Health Bill Would Stabilize Individual Markets in Short Run

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By Sara Hansard

The Senate’s draft Obamacare overhaul legislation is likely to make the individual health insurance market more attractive for insurers and potentially reduce costs for enrollees in 2018 and 2019.

“But after 2020 all bets are off,” health-care consultant Dan Mendelson told Bloomberg BNA June 22 after the Better Care Reconciliation Act draft was released. “In 2020 the only way to succeed in this market is to field a very low-cost product that is acceptable to consumers,” he said.

The assessment of Avalere Health president Mendelson, who was associate director for health at the White House Office of Management and Budget during the Clinton administration, was similar to that of others in the health-care field on the impact of the bill on health insurers.

Gaining the acceptance of health insurers will be a critical task for Republicans as they seek ways to stabilize the crumbling individual and exchange health insurance markets while pulling back on the extensive subsidies and Medicaid expansions enacted under the Affordable Care Act.

Cost-Sharing Reduction Subsidies

The draft legislation would provide funding for the cost-sharing reduction subsidies for low-income people for plan years 2018 and 2019, which “is a positive move,” Rebecca Owen, a health research actuary with the Society of Actuaries, told Bloomberg BNA June 22. The Congressional Budget Office estimated that the subsidies, which cover deductibles and other out-of-pocket costs for people with incomes between 100 percent and 250 percent of the poverty level, would cost $7 billion in fiscal 2017, $10 billion in fiscal 2018, and $11 billion in fiscal 2019.

However, a negative development for health insurers is that the Senate draft eliminates the Affordable Care Act’s unpopular individual mandate requiring most people to buy health insurance, without including the continuous coverage requirement in the bill passed in May by the House, Owen said. The House’s American Health Care Act ( H.R. 1628) would require that people be charged 30 percent more for a year if they didn’t have insurance for 63 days or more in the previous year.

“There’s an anti-selection issue,” Owen said. Health insurers fear that without the threat of a penalty people will wait until they need medical care before trying to buy health insurance.

But the individual mandate hasn’t been very successful either. Under the Obama administration about 20 million people were either given exemptions from the penalty or paid it and remained uninsured, which equals estimates made for the number of people who gained covered under the ACA.

Subsidies Based on Income

The tax credits under the Senate draft are more in line with the income-based ACA premium subsidies, Tom Miller, a resident fellow at the free market-oriented American Enterprise Institute, told Bloomberg BNA June 22.

The House bill provides more subsidies for young adults to try to get more of them into the individual markets. The ACA exchanges have attracted a higher share of older, sicker enrollees than was originally expected.

The Senate draft bill would provide subsidies only for people under 350 percent of the poverty level, while the ACA provides subsidies up to 400 percent of the poverty level, Miller said. The Senate tax credits are also based on what plans cost in each market, so areas with higher costs would be better covered than under the House bill, he said.

The Senate draft is “much more nuanced than what the House came out with,” and would likely cover older enrollees and low-income enrollees better, Miller said.

However, the Senate’s subsidies would be tied to plans that only cover about 58 percent of medical claims, while the ACA subsidies are based on plans that cover an average of 70 percent of claims, John Holahan, a fellow with the Urban Institute, told Bloomberg BNA June 22. The Urban Institute has been supportive of the ACA.

Deductibles for plans with a 58 percent actuarial value under the Senate draft would be about $6,000 a year, Holahan said.

“It’s somewhat more generous towards the poor, but not a lot,” he said. “My guess is there’s not going to be a lot of take-up of coverage.”

Stabilization Funds

Like the House bill, the Senate draft includes a state stabilization fund that could be used to set up reinsurance programs and high-risk pools to cover people with high medical claims.

The Senate bill would provide $112 billion from 2019 through 2026 while the House bill would provide $138 billion over a 10-year period, Thomas Bulleit, head of the health-care practice in the Washington office of law firm Ropes & Gray LLP, told Bloomberg BNA June 22.

“But an important difference is that the House bill called for more matching funds from the states,” beginning in 2020, Bulleit said. The Senate draft would provide 50 percent of the federal funding by 2026, compared with 35 percent in the same year under the House bill, he said.

The Senate bill also allows the secretary of health and human services to make funds directly available to health insurers in 2018 and 2019, unlike the House bill, Bulleit said.

State waivers of the ACA’s essential health benefit coverage requirements and community ratings that prohibit insurers from charging sick people higher premiums were included in the House bill if states took action to protect people with medical problems, such as by setting up reinsurance programs or high-risk pools.

The Senate bill instead would expand the ability of states to get waivers under Section 1332 of the ACA, Bulleit said. But current requirements that the waivers cover a comparable number of people with the same coverage without increasing the federal deficit would be removed from the law, he said.

“One could argue it may be even stronger medicine to allow states to waive out of the essential health benefits and pre-existing condition requirements” than the House bill, Bulleit said.

Medical Loss Ratio

The Senate draft would eliminate the ACA’s medical loss ratio requirement that insurers spend at least 80 percent of premiums on medical claims or refund the difference to consumers, Douglas Holtz-Eakin, president of the center-right American Action Forum and a critic of the ACA, told Bloomberg BNA June 22.

Instead, the medical loss ratio requirement would be determined by states as of 2019, Holtz-Eakin said. The provision was “bad for innovation and coverage,” since actions taken by insurers to reduce costs or improve coverage may be considered an administrative expense and could result in refunds, he said.

“There’s a clear effort to stabilize the individual markets and at the same time relieve a burden” on insurers, Holtz-Eakin said of the Senate draft.

Medicaid Cuts

The bill’s slower rollback of Medicaid cuts would be more beneficial to plans that cover more Medicaid beneficiaries, such as Molina, Centene, and WellCare, Bloomberg Intelligence analyst Jason McGorman wrote. The bill’s contents “are largely all positive for insurers and hospitals relative to the House bill,” he said.

To contact the reporter on this story: Sara Hansard at shansard@bna.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bna.com

For More Information

The discussion draft of the Senate GOP bill is at http://src.bna.com/p65.

Federal Subsidies Under the Affordable Care Act for Health Insurance Coverage Related to the Expansion of Medicaid and Nongroup Health Insurance: Tables from CBO's January 2017 Baseline is at https://www.cbo.gov/sites/default/files/recurringdata/51298-2017-01-healthinsurance.pdf.

The House GOP bill, the American Health Care Act (H.R. 1628), is at https://www.congress.gov/bill/115th-congress/house-bill/1628.

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