December 4, 2017
By Sara Hansard
If Congress enacts legislation to fund subsidies for low-income Obamacare enrollees and payments to insurers who cover sick people, that may help reduce premiums if penalties for lacking coverage are repealed, several health policy analysts told Bloomberg Law.
The Senate voted 51-49 on Dec. 2 to approve the Tax Cuts and Jobs Act (S. 1), which effectively repeals the Affordable Care Act’s mandate that most people have qualified health-care coverage or pay a penalty. The effectiveness of the mandate has been debated among ACA supporters and detractors, and the Senate plans to act by the end of the year on additional legislation that would fund cost-sharing reduction subsidies for low-income people as well as a reinsurance plan for insurers, both of which would help reduce premiums.
ACA supporters and health insurers insist the mandate, although it’s weak, is necessary to support the law’s requirement that health insurers cover everyone without charging more to people who have medical problems. ACA opponents say the Congressional Budget Office (CBO) over-estimates the mandate’s usefulness in getting people to sign up for coverage.
The House is likely to support the Senate measure repealing the individual mandate penalty. The CBO estimates that repealing the mandate would increase the number of uninsured people by 4 million in 2019 and 13 million in 2027 and reduce federal deficits by about $338 billion over the 2018-2027 period.
But the two separate CBO analyses appear to be in conflict, Chris Sloan, a senior manager with health-care policy consulting firm Avalere Health, told Bloomberg Law Dec. 4. The nonpartisan congressional budget review office has estimated in one report that eliminating the individual mandate would increase premiums about 10 percent, Sloan said.
In the other analysis the CBO said that eliminating payments to insurers to cover the cost-sharing reductions (CSRs) they are required to provide to low-income people would increase premiums about 20 percent, Sloan said. The Trump administration announced Oct. 12 that it would stop making the CSR payments, and insurers have generally raised premiums for silver-tier plans to cover the loss of the payments.
Senate Majority Leader Mitch McConnell (R-Ky.) has said the Senate will vote by the end of the year on legislation proposed by Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.) to reinstate the CSR funding, as well as legislation proposed by Sen. Susan Collins (R-Maine) to provide $10.5 billion over two years for a reinsurance program.
“Funding the CSRs would have a bigger impact on lowering premiums than getting rid of the individual mandate would have on raising premiums,” Sloan said. “It seems a combination of funding CSRs and a reinsurance program would outweigh the negative premium pacts of repealing the individual mandate.”
“I have always felt that the individual mandate was less effective in getting people to buy insurance than the CBO has felt,” American Action Forum President Douglas Holtz-Eakin told Bloomberg Law Dec. 4. Holtz-Eakin, a critic of the ACA, is a former director of the CBO.
Holtz-Eakin pointed to data from the Internal Revenue Service that 6.5 million taxpayers owed ACA penalties in 2015 and about 12.7 million taxpayers were exempt from the penalties. The 19.2 million total approximately equals the number of people who the Obama administration has said gained coverage under the ACA.
But Cori Uccello, senior health fellow with the American Academy of Actuaries, told Bloomberg Law Dec. 4 that “the individual mandate is an important piece of the Affordable Care Act, given the protections to people with pre-existing conditions.”
The mandate helps ensure that young, healthy people have an incentive to purchase coverage. “Having healthy people in the pool is required to have a balanced risk pool to keep premiums moderate,” Uccello said.
Linda Blumberg, a senior fellow with the Urban Institute, which has been supportive of the ACA, said that passing legislation to fund cost-sharing subsidies won’t solve the problem of increased adverse selection that is likely to result from repealing the mandate as healthy people drop coverage.
Additional funding for outreach and enrollment, which the Trump administration has cut significantly, would help bring young adults into the individual market, Blumberg said. Funding a reinsurance program also would help reduce premiums by covering enrollees with high claims, she said.
Adequate funding would need to be provided to make up for the loss of the mandate, Blumberg said. The ACA included a temporary reinsurance program that was funded with $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016. “You’d need a lot more [funding] and it would have to be permanent” to significantly reduce premiums, she said.
“The elimination of the mandate is a terrible idea,” John Baackes, chief executive officer of Los Angeles health plan L.A. Care, told Bloomberg Law Dec. 4. Removing the mandate, “There are going to people who say I don’t need this,” which will put pressure on premiums as a disproportionately high number of people with health problems continue to buy coverage, he said.
L.A. Care insures about 25,000 people in California’s exchange, and the nonprofit health insurer also covers many people through its Medicaid managed care plans.
Plans that cover Medicaid and other low-income populations are likely to be least hurt by repealing the individual mandate, Matt Borsch, managing director of equity research for payers and providers at BMO Capital Markets, told Bloomberg Law Dec. 4. Low-income people receive enough subsidies to cover all or most of their premiums under the ACA, and they would be less likely to drop coverage, he said.
But people who don’t receive subsidies and who don’t have health problems could be more inclined to drop ACA-compliant coverage, Borsch said. “What you could end up with is the risk pool for unsubsidized exchange people would be very skewed to those who have significant health-care needs,” he said.
Moreover, the Trump administration has proposed reinstating a one-year time limit on cheaper short-term health plans that don’t comply with the ACA and don’t typically cover people with pre-existing conditions, Borsch said. Healthier people could buy those plans instead of more expensive, comprehensive ACA-compliant plans, he said.
Most ACA observers, including Deep Banerjee, director of insurance ratings with bond rating company S&P Global Ratings, agree the individual mandate is weak and that it hasn’t been enforced aggressively under either the Obama administration or the Trump administration.
But, Banerjee said, “A weak mandate is better than no mandate.” S&P Global Ratings forecast in a Nov. 16 report that repealing the penalty will increase the number of uninsured by about 3 million to 5 million by 2027, and save the federal government about $60 billion to $80 billion over the next 10 years, a significantly lower impact than what the CBO had projected.
(Corrects figure for Collins’s bill in seventh paragraph and revises information in 15th paragraph)
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The Nov. 29 Congressional Budget Office letter to Sen. Patty Murray, Re: The Bipartisan Health Care Stabilization Act of 2017 and the Individual Mandate, is at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53352-bhcsaandindividualmandate.pdf.
The CBO's Nov. 8 report, Repealing the Individual Health Insurance Mandate: An Updated Estimate, is at https://www.cbo.gov/publication/53300.
Jan. 9 letter to Congress from IRS Commissioner John Koskinen is at https://www.irs.gov/pub/newsroom/commissionerletteracafilingseason.pdf.
S.1835 - Lower Premiums Through Reinsurance Act of 2017, is at https://www.congress.gov/bill/115th-congress/senate-bill/1835/text.
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