An examination of the options for replacing the Affordable Care Act shows why authors of the next chapter of healthcare reform face such a complex challenge.
On March 9, two House committees approved the American Health Care Act (AHCA), the legislation put forward by Republican leadership to partially repeal and replace the Affordable Care Act (ACA). Although the legislation still had to clear additional House committees and be approved by the full House and the Senate as of the publication of this article, some form of repeal-and-replacement bill could be passed by Congress as soon as this spring. So what will repeal-and-replace look like?
First, it is important to understand that repeal of the ACA in totality is not possible politically and probably not practically. As often has been noted, the ACA is hundreds of pages long and addresses virtually every aspect of our healthcare system, including payment fraud and abuse, preventive care, approval of biosimilars, and training for healthcare professionals. The ACA also amended numerous Medicare and Medicaid provisions, such as closing the Medicare prescription-drug doughnut hole and embracing Medicare payment and quality improvement initiatives. Some Republican proposals have bravely asserted that they will repeal the ACA entirely, but the AHCA limits itself to Title I, the insurance reforms; the Medicaid expansion provisions of Title II; and, significantly, the taxes that Title IX imposed on wealthy Americans and healthcare providers. (It repeals $300 billion in Medicare taxes over the next 10 years for taxpayers earning more than $200,000 a year.)
Although it was thought initially that Congress might proceed quickly to repeal some parts of the ACA but delay implementation of the repeal provisions until a replacement bill could be passed, it has become increasingly clear that this is not a viable strategy. Repeal without a replacement would cause 20 to 30 million Americans to lose coverage, according to the Congressional Budget Office, while repeal-and-delay could cause as many as 18 million to lose coverage by 2018.
That’s because insurers need to have a good sense of the replacement before repeal occurs. Insurers are reluctant to return to the individual-insurance market for 2018 until they know what that market will look like. Because the individual-insurance market represents a small share of revenue for large national insurers, they see little need to risk losing more money in it. And if they do not come back, the entire individual market collapses. Thus repeal is moving forward with provisions intended to replace parts of the ACA in the hope of reassuring health insurers.
The Argument for “Repair” Over “Repeal”
As the Republican House leadership has moved forward with repeal-and-replacement, the Trump administration has argued that what they are doing is “repairing” damage caused by the ACA. The administration argues that the ACA individual market was completely broken, but this is not necessarily the case. Some insurers raised premiums dramatically for 2017, but there were indications that the premium increases were sufficient to stabilize the market going forward.
Talk of repeal itself, however, has caused a great deal of damage and has aggravated the effects of steps that Congress has taken in the recent past, such as defunding the risk corridor payments for 2014 and 2015 and suing to end cost-sharing reduction payments. Some “repair” initiatives are, therefore, in order.
In the first instance, the Trump administration is moving forward with regulatory measures intended to build insurer confidence in the future of the market. The Trump administration has proposed a “market stabilization” rule, which would further restrict special enrollment periods, allow insurers to sell plans with lower actuarial values, shorten the open enrollment period for 2018, and roll back other regulatory requirements. The rule will likely be finalized in late March.
A Closer Look at Replacement
The proposed AHCA would go much further than those regulatory steps, as a look at some of the key provisions makes clear.
Continuous-coverage requirements and high-risk pools. First, the AHCA would repeal the unpopular individual and employer mandate penalties and replace them with a continuous-coverage requirement. If consumers maintain continuous coverage, they can move from one insurance plan or market to another and be subject only to the limits that apply to normal open- and special-enrollment periods. If an individual has a gap in coverage of 63 or more days, however, the individual’s premium will be increased by 30 percent for the next 12 months.
Breaks in coverage are common for low-income consumers or consumers with health problems. Cancer patients, for example, often have to stop working while receiving treatment, losing coverage in the interim. Moreover, as a practical matter, the continuous-coverage penalty will discourage healthy as well as unhealthy people from enrolling. Whereas the individual mandate penalizes people for remaining uninsured, the continuous-coverage requirement penalizes people when they attempt to enroll in coverage.
The nonpartisan Congressional Budget Office apparently doesn’t think this requirement and other provisions will make up for the loss of the mandate to have insurance—it projects 24 million fewer people will be insured by 2026 under the AHCA compared with the ACA.
The AHCA also gives $100 million to states over the next nine years to use for various purposes, including reinsurance and high-risk pools. The ACA offered reinsurance to individual-market insurers for high-cost cases during its first three years, but the program phased down far too quickly. The AHCA’s fund, if used wisely, could provide some stability to markets going forward, particularly if supplemented by state funds.
High-risk pools are more problematic. Two-thirds of the states had high-risk pools before the ACA was adopted. The pools had limited capacity and offered costly and limited coverage that often excluded preexisting conditions. High-risk pools would likely work only with federal support exceeding that which is being offered in the AHCA.
Fixed-dollar, age-adjusted tax credits. The AHCA would repeal the ACA’s means-tested tax credits and swap in fixed-dollar, age-adjusted credits, which phase out only at relatively high income levels. The tax credits offered by the AHCA are more generous than the ACA’s tax credits for young and higher-income people, but will simply leave premiums unaffordable for older and lower-income enrollees. Having more young and higher-income enrollees will benefit the insurers, but millions who were covered by the ACA will lose coverage.
Health savings accounts (HSAs). The AHCA, like most other replacement plans that Republicans have put forward, promotes HSAs, a longtime Republican health policy panacea. In particular, the bill would increase the maximum tax-subsidized amounts that can be contributed to HSAs to the amount of the out-of-pocket limit, allow both spouses to make catch-up contributions to the same HSA, and allow HSAs to cover medical expenses incurred up to 60 days before HSA coverage begins.
HSAs are a great tax shelter for higher-income Americans—they shield from taxation deposits in an HSA, investment income on funds held in an HSA, and healthcare expenditures made from the HSA. There is also evidence that account holders reduce healthcare utilization—not always wisely—because they are effectively spending their own money when they purchase services from their HSA. But low-income consumers lack both discretionary income to deposit in HSAs and the tax incentives to make such deposits.
Cheaper coverage. Finally, the AHCA includes a couple of provisions intended to make coverage more affordable, particularly for younger people. It would allow insurers to charge older enrollees five times as much as younger enrollees (the ACA allowed only a 3-to-1 ratio) and would remove the ACA’s actuarial-value rules that require insurers to offer health plans with comparable cost-sharing levels. Unlike earlier proposals, the AHCA does not remove or reduce requirements regarding essential health benefits or allow the sale of insurance across state lines. And the ACA’s out-of-pocket limits remain in place, limiting the ability of insurers to increase cost sharing and, in turn, to reduce premiums.
Any strategy that makes coverage cheaper will also diminish the value of the coverage. Higher deductibles, for example, will essentially impose a permanent additional cost on individuals with high-cost chronic conditions. But finding ways to reduce the cost of coverage would allow Republicans to claim that more individuals have access to coverage, disregarding how protective that coverage is.
Raising the Political Stakes
Each of these provisions is likely to alienate certain constituencies. Increasing age-rating bands will disadvantage older consumers, for example, while penalizing gaps in coverage and instituting fixed-dollar tax credits will harm low-income consumers.
The ACA itself has been unpopular with many Americans, of course, and it is not possible to find a reform proposal that will please everyone. In the coming weeks and months, however, Republicans in Congress and the Trump administration will have to decide which constituencies they are willing to alienate. Their decisions may well decide the shape of future electoral battles, much as the ACA has arguably disadvantaged Democrats with respect to certain constituencies for the past six years.
Timothy Stoltzfus Jost, JD, is an emeritus professor at the Washington and Lee University School of Law, a member of the National Academy of Medicine, and a consumer representative to the National Association of Insurance Commissioners.