Once again, we interrupt our series on Silicon Valley and healthcare to discuss the shifting sands on the U.S. healthcare reform. I will point out that the U.S. has not gone through any real healthcare reform; it has been experiencing a poor attempt at insurance reform, with the goal of insuring more Americans. The effort of the Affordable Care Act of 2010 (ACA), also referred to as ObamaCare, is not healthcare reform.
In the last week, the President of the United Sates, Donald J. Trump has executed two Executive Orders that have put the ACA on a more questionable, and definitely a more frustrating, track.
A friend sent me an article based on a National Public Radio interview. The issue at hand were two executive orders executed by President Trump. The concern was what effect those orders would have on premiums, and the insurance markets going forward.
The President did two different things. The first executive order didn’t actually change anything, it just ordered the relevant agencies, the Department of Health and Human Services and Labor and Treasury, to put out regulations to basically see if they could make less comprehensive, lower cost coverage more available.
The second executive order instructed the Treasury to stop paying insurance companies for cost sharing subsidies. These amount to about $7 billion (USD) for lower-income people… people who are under 250 percent of poverty, about $30,000 for an individual. Those individuals are getting extra help not just paying their premiums, but also paying their out-of-pocket costs. Some have very high deductible plans and high copayments, and we believe it’s a separate problem by itself. Since those subsidies are required by law to the consumer, the cost to consumers will not materially change. However, what will change, is the premium insurance companies charge, and most of that increase will actually be paid by the Treasury separately.
For example, as noted by the Congressional Budget Office (CBO):
In order to qualify for subsidies, most enrollees must purchase a silver plan through the non-group insurance marketplace in their area, generally have income between 100 percent and 250 percent of the federal poverty level (FPL), receive premium tax credits toward the silver plan, and not be eligible for other types of coverage, such as employment-based coverage or Medicaid.
This means insurers have a couple of options. One of them is to raise rates, a lot of them have done that, and a lot of them did that already with the anticipation that the President might stop making these payments. Another option, for the insurers to leave the market entirely, which we’re now seeing some insurers thinking about doing. The third option is to just eat the increased costs, which we assume none of the insurance companies are going to do.
The CBO estimated that direct cost would go up 20% for those covered under that plan however, the people who get “help with premiums” effectively pass the cost to the federal government, increasing the NET cost the Government pays at the end – some say that cost could be $150 billion (USD) over 10 years, vs. the cost of $7 billion (USD) per year, likely less than $100 billion (USD) over 10 years.
By this action, it is nearly guaranteed that the U.S. Treasury will pay more at the end.
In general, CBO expects that most purchasers in the non-group market, with income between 200 percent and 400 percent of the FPL, could pay net premiums equal to or less than those under the baseline for insurance with an actuarial value the same as (or even greater than) under the baseline. The main reason that purchasers could pay less or obtain a higher actuarial value is that the higher premiums for silver plans would boost the premium tax credit amounts.
For purchasers in the nongroup market with income above 400 percent of the FPL, both net and gross premiums would be the same because they are not eligible for premium tax credits. Under the policy, they could pay about the same premiums for bronze or silver plans (by purchasing outside the marketplaces), as under the baseline and lower premiums for gold plans (because of the health of enrollees in the plans), CBO projected.
Recently, 18 states and the District of Columbia filed suit to require that the payments be continued. The reason the President could stop this is that it was a subject of a lawsuit about whether Congress officially appropriated the money or not. That lawsuit was actually on appeal and the lower court finding had been sustained.
This is a problem, because the original ACA gave a lot of discretion to HHS, to fix issues that the rushed law created. Now, under a new President, the “government in charge” can, and seems set to use the law to make its agenda. The states could win for 2018 however, the real fight will be for 2019, and that battle has started. I am not sure of the President’s full agenda however, it seems apparent to put pressure on both Democrats and Republicans at the same time to act, as each group has something to lose.
The challenge is more complicated, since most of the plans have been approved “as is.” Some states have allowed optional pricing if the rules were changed, and/or in most cases file emergency orders for adjustment, subject to approval by state insurance regulators. The issue is that ALL states regulate (non ERISA) plans, so that they have to approve final prices by age, (sex is not an issue), and even the ACA has corridors on age pricing. We also don’t see this impacting those with existing conditions, as other parts of the ACA handle that issue.
The sad news with all of this, is that:
1. There will be material disruption for a few million people that may need to move to lower coverage plans.
2. Some will lose coverage in the confusion.
3. There will be a lot of stress, AND at the end, we may have another form of insurance reform, but no real healthcare reform.
None of these actions, including the original ACA, substantially bring the cost curve down. There is nothing that will significantly compensate for wellness versus mostly episodic based care. Furthermore, there is nothing to begin the pay for comprehensive care. Lastly, we are still not using behavior economics, or off-the-shelf technology to move the cost of healthcare that is now on a 50-year track to consume nearly 20% of G.D.P by 2020, from about five percent in 1965.
– Noel J. Guillama, President