Michael Lampert, Ropes & Gray health care partner, analyzes key changes proposed by the American Health Care Act.
In the 2012 election, we heard that the Affordable Care Act would be repealed. In the 2016 election, we heard the Affordable Care Act would be repealed. We didn’t hear the specifics, and certainly didn’t hear specifics in the 2016 election however, the bill just came out—the first bill just came out that would repeal it.
One of the changes, of course, is the elimination of the individual and the employer mandates. The effect of that change will be to cause healthy, younger individuals not to secure care. Those mandates and the tax penalties that came along with them under the proposed legislation are replaced with an authorization for insurers to charge a thirty percent surcharge on premiums for those who reenter the insurance market after having taken a sabbatical from it. Now the effect of that though is that the incentive will be that once one exits the insurance market, to stay out. Continuing insurance penalties provided an incentive for people to stay in the commercial market, to keep healthy people, young people in the insurance market paying premiums that help to bring down aggregate costs, in particular, costs paid by those older, sicker. By eliminating the mandate and by replacing it with something that as a penalty for reentry, will keep people from reentering, aggregate premiums on those who participate in the market will increase and that will decrease enrollment.
The second element in that category is the elimination of the tax subsidies, the income-based tax subsidies in order for people to be able to buy insurance—replacement with tax credits, which are less effective than those at the lower-ends.
Another component is an increase in the premium differentials that are permitted between the young, healthy and the old and sick. It used to be three to one—the proposal suggests five to one, meaning that older, sicker people could pay premiums that are five times as much as the younger, healthier. And the increase in premium differentials is something that ultimately, of course, is required by the projected reductions in enrollment. If there are fewer people who are enrolled because there isn’t an individual mandate and because they don’t have the tax credits to help them enroll, what that means is there are going to be fewer people who are younger and healthier with insurance whose premiums will help to support care that they don’t receive, but instead that’s received by the older, sicker population—which means that it will be more predominantly the older, sicker population that has health insurance. And as a result, their premiums will have to be higher because they won’t be subsidized as much by the younger, healthier.
The second category of changes really sets the stage for skinnied-down plans. The Affordable Care Act required that health plans have ten essential elements of coverage in order to participate on the exchange, that they cover, for example, prenatal care; that they cover maternal care; that they cover substance abuse disorders—those have been removed in the proposed legislation. Another related change in the proposed legislation is to increase the size of health savings accounts. The increase in size in health savings accounts anticipates a larger number of high-deductible health plans that are offered. So these changes, I think, taken together, pretend a market that will be more heavily populated by high-deductible health plans that cover less initially because it requires the enrollee to cover more and that don’t have the same breadth of coverage because they aren’t subject to the minimum elements of care.
The third area of large changes, are really changes in the federal participation in areas of the health care market—one is Medicaid, of course. Medicaid historically has been a partnership between the federal government and the states, in which the federal government has matched, at different ratios for different states, the state expenditures and the Medicaid programs. The legislation proposes that that would be changed with per capita contributions that the federal government would make. The effect of the per capita contributions of the federal government would make is that any expansion in state expenditures and state coverage of Medicaid would be on the state’s penny entirely—that the federal government wouldn’t increase its share.
So another area for elimination is the Prevention and Public Health Fund, which last year provided $625M to states for public health expenditures and covered about twelve percent of the CDC. Total expenditures projected for that fund over the next two years are about $2B/year and so this is an area of public health contribution by the federal government—the legislation proposes that it would be removed.
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