young invincibles” to purchase a plan and instead pay the tax penalty would shrink and distort the non-group risk pool, calling into question its actuarial sustainability. The primary members would be adults aged 30-50 and a declining number of those over age 50 who are high utilizers of medical care eligible for premium subsidies though the exchanges or willing and able to pay rising premiums in the off-exchange market. With these populations, there may not be enough people in the pool to achieve a sufficient spread of risk among high and low utilizers to keep the segment from falling into adverse selection, further accelerating premium rate hikes.

The aversion of the young invincibles to comprehensive standard non-group plans would be reinforced under a Trump administration that’s exploring relaxing the rules governing short term “gap” policies. That liberalization would create a large degree of parity between short term and standard non-group plans. Both would have annual terms and be renewable. That would shrink the individual risk pool by providing a lower cost replacement for non-group plans for young adults and those who use little medical care, even when tax penalties for lacking comprehensive coverage are taken into account.

In sum, these factors leave the non-group market segment vulnerable to a relatively rapid unwinding over the next three or so years.

 


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. 

Trump administration policy favors employer-sponsored coverage

In championing the enactment of the Patient Protection and Affordable Care Act in 2010, the Obama administration held to a bedrock policy principle of preserving the employee benefit-based system that covers medical care costs for the vast majority of Americans under age 65. That would be the least disruptive to the current scheme and thus politically viable, the thinking went. The Affordable Care Act also reinforced the role of employer sponsored medical benefit plans by requiring employers of more than 50 to offer them to most of their employees and requiring small employer plans offer specified benefits.

Trump administration policy bolsters the role of employer group coverage even more, clearly favoring it over non-group. During the past year, it has reduced funding for outreach and enrollment for individual plans sold on state health benefit exchanges while promoting enrollment in the exchanges’ Small Business Health Options Program (SHOP). Additionally, the administration has refused continued funding of subsidies to assist low income households with out of pocket costs for silver level individual plans sold on the exchanges.

Then on October 12 of this year, the administration issued an Executive Order directing federal regulatory agencies study three possible areas where employer-based coverage could be expanded by administrative rulemaking or agency guidance.

They include:

  • Expanding Association Health Plans to small employers and potentially based on industry or geographic regions. Some early analysis of this provision speculates that individuals who are self-employed with no staff could be included in the expansion, but it’s unclear whether sufficient statutory authority exists because such individuals are not employers. Initial analysis also warns that expanding these multi-employer plans could jeopardize the actuarial viability of non-group coverage.
  • Liberalizing rules governing employer-sponsored Health Reimbursement Arrangements (HRAs) to help offset employee costs for medical care, including premiums for non-group coverage. While this provision of the order recognizes a role for non-group coverage, it puts employers in a major role in sharing a portion of its costs for employees, impliedly recognizing the primacy of the employee-benefit coverage model for those under age 65.
  • Making short term medical insurance coverage for individuals available for longer than the current three months allowed under existing rules and on a renewable basis. Short term coverage tends to appeal to those between jobs and thus implicitly reinforces the dominant role of employment-based plans.
 


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. 

Trump administration adopts market-based statement of health care policy

Nearly nine months into his administration after many months of policy debate in Washington, President Donald Trump has issued an official statement of his administration’s health care policy in an October 12, 2017 Executive Order.

Trump’s policy is essentially not much different than that of his predecessor, Barack Obama, insofar as it retains one of the nation’s largest private sector financing mechanisms: employee benefit medical care plans. Like the managed competition principle of Obama’s Patient Protection and Affordable Care Act, Trump’s policy is market-based and aspires to harness competitive market forces to reduce medical costs and increase access to coverage.

It also mirrors the Affordable Care Act insurance market reforms by concentrating on the small employer group and individual (non-group) market segments where medical care cost pressures hit hardest. The order suggests (not orders) his administration explore allowing small employers to participate in association health plans traditionally used by large employer groups. In addition, Trump suggested his administration consider proposing regulations or revising guidance to increase the use of Health Reimbursement Accounts (HRAs) and expand employers’ ability to offer HRAs to their employees and allow HRAs to be used in conjunction with non-group coverage for employees.

The latter element closely aligns with recent legislation signed into law late in the Obama administration that enables employers to use a new type of HRA to subsidize premiums on a pre-tax basis for employees obtaining coverage in the non-group market. Effective January 1, 2017, employers of 49 or fewer employees that do not offer group coverage can fund up to $4,950 annually for single employees and $10,000 for an individual plan covering an employee and their family members.

Various observers expressed concern at the executive order’s suggestion (once again couched as a request, not a directive) that the administration consider reversing an Obama administration restriction limiting short term individual medical insurance policies to a maximum term of three months and expanding the limit to 12 months or even longer. The concern is well placed because doing so would put short term plans in competition with non-group and small group plans sold with the standard 12 month coverage term.

The Affordable Care Act established ten essential benefit categories with the goal to put small group and non-group coverage on a par with large group plans. But the tradeoff for these more generous plans is high and rapidly rising premium rates and deductibles, particularly painful for households earning too much to qualify for premium and cost sharing subsidies for individual plans sold on state health benefit exchanges. However, short term plans offering skimpier coverage for lower cost won’t comply with the Affordable Care Act’s minimum coverage mandate for individual taxpayers, subjecting them to a tax penalty.

Finally, Trump’s executive order reinforces market-based approach to mediate medical care costs by requiring the Health and Human Services Department in consultation with the departments of Treasury and Labor as well as the Federal Trade Commission to produce a report by April 12, 2018 and every two years following outlining where existing state and federal policy hinders market competition. The report must also identify policy actions to reduce barriers to market entry, limit excessive consolidation and prevent abuses of market power.

 


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. 

Final 2017 bid to temporarily stabilize non-group market includes reinsurance revival — and public option

In what is likely to be a final, last minute effort this year to temporarily bolster the challenging market that is non-group or individual medical coverage, two elements involved in the crafting of the Patient Protection and Affordable Care Act are being revived. One – reinsurance — was enacted as part of the law’s insurance market reforms but expired in 2017. Another – the so-called “public option” – wasn’t.

On August 30, a group of eight state governors called on Congress among other measures to restore reinsurance to protect health plan issuers wary of high cost claims and worse than expected statewide risk pools as part of a federal stability fund that would help states fund reinsurance programs in 2018 and 2019. Additionally, seven states have applied to the Trump administration for state innovation waivers under Section 1332 of the Affordable Care Act to establish reinsurance programs in 2018 to help stabilize their non-group markets. Two other states enacted authorizing legislation for such a waiver, according to a chart prepared by the law firm Faegre Baker Daniels LLP.

The proposal by the eight state governors – notably both Republicans and Democrats – would fortify the non-group coverage by allowing individuals to buy coverage via the Federal Employee Health Benefit Program in counties where only one commercial non-group plan is offered. This in effect would provide a “public option” in the form of a government-run plan that was considered but rejected in the development of the Affordable Care Act. It also is in line with a suggestion by former President Barack Obama during his final year in office to create a public plan to address constrained choice among plans in some parts of the nation. Using the FEHBP for the public option could raise objections that as a large employer group plan, it’s not actuarially and administratively suitable for covering non-employees.

Those objections as well as declining affordability for plans sold off the state exchanges jeopardizing the non-group risk pool could help fuel a proposal expected this month by Vermont Senator Bernie Sanders to extend Medicare to those under age 65. Look for this proposed Medicare expansion to serve as a starting point for debate on a possible successor to the Affordable Care Act’s individual and possibly small group market reforms going into 2018-20. In the meantime, both Congress and the Trump administration will likely go along with some of the proposals to help stabilize non-group including extending — at least for 2018 — out of pocket cost sharing subsidies for low income households purchasing silver level plans on state health benefit exchanges. Uncertainty surrounding that funding has drawn widespread concern from states, the exchanges and plan issuers, and consumer interests with no one standing to gain politically if they are not continued.

A key element of the Medicare expansion proposal will likely be some form of presumptive eligibility and/or automatic continuous enrollment, accompanied by payroll and self-employment taxes to help fund the expansion for those under 65 and ineligible for other private or public coverage – along with a possible opt in for those eligible for employer sponsored plans. Policymakers on both sides of the aisle with the support of states, plan issuers and consumer groups will likely conclude the Affordable Care Act’s annual enrollment period used for employer group plans does not translate well to the non-group market. Annual enrollment is a very well established and administratively supported process for employer group plans. But it has proven challenging to implement in non-group due to the market segment’s characteristic high churn and part year enrollment by consumers that makes it difficult to risk rate.

Conventional political wisdom would hold expanded Medicare might be a non-starter among majority Republicans in Congress. But it stands a chance of advancing since it would with automatic enrollment potentially reduce the need for the Affordable Care Act’s individual and employer shared responsibility mandates that have proven among the most unpopular provisions of the statute. A Medicare expansion might well include statutory authority allowing the federal government to negotiate prescription drug prices for the program, addressing concerns shared across the political spectrum over high medication costs.

 


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. 

Majority Republicans lack votes, time to reform ACA, Medicaid via reconciliation bill

The dispute within the Republican Party over health care widened further Friday as President Trump joined with two conservative senators in calling for an outright repeal of the Affordable Care Act if the party fails to agree on an alternative plan by the end of the July Fourth recess. The reemergence of what has for much of the year been a fringe idea within the GOP revealed not only the party’s philosophical divide over how to revise Obamacare, but also senators’ growing anxiety that they are headed home to see their constituents with little to show them.

Source: Republicans grow increasingly anxious about heading home without a health plan – The Washington Post

The Republicans are back to square one of their years long challenge of repealing the Patient Protection and Affordable Care Act without any Democratic votes. It’s an exercise in the Einsteinian definition of insanity as doing the same thing over and over and expecting a different result. For example, see this article Republicans Divided on Replacement Legislation for Health Reform Law  — from May 1, 2012.

Majority Republicans must understand the limits of their policymaking power. Repeal or a rewrite of the enormous 10 title Affordable Care Act will require bipartisan cooperation and far more time than the remaining three months of the current fiscal year via a budget reconciliation measure that constrains major policy changes under the Byrd Rule. They also are facing strong blowback from constituents worried that attempting rapid and far reaching reform using the budget reconciliation process — including overhauling the five-decade-old Medicaid program — will disrupt their access to medical care.

 


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. 

Medicaid politics imperil Senate Better Care Reconciliation Act

Senate Republicans’ Obamacare repeal effort is on track to blow up before it even gets started.The GOP is well short of the votes needed to bring its bill to the floor, and party leaders and President Donald Trump are kicking into overdrive to save their imperiled health care overhaul.At least four Republican senators, Susan Collins of Maine, Rand Paul of Kentucky, Dean Heller of Nevada and Ron Johnson of Wisconsin, have signaled they could oppose a key procedural vote that will occur either Tuesday afternoon or Wednesday. A number of other senators, like Shelley Moore Capito of West Virginia and Marco Rubio of Florida, are undecided.

Source: Senate Obamacare repeal on brink of defeat – POLITICO

Imperiling the Better Care Reconciliation Act of 2017 is the politics of Medicaid. In the House, majority Republicans faced an uphill but less steep task in passing their version of the reconciliation bill because proposing to reform Medicaid into a federal block grant program affected far fewer constituents. Because members of the Senate represent their entire states, scaling back Medicaid affects a lot more people and consequently has far greater repercussions and political peril. Since the federal share of Medicaid makes up a large percentage of state budgets, governors are also understandably concerned over the loss of federal share funds.

The backers of the House and Senate bills have bitten off more than they can chew by proposing wholesale reform of the five-decade-old Medicaid program. They’ve made their job even harder by trying to substantially overhaul Medicaid funding at the same time as the Patient Protection and Affordable Care Act’s insurance market reforms — all within the narrow procedural confines of a budget reconciliation bill that make it questionable it would pass parliamentary muster.

 


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. 

Iowa files urgent ACA 1332 waiver request to preserve 2018 non-group market

Facing the prospect of no health plan issuers offering coverage in the individual, non-group medical insurance market in 2018, Iowa is urgently asking the federal government for a state innovation waiver under Section 1332 of the Patient Protection and Affordable Care Act. The proposed stopgap measure by the state’s Insurance Division requests federal premium and cost sharing subsidies be used to fund the Proposed Stopgap Measure (“PSM”) Plan. The plan would offer a single standardized benefit plan with an actuarial value of 68 to 72 percent with premium subsidies determined by age and household income. It also proposes the federal Affordable Care Act funding support a reinsurance program for individuals incurring medical expenses greater than $100,000.

 


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. 

Return to high risk pools implies failure of ACA’s single statewide risk pool

The return to state high risk pools encouraged by Trump administration executive action and as proposed in the American Health Reform Act pending in the Senate — mechanisms phased out with the Patient Protection and Affordable Care Act reforms of the non-group segment effective in 2014 — carries with it a critical implication. Specifically, the individual market even with single statewide risk pools mandated by Section 1312(c) the Affordable Care Act are too small —  in some less populous states at least — to achieve a sufficient spread of risk. Therefore, the logic implies, individuals with conditions who use largely disproportionate amounts of medical care must be excluded from the statewide pool and cordoned off in high risk pools in order to maintain the pool’s actuarial viability and ward off adverse selection in the individual market.

That cuts against a core assumption of the Affordable Care Act — that by having all individuals and family members in a given state treated as one large risk pool, a sufficient spread of risk would be achieved. In addition, the law’s premium stabilization programs and an ongoing risk adjustment mechanism to compensate health plan issuers who take on members with costly, complex chronic conditions would act as buffers to ensure the actuarial integrity of the pool and reduce the likelihood of adverse selection. The proposed revival of high risk pools would suggest that’s not the case and the amount of medical care utilized by some pool members is so costly that it skews an entire state’s risk pool.

This in turn leads to a far larger implication. If 5 percent of the pool population account for 50 percent of the costs — or 1 percent accounting for 20 percent to use another expression of the ratio cited in this National Institute for Health Care Management data brief — then medical care may not be an insurable risk due to insufficient spread of risk. If that’s the case, it could result in plan issuers ceding most or all of the loss risk to the government as is currently the case in Medicare and Medicaid managed care. Notably, Aetna CEO Mark Bertolini reportedly suggested just that, according to this account at Reason.com, with nominal insurers taking on the role of plan administrators handling “back room” transactions:

The government doesn’t administer anything. The first thing they’ve ever tried to administer in social programs was the ACA, and that didn’t go so well. So the industry has always been the back room for government. If the government wants to pay all the bills, and employers want to stop offering coverage, and we can be there in a public private partnership to do the work we do today with Medicare, and with Medicaid at every state level, we run the Medicaid programs for them, then let’s have that conversation.

Note the second condition in Bertolini’s statement: If employers want to stop offering coverage. Complain as they may about rising premiums in group coverage, there’s no indication that the highly entrenched employee benefit model of covering medical care for the non-elderly is going to be abandoned by employers anytime soon. Even if the Affordable Care Act’s mandate on employers of 50 or more to offer coverage is repealed given favorable tax treatment of employer-sponsored medical care plans.

 


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. 

Morale hazard raised in debate on GOP debate on individual medical insurance

In 2013, I pointed out morale hazard as a major risk facing issuers of medical insurance. Morale hazard has now come up in the current debate among majority House Republicans on the Patient Protection and Affordable Care Act’s non-group medical insurance reforms. Here’s the context from a Yahoo News item:

Though the GOP leadership is insisting those with preexisting conditions will be covered under its bill, some individual lawmakers are telegraphing a different message. Rep. Mo Brooks, R-Ala., a member of the Freedom Caucus, told CNN Monday that the provision will allow those who have lived “good lives” to pay less for health care, by taking unhealthy people out of the insurance pool. “They’ve done the things to keep their bodies healthy, and right now, those are the people who have done things the right way, who are seeing their costs skyrocketing,” Brooks said.

Morale hazard is tied to the perception that medical care and insurance are consumable commodities. The more they are used, the greater likelihood of good health the flawed reasoning goes. In fact for most people, these resources are – and should — be used as little as possible. Fortunately that’s the case according to a recent Health Affairs analysis that found most Americans use few health care resources and have low out-of-pocket spending. The outliers who use a lot of care are driving medical utilization.

Some policymakers such as Rep. Brooks argue their premium rates should be medically underwritten to ensure they are proportional to the risk they pose. Or excluded from the insurance pool and placed in high risk pools that violate the basic insurance principle of risk spreading. The challenge is how to identify and distinguish these folks from those who have congenital predispositions to chronic medical conditions whose risk to insurers is far less prone to morale hazard as well as those who engage in health promoting lifestyles that reduce their likelihood of needing medical care for chronic conditions. Some have suggested the rapid growth in genomics along with wearable biometric monitoring devices provides a possible solution. Time will tell.

 


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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