ALERT

For the latest coronavirus care instructions and resources, please call our COVID-19 hotline at 208-381-9500. Find additional information and resources here and learn more about how we’re working to keep you healthy and safe.

toggle mobile menu Menu
toggle search menu

Site Navigation

Supplemental

Menu

Blog Post

St. Luke’s Blogs

Dr. Pate’s Prescription for Change

St. Luke’s Health System’s Journey to Transform Health Care

St. Luke’s President Updates the Trumpcare Discussion

White House
By Dr. David C. Pate, News and Community
March 7, 2017

Three weeks ago on my blog, I shared an analysis of 22 potential healthcare reform elements that may be included in Affordable Care Act repeal and replacement legislation being drafted in Washington, D.C.

Since that time, a proposed rule has been drafted to stabilize the insurance markets and Monday, Republicans in the House unveiled their draft replacement bill.

The elements highlighted below appear in the proposed rule and/or draft legislation. Updated notes appear in the links to the analysis of each element.

ELEMENT

IMPLICATION

LIKELIHOOD

DESIRABILITY

1. Universal Access

Too vague to assess

2

8

2. Guaranteed issue

Allows coverage for preexisting conditions

10

10

3. Employer mandate

Requirement for employers with more than 50 employees to provide ACA-compliant health insurance to their employees

0

2

4. Allow children to remain on their parent’s health plan until age 26

Increases the number of generally healthy young people who have insurance coverage

10

7

5. High deductibles

Increases the patient responsibility for healthcare spending

4

0

6. Annual and lifetime caps

Eliminates the caps on insurance benefits

5

9

7. Decrease essential health benefits

Promotes greater choice of benefits

10

3

8. Health savings accounts

Gives more control to/creates more accountability for individuals over their healthcare spending

9

4

9. Refundable tax credits

A funding mechanism to assist individuals in paying their healthcare premiums and costs

9

4

10. High risk pools

Ensures coverage for certain people with very high-cost preexisting illnesses and decreases the risk for commercial insurers

6

5

11. Association health plans

Allows small businesses to come together to spread risk

5

7

12. Increase age rating band

Allows insurers to charge less to younger insureds and more to older insureds

8

8

13. Restrictions on special enrollment periods (SEPs)

Allows those with life events to sign up for insurance coverage, but discourages those who wait to sign up until they have a medical need

9

10

14. Decrease the 90-day grace period

The ACA provided for a 90-day grace period for insureds to catch up on premium payments before being terminated from coverage

6

9

15. Cadillac tax/employer tax exclusion cap

A tax on high-value employer health plans/a limit on tax exclusion for employers for the cost of insurance they provide to their employees

0/3

0/2

16. Narrow networks

Restrictions on the number of providers in a network, leading to price concessions that in turn lead to lower premiums

3

9

17. Sale of insurance across state lines

The intent is to increase competition and decrease premiums

10

0

18. Medicare privatization and premium support

Uses free-market principles to drive greater efficiency and lower costs

1

5

19. Allow Medicare to directly negotiate prices with pharmaceutical companies

Applies market power pressure to reduce prescription drug costs

1

7

20. Allow the importation of drugs from other countries

Allows U.S. citizens to purchase their medications at the lower prices for which these drugs sell in other countries

1

3

21. Medicaid block grants

The intent is to give states more control and flexibility, while limiting and decreasing the federal expenditure

8

2

22. Privatization of Medicaid

Allowing states to contract with commercial insurance carriers to administer private health insurance for Medicaid beneficiaries, usually through a managed care product

2

2

Since Republicans will not be able to garner support from Democrats for their replacement bill, they still plan to use the reconciliation process that I previously wrote about. Because of this, they will not be able to completely repeal the ACA, but the reconciliation legislation would repeal the ACA taxes that in large part support the costs of the ACA, amend the individual and employer mandate penalties to be zero, repeal the cost-sharing subsidies that help lower-income individuals pay their deductibles and other out-of-pocket costs, and end the Medicaid expansion.

Most of the insurance reforms of the ACA, such as guaranteed issue, coverage for children up to age 26 on their parent’s plan and elimination of annual and lifetime limits, would be left intact.

The proposed rule will undergo a notice and comment period and the draft legislation will go through a markup process in the House Energy and Commerce Committee; here are the current features.

2. Guaranteed issue

Under the ACA, insurers can no longer underwrite individuals purchasing ACA-compliant plans, and cannot charge higher premiums to those with poorer health status. The only rating criteria they can use are age, smoking status and county of residence.

Under the draft Republican plan, guaranteed issue would continue, however, there is a new continuous coverage requirement. If a person had a gap in coverage for at least 63 sequential days, the insurer would be able to increase premiums for the next 12 months by 30 percent. The proposal does not allow insurers to exclude coverage for preexisting conditions or to perform health status underwriting, but rather merely allows for the imposition of a premium penalty for those who do not maintain continuous coverage.

4. Allow children to remain on their parent’s health plan until age 26.

This provision of the ACA would remain unchanged in the new Republican replacement bill.

5. High deductibles.

High deductibles, while not explicitly called for in the Republican plan, would be expected to continue in association with the promotion of health savings accounts.

6. Annual and lifetime caps.

The ACA eliminated these caps, and this would continue under the Republican plans.

7. Decrease essential health benefits.

The Republican bill would continue the ACA’s essential health benefits categories, but allow states to define what essential health benefits must be included in insurance plans offered in their particular state.

The intention of this provision is to allow for policies to be tailored to the needs of individuals. The law would also allow insurers to offer “skinny” health plans that include minimum coverage for far lower premiums, resembling catastrophic plans so long as the state department of insurance permitted it under its rules.

However, if allowed, this would almost certainly mean that the premiums for comprehensive health insurance coverage for older, sicker individuals would significantly increase.

8. Health savings accounts (HSAs).

Health savings accounts (HSAs) would be promoted under the Republican replacement bill. The intention here is to put individuals in charge of their health care and instill a heightened sense of responsibility regarding healthcare spending.

The challenge is that HSAs can be difficult for consumers to understand, and they generally disadvantage lower-income individuals who are unlikely to be able to make contributions to HSA accounts.

9. Refundable tax credits.

An advanceable, monthly, refundable tax credit is provided to those without employer-sponsored or governmental insurance coverage. This tax credit would fund individuals’ HSAs to offset premiums and out-of-pocket costs of insurance.

The replacement bill will provide for tax credits that are fixed by age. These credits range from $2,000 for an individual under the age of 30 and a phased increase to $4,000 for an individual over age 60. The credits are lower than the costs incurred on behalf of many of those purchasing insurance on the individual market and presumably are based on the assumption that the cost of insurance will decrease with the elimination of the ACA essential health benefits.

The current age rating ratio is 1:3 and under the Republican draft bill increases to 1:5, yet the difference in tax credits is only 1:2, so the concern is that far fewer older, sicker individuals will be able to afford insurance with these tax credits. Tax credits would progressively decrease and eventually phase out for individuals with incomes greater than $75,000 and for joint filers with income greater than $150,000.

Some conservatives have criticized the refundable tax credits that can result in individuals being paid more than they have paid in income taxes as yet a new entitlement, and it remains to be seen if they will support this bill.

10. High risk pools.

The replacement bill would provide for a state grant program that would provide states with funding that they could use to establish high risk pools, create reinsurance programs, reduce cost-sharing, promote access to preventive services or subsidize providers for the provision of healthcare services. However, the amount of money that would be set aside in the draft plan is less than what most experts estimate would be necessary to make these pools financially sustainable.

12. Increase the age rating band.

Prior to the ACA, it was common for premiums for older individuals to cost five or six times the cost of that for young adults. The ACA limited insurers to charging no more than 3:1 for the oldest individuals relative to the youngest. The Republican proposal would increase this band to 5:1 in an effort to make health insurance more affordable tor young adults and to attract healthier people into the health insurance risk pools. The unintended consequence, however, would likely be significant increases in the premiums for older individuals.

13. Restrictions on special enrollment periods (SEPs).

The proposed rule would require documentation of qualifying life changes to permit an individual to sign up for insurance during a SEP. The intention is to minimize the number of individuals who wait until they are in need of healthcare services that then utilize SEPs to get insurance benefits without having consistently paid in premiums.

14. Decrease the 90-day grace period.

The proposed rule would allow insurers to terminate coverage after 30 days for non-payment of premiums.

15. Cadillac tax.

In repealing almost all of the taxes under the ACA, Republicans are faced with the dilemma of how they will pay for their plan. Savings are primarily achieved by repealing Medicaid expansion, imposing per-capita caps on traditional Medicaid funding to states, and eliminating the ACA subsidies. The one ACA tax that was kept in the replacement plan is the Cadillac tax, but its date of implementation was delayed until 2025.

21. Medicaid block grants.

The Republican bill ends Medicaid expansion as of the end of 2019. States would continue to receive the enhanced federal funding for their expansion population enrolled by the end of calendar year 2019.

After January 1, 2020, states could continue to enroll newly eligible individuals, but funding would be reduced to their standard level of federal match. A per-capita cap model of funding to states for individuals covered under Medicaid would begin in FY 2020 for each category of Medicaid beneficiary – elderly, blind and disabled, children, non-expansion adults and expansion adults. Each state’s cap would be determined using the state’s spending in FY 2016 as the base year and would increase each year by the medical care component of the consumer price index.

Conclusion

The Republican replacement bill is a draft that is likely to undergo change through the committee and reconciliation process, and how the bill is scored by the Congressional Budget Office may necessitate further changes to enable it to pass. Nevertheless, it provides a clear view of the reform features important to Republican leadership.

Here’s what we see in the replacement bill, matched to what we have heard from President Trump:

1. “We’re going to have insurance for everybody.”

Possibly TRUE, but I will be interested to see how the CBO scores this. With the termination of Medicaid expansion, millions will lose coverage. It then remains a question as to whether those people will be able to purchase an insurance plan with the tax credit available to them. It’s conceivable that while the tax credit may enable them to purchase a skinny or catastrophic health insurance plan, most would be unable to pay the high deductibles that often come along with those plans. So, while the Republicans may be correct in saying everyone will have access to insurance, not everyone will have access to care, because of the high out-of-pocket expenses associated with their plan.

2. “I am calling on this Congress to repeal and replace Obamacare with reforms that expand choice, increase access, lower costs and at the same time, provide better health care.”

  • Expand choice. TRUE, but the Republican plan would repeal the essential health benefits requirements under the ACA and allow states to determine what essential benefits insurance plans must cover, likely resulting in many more choices of plans, including “skinny” plans or catastrophic plans. 

What remains to be seen is whether there will be more options for older and sicker individuals. With healthier individuals likely selecting skinnier health plan coverage, insurers may cut back on more broad coverage that will attract older and sicker individuals, or may simply price them so high as to be unaffordable.

  • Increase access. Mostly FALSE. There is nothing we know of in the Republican plan that would increase access. It is certainly possible that when insurers can offer skinny or catastrophic plans, they may broaden networks, as narrow networks are less important to managing costs in these types of plans, and if so, this would increase access. However, those individuals who lose coverage that they gained through Medicaid expansion are likely to lose access to care.

  • Lower costs. It depends on your viewpoint. The Republican plans are likely to reduce federal spending for health care. There will be savings from ending Medicaid expansion, and the savings projected by America’s Essential Hospitals that would result from transitioning Medicaid to block grants or per-capita caps could be $370 billion to $680 billion over 10 years. 

On the other hand, with the loss of the cost-sharing subsidies and the transition to tax credits, costs for individuals are expected to increase by more than $1,380 per year ($5,118 per year for those over age 55) and more than $1,750 for families. Researchers believe these estimates are extremely conservative.

  • Provide better health care. FALSE. It has been common to confuse payment for health care for the provision of health care. These are entirely different things. There is nothing that we know of in the Republican plan that improves the quality or safety of health care, and it is not clear whether the new Secretary of Health and Human Services will continue the push of the prior administration relating to quality, innovation and value-based payments.

3. “First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the healthcare exchanges.” TRUE.

4. “Secondly, we should help Americans purchase their own coverage, through the use of tax credits and expanded Health Savings Accounts – but it must be the plan they want, not the plan forced on them by the Government.” It depends. Certainly this is what the replacement plan appears to do. That part is TRUE. 

However, I would disagree with the premise. HSAs are likely to advantage older and wealthier individuals and disadvantage the poor. HSAs are also poorly understood and will require a lot of education if they are to be implemented. 

5. “Thirdly, we should give our great state governors the resources and flexibility they need with Medicaid to make sure no one is left out.” FALSE. If Medicaid expansion is ended, approximately 20 million people will lose their coverage. While states may be offered more “flexibility” with block grants or per capita caps, the cuts to the federal portion of funding will require state governors to cut back on benefits and/or eligibility.

6. “Fourthly, we should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance – and work to bring down the artificially high price of drugs and bring them down immediately.” The draft bill does not address either of these issues.

7. “Finally, the time has come to give Americans the freedom to purchase health insurance across state lines – creating a truly competitive national marketplace that will bring cost way down and provide far better care.” FALSE. Prior experience tells us that insurers do not seek to take advantage of selling across state lines when states have enacted laws allowing this in the past. In fact, insurers generally find this harder and costlier to do, and therefore, it does not lead to lower cost plans on the market without significant reduction in benefits. The fear is that if insurers were to take advantage of this, they would domicile in states with the lowest insurance regulation and then sell plans that meet the lowest standard of health benefits and sell these in states with more benefit requirements, attracting younger and healthier individuals away from those states’ health plans leaving those plans with high cost, sicker individuals, which would result in unfair competition and rising insurance premiums for the plans domiciled in the states with higher benefit requirements. Aside from this, there is nothing about this manner of selling plans that impacts the quality and/or safety of health care.


The bottom line at this point? Older, sicker, and/or poorer individuals and those who live in areas of the country with higher healthcare and insurance costs stand to lose out. 

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.