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By Sara Hansard
The Trump administration is examining whether it’s legally permissible to keep funding Obamacare subsidies for low-income people, but “there’s a desire” to include them in the Republican health-care bill, a top White House health-care adviser told Bloomberg BNA.
The individual market won’t be stable unless Congress passes the Republicans’ American Health Care Act, Brian Blase, special assistant to the president in the National Economic Council, said in a May 12 interview with Bloomberg BNA. Anthem Inc., a major carrier in the Affordable Care Act exchanges, told White House officials that large premium increases it has requested for 2018 are based on the assumption that the cost-sharing reduction (CSR) subsidies will be paid, Blase said.
Insurers have filed proposed premiums for 2018 in Maryland, Virginia and Connecticut that are in the range of 30 percent to 40 percent, and 2018 is shaping up to be the second year in a row of large premium increases in the individual market. While Affordable Care Act supporters and the health-care industry call for certain funding of the cost-sharing reduction subsidies as a way to stabilize the market, the Trump administration and congressional Republicans argue that the 2010 law needs a complete overhaul to reduce premiums in order for the market to stabilize.
Blase joined the Trump administration Jan. 23, the Monday after President Donald Trump’s Jan. 20 inauguration. He previously was a senior research fellow focusing on health policy at George Mason University’s free-market oriented Mercatus Center think tank. This interview has been edited for clarity and length.
Bloomberg BNA:There have been reports that President Trump leaves policy details to his aides and focuses on selling the big plan to legislators. Please fill us in on who’s who in White House health-care policy.
Blase:I’m at the National Economic Council. We advise the president on economic matters. There are seven special assistants to the president, and we work for Gary Cohn, who’s the head of the National Economic Council. I am the special assistant for health care.
There is another council within the White House called the Domestic Policy Council. The head of that is Andrew Bremberg... He’s an assistant to the president... He has two special assistants for the president that work for him [Katy Talento and Alexandra Campau]. So there’s sort of four of us that I would say are health-care advisers, the president’s main health-care advisers.
And then at the Office of Management and Budget, there’s another health-care political appointee there [Joe Grogan, associate director, health programs]. But we all work pretty closely together.
Bloomberg BNA:In terms of regulations, what do you expect to be the next regulations that the Department of Health and Human Services may be working on? Or Treasury or Labor?
Blase:HHS has already released its big regulation, the market stabilization rule. They worked on that during the transition.
The big thing is trying to figure out what’s going to happen with the American Health Care Act, whether that passes Congress. A large part of the regulatory effort really does hinge on the bill.
There’s other stuff that’s happening independently. There’s going to be [Affordable Care Act Section] 1332 guidance that’s released. [Section 1332 of the ACA gives states flexibility to make major changes that meet certain criteria. The Centers for Medicare & Medicaid Services released guidance May 11.] There’s going to be stuff related to the SHOP [Small Business Health Options Program] exchanges [CMS released guidance May 15.]
Some states have submitted waivers on 1332. Alaska has submitted a waiver; Minnesota has submitted a waiver. The Alaska waiver is towards the tail-end of the process, in terms of getting it approved. That’s for some additional money for Alaska reinsurance program.
There’s issues related to the individual mandate, the employer mandate. Just a lot of considerations. But nothing really firm because we’re really waiting to see what happens with the American Health Care Act.
Bloomberg BNA:What should the White House be doing this year to fix the insurance markets, related to cost-sharing subsidies or anything else?
Blase:The first point is that the insurance markets have deteriorated even more, and we’re seeing right now in the three states that have the preliminary rate filings [Virginia, Maryland and Connecticut], it looks like premiums are going up more than they went up last year. What I’ve seen is between 30 and 40 percent [is] what I’m hearing for rate increases.
And these are insurers that are assuming that the CSR payments continue. One major insurer in those states told us that they were assuming the continuation of the CSR payments.
Bloomberg BNA:Which insurer was that?
Blase:That was Anthem.
They’ve told us that the premium increases are under the assumption the CSRs continue, and if CSRs don’t continue those premium increases would be higher—maybe 20 percent higher.
They said that to me.
Bloomberg BNA:Who said that?
Blase:Liz Hall [Elizabeth Hall, vice president of federal affairs and director of the Washington office for Anthem] and Julie Goon [senior vice president of public affairs] and Joe Swedish [Joseph Swedish, chairman, president and chief executive officer].
The CSRs, the administration continues to examine the legal issues involved. We have the judge’s opinion [a U.S. district court decision that the Obama administration made the payments illegally without a congressional appropriation], and there’s an ongoing... [discussion] trying to figure out what the lawyers think is permissible and what’s not permissible. So they have not made a decision yet.
Bloomberg BNA:But the Trump administration has made the payments so far, at least through April?
Bloomberg BNA: So you’re trying to figure out whether its permissible to keep making the payments?
Bloomberg BNA:What about asking Congress to appropriate the money? What are the administration’s thoughts on that?
Blase:I think there’s a desire to have the funding appropriated in the American Health Care Act.
The appropriation is not [included in the AHCA]. That’s for Congress to consider.
Bloomberg BNA:What else does the administration want to do to make the markets more stable?
Blase:We think that they’ve got to pass the bill, that there is no way to make the markets stable short of passing the bill. That Obamacare has failed and a lot of states are in adverse selection spirals, and that you need to allow states greater control over their markets.
Bloomberg BNA:What are the administration’s priorities for the legislation?
Blase:The features of the bill repealing the taxes and the individual and employer mandates. We don’t think that people should be penalized if they don’t purchase a Washington-approved product. We think that the employer mandate has lots of negatives; [it raises] costs for employers and reduces their incentives to hire workers. Those are priorities in the legislation.
The legislation has a trillion dollars in tax cuts. It would spur economic growth and job creation.
The Medicaid expansion... The bill implements really important entitlement reform. This is going to provide states flexibility to manage their Medicaid programs, and constrain the costs for the federal taxpayer over time.
Bloomberg BNA:Regardless of flexibility given to states, how could they cover the $880 billion funding reductions for Medicaid over 10 years in the AHCA?
Blase:The cuts are from a baseline that is assuming that a lot of states expand Medicaid. Some of it is just sort of an issue with the baseline. When you don’t have as many states expand because the expansion funding is going to slowly go away, it’s not really taking money away from states that have already expanded. They’re trying to craft a balance between expansion states and nonexpansion states and create a glide path so that the enhanced match rate phases down to the match rate for the rest of enrollees on the program. The federal government shouldn’t provide a higher match rate for able-bodied adults than it provides for the disabled or for kids. That never made sense.
And we realize that there’s got to be a transition, that that can’t happen overnight. That’s going to happen over the course of probably, equalizing those rates, over the course of seven-eight years. But that it’s got to happen, and it’s best to happen more gradually so states can adapt.
We think there’s a lot of inefficiencies in the system as well that fundamental reform, like through block grants and per capita caps, is going to eliminate.
Bloomberg BNA:What has President Trump’s level of involvement been in the process? It’s been reported he’s content letting others craft the package and sell it to reluctant members. What has the legislative process been like?
Blase:The president was fully involved with trying to pass the bill. He was very involved with trying to negotiate the compromise between the Freedom Caucus and the Tuesday Group, which eventually led to the bill passing the House. He’s been fully involved in the process.
And the vice president [Mike Pence] as well. The vice president has just been deeply involved. We went up to the Hill. He’s been up to the Hill many times to try to bridge the divide between members of Congress to get the bill past the House.
Bloomberg BNA:Did you go to the Hill with Vice President Pence?
Blase:Yes. Not a lot, but yes, I’ve been up to the Hill.
That was when they were really trying to sort of bridge the divide with the creation of the waiver to allow states additional flexibility from some of Obamacare’s insurance rules.
Bloomberg BNA:How well would the bill’s reliance on high-risk pools work? May 4 health policy consulting firm Avalere Health issued an analysis finding that the total AHCA funding of $123 billion to cover people with pre-existing conditions would only cover 600,000 people, well short of the approximately 2.2 million enrollees in the individual market today that have some form of pre-existing chronic condition.
Blase:The funding is considerable. It’s more funding than Obamacare provided. Obamacare’s reinsurance program [a temporary program from 2014 through 2016] provided $20 billion over three years. It provided on average $6.5 billion a year. The House bill is providing, if you add up the funding for the patient and [state] stability fund, [the] invisible high-risk pool [reinsurance funding], and the funding that got added—$8 billion that got added to the amendment [shortly before House passage of the bill May 4], that’s $123 billion over 10 years. So that’s $12 billion a year. So the House bill is providing double on an annual basis what Obamacare provided for high-cost individuals.
So I think it’s considerable funding, and if used the right way should be able to contribute to stabilizing the markets.
One of the issues for the Senate may be how to consolidate those various funding streams.
Bloomberg BNA:What is your response to the argument that the bill would rescind coverage for people with pre-existing conditions?
Blase:It has been misreported. Obamacare requires that insurers offer coverage to everyone, and not exclude pre-existing conditions from coverage. The bill doesn’t change any of that. What the bill does, it puts in place a 30 percent surcharge, that if you’re without coverage and you enter the market you have to pay this 30 percent surcharge.
Now there [are] some issues with the 30 percent surcharge. And one of the parts of the waiver—the [Rep.] Tom MacArthur [R-N.J.] waiver—it allowed states to waive the 30 percent surcharge for individuals that were uninsured for one year, and for that year to permit health status underwriting. And that’s what the bill did.
That got reported widely, I think misreported, as harming people with pre-existing conditions. But there was no change for anybody who had insurance. The only change was, if people didn’t have insurance, what’s the penalty that you would be able to assess for one year. And it allows states to allow insurers to rate that person based on their health status for one year.
One of the major problems as we know, we’ve talked about with Obamacare, there’s a huge incentive for people to wait until they’re sick to purchase coverage. You can sign up for coverage at any time without paying more whether you’re sick or healthy. So people have waited and gamed the system, and it has led to chaos in the individual market with insurers not able to sustain themselves because of such massive losses. There’s got to be a way to incentivize people to get insurance before they get sick.
Bloomberg BNA:The American Academy of Actuaries said in a March 22 letter to Congress that the AHCA’s requirement that people keep continuous coverage to avoid the 30 percent penalty wouldn’t be strong enough to keep people covered. The Congressional Budget Office also estimated on March 13 that the AHCA’s continuous coverage surcharge would increase the number of people with insurance in 2018, but about 2 million fewer people would purchase insurance after 2019 as a result of the surcharge, and the people deterred from buying coverage would tend to be healthier than those who would be willing to pay the surcharge. What is your response to that?
Blase:I think it’s something that the Senate has to change. The Senate has to change the 30 percent surcharge.
Bloomberg BNA:Change it how?
Blase:There’s a variety of options under consideration, and I don’t want to tell you which one I think is best. But I can just tell you the 30 percent surcharge probably has to change.
It leads to adverse selection. So I think you can’t slap a uniform penalty on everyone, because you’re going to deter healthy people from signing up for coverage. So it’s going to be a deterrent to healthy people, but sick people are going to be like, just a 30 percent surcharge for one year? Sure, I’m going to pay that. So it’s going to exacerbate adverse selection. You can’t just slap a surcharge on everybody.
I understand the reason for the provision, but I don’t think the provision as is has the intended policy effect. So I think the Senate probably has to change it.
Bloomberg BNA:What is response to the arguments that the AHCA subsidies would be inadequate for older, lower-income people, especially since older people and those in high-cost areas would have to pay more?
Blase:The key with the subsidies, the key is to try to lower premiums. The goal of the legislation is to lower premiums. People have more choices of what they can buy, it’s not a one-size-fits-all policy.
We think that if states apply for the waiver [states would have to create high-risk pools or reinsurance programs to get waivers]... there’s all this funding for states for setting up high-risk pools or reinsurance programs, I think it’s pretty likely that all the states are going to apply for this funding.
For the first couple of years there’s the federal default. We think that there’s going to be some lag time between when states can set up a system, so they’re going to have a default for probably two years and then it will be an option for states.
But the goal is to drive down premiums. And then if you have lower premiums you have less need for a subsidy. The key is premiums.
Milliman did a study based on Maine’s high-risk pool, and they estimate that, based on Maine’s experience, if you extrapolate out to the country, you would actually need a lot less money than is in the bill to accomplish the goals. So I think there’s more than enough money in the bill through the high-risk pools, reinsurance programs, to do what we need to do.
Insurers have lost significant amounts of money, and the market is totally dysfunctional. Any policy is not going to change the market overnight. The hope is that eventually states get more control over their insurance markets, and that prices, like moving from three-to-one to five-to-one [the differential between what insurers can charge older enrollees, who typically have higher claims, compared to younger enrollees] creates prices that better reflect actual expenses that people have.
Bloomberg BNA:Some on the conservative side are disappointed there isn’t anything in the bill to deal with Medicare, which is a big driver of U.S. health-care costs.
Blase:The bill was never going to deal with Medicare. It’s just a non-issue for this bill.
Obamacare is mainly about the individual market and the Medicaid expansion.
Bloomberg BNA:So that’s what you’re concentrating on right now?
Blase:Yep. And the fundamental Medicaid reforms. I’m excited about the entitlement reform. I think that’s one of the best features in the bill. I think the block grants and the per capita cap can be improved to provide states with more flexibility, but I think it’s a very good start.
To contact the reporter on this story: Sara Hansard at email@example.com
To contact the editor responsible for this story: Brian Broderick at firstname.lastname@example.org
The Centers for Medicare & Medicaid Service's Checklist for Section 1332 State Innovation Waiver Applications, including specific items applicable to High-Risk Pool/State-Operated Reinsurance Program Applications is at http://src.bna.com/oSa.
CMS's guidance, The Future of the SHOP: CMS Intends to Allow Small Businesses in SHOPs Using HealthCare.gov More Flexibility when Enrolling in Healthcare Coverage, is at http://src.bna.com/oR9.
Avalere Health's May 4 analysis, Proposed High Risk Pool Funding Likely Insufficient to Cover Insurance Needs for Individuals with Pre-Existing Conditions, is at http://src.bna.com/oSp.
The American Academy of Actuaries March 22 letter to Congress is at http://www.actuary.org/files/publications/AHCA_comment_letter_032217.pdf.
The Congressional Budget Office's March 13 estimate of budget affects of the AHCA is at https://www.cbo.gov/publication/52486.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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