Most Obamacare Exchanges Would Likely Die Under GOP Health Plan

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By Sara Hansard

Obamacare health insurance exchanges would likely go out of business in most states if the House Republicans’ American Health Care Act becomes law, as people could get refundable tax credits for buying plans on the private market.

The Republican proposal unveiled March 6 would provide more subsidies for young adults, which would help stabilize the markets, but less funding for low-income Americans, according to people interviewed by Bloomberg BNA. Insurers would have more flexibility to offer cheaper, lower-value plans, and people would have to stay enrolled or pay higher premiums to re-enroll.

That would help stabilize the individual market enough to keep insurers in it over the next few years as long as Republicans fund cost-sharing subsidies for low-income people during that time. But insurers would have to start from scratch in designing individual market plans as it isn’t clear what their claims experience would be.

Premium tax credit subsidies would be continued from 2017 through 2019, Chris Condeluci, a lawyer who was a staff member of the Senate Finance Committee during consideration of the ACA, told Bloomberg BNA March 7.

After that they would be replaced with refundable tax credits that would be higher for older people, and which would be phased out for individuals making more than $75,000 a year or $150,000 for couples.

Older people could be charged as much as five times what younger people are charged. Under the ACA--which was enacted in 2010--they are limited to charging no more than three times what young people are charged.

Insurers have said the higher ratio reflects greater medical costs for older enrollees.

Tax Credits Could Be Delivered Outside of Exchanges

“The tax credit, come 2020, will likely be delivered through private channels,” such as web brokers or insurance carriers, because the subsidies could be used to buy health plans outside of the exchanges, Condeluci said.

But states may elect to keep exchanges, Sam Gibbs, executive director of AgileHealthInsurance.com, told Bloomberg BNA March 7. AgileHealthInsurance.com sells short-term health plans. While those plans don’t comply with the ACA they could receive tax credits under the Republican bills.

Repealing the ACA’s actuarial value requirements, which currently require insurers to cover at least 60 percent of medical claims, “provides some additional flexibility to carriers as they’re developing plan designs,” said Condeluci, principal of CC Law & Policy, a health and tax legal and policy consulting firm. Carriers could more easily sell catastrophic health plans that carry high deductibles under the proposal.

The legislative proposal as well as a market stabilization rule proposed by the Department of Health and Human Services in February “should be enough to keep the carriers in the market,” Condeluci said.

However, congressional Republicans will need to come up with funding for the cost-sharing subsidies for the next several years to keep insurers in the individual market, Condeluci said.

The cost-sharing subsidies, which were expected to cost $7 billion in 2017 and are the subject of a pending lawsuit between the House of Representatives and the HHS, may be funded until a fiscal 2018 budget resolution that is likely to be considered in May, he said.

Repealing Actuarial Value Requirements

Eliminating the actuarial value requirements would make it more difficult to implement risk adjustment programs, which would remain in place under the legislation, health-care consultant Robert Laszewski, told Bloomberg BNA in an email March 7.

That is because “different plan designs attract people of different health status,” with lower benefit plans attracting healthier people, said Laszewski, president of policy and marketplace consulting firm Health Policy and Strategy Associates LLC.

The legislation also contains funding of $15 billion for both 2018 and 2019, which would be reduced to $10 billion a year from 2020 through 2026, which states could use for a variety of things, including a reinsurance fund to pay insurers for high-cost claims, high-risk pools for people with high medical needs or to cover cost-sharing subsidies for low-income people.

While that would help insurers, Laszewski, who is critical of the ACA, said it wouldn’t be enough to cover insurers’ needs. In 2015, carriers required almost $15 billion in reinsurance funding, and the funds would need to cover other purposes as well, he said.

The ACA’s unpopular individual mandate would be replaced with a continuous coverage system similar to employer plans. People who went for longer than 63 days without coverage would face 30 percent premium increases if they tried to enroll late.

The continuous coverage requirement “has been around for awhile” in the employer group health insurance market under the Consolidated Omnibus Budget Reconciliation Act, AgileHealthInsurance.com’s Gibbs said.

However, Gibbs said, it isn’t clear if the 30 percent surcharge would be “enough for carriers to take on the risk” of having people enroll when they get sick.

Essential health benefit coverage required under the ACA would also be continued under the legislation.

Republicans are trying to pass the bill through the budget reconciliation process, meaning the bill can only deal with budget matters in order to avoid Senate rules that allow senators to tie up debate time unless there are at least 60 votes. There are only 52 Republicans in the Senate, and several of the Republican senators have expressed concerns about the bill.

Providing higher subsidies for young people “should help the risk pool,” Katie Allen, executive director of the Council for Affordable Health Coverage, told Bloomberg BNA March 7.

“They’re trying to get in young people, particularly in 2018 and 2019, but it isn’t as generous to low-income people,” she said.

“This is basically just like 2014 again,” said Allen, referring to the start of the insurance exchanges under the ACA. Allen’s group represents employers, insurers, providers and patient groups. “It’s really going to be hard to tell what happens with everything and who’s going to be participating” in the individual market, she said.

“We’re still facing a period of uncertainty,” Thomas Bulleit, a partner in the Washington office of law firm Ropes & Gray, who represents health-care industry clients, told Bloomberg BNA March 7.

Because the individual mandate would be abolished fewer people would buy insurance and more insurers would back out of the market, he said.

“Insurers will like the fact that eventually they can offer cheaper policies that cover fewer things,” Bulleit said. But “they won’t like less subsidies,” he said.

Decline in Premiums But Higher Profitability

If the legislation is enacted, “There will be a decline in terms of premiums” because the number of enrollees in the individual markets and Medicaid will decline, Deep Banerjee, a credit analyst with S&P Global Ratings, told Bloomberg BNA March 7.

Banerjee is the lead author of a report S&P Global Ratings released March 7 saying the replacement proposal would “fundamentally change federal financing of healthcare,” and would reduce individual market enrollment by 2 million to 4 million people, and reduce Medicaid enrollment by 4 million to 6 million.

The bill would improve profitability in the individual market, Banerjee said. The legislation’s tax credits and wider age ratings band will increase enrollment of healthier people in the 21-to-35-year-old age bracket, while the number of 45-to-64-year-old enrollees would decrease, he said.

The legislation also delays the ACA’s Cadillac tax on high-cost employer plans, which is now set to go into effect in 2020, until 2025, the report said.

The tax would limit the amount of deductions employers get for providing health insurance. Employer-sponsored health insurance accounts for about 60 percent of total premium revenues for U.S. health insurers, it said. The biggest impact would be on fully-insured employer plans, which would likely decline, it said.

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

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

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