The ACA is a complicated law. It has a lot of moving and interacting parts in it. It also has parts that can be severed from the rest of the law without significant operational impact. I want to conduct an inventory of the major elements that we will need to be familiar with during the second round of healthcare and health finance reform debate. A basic understanding of what the different parts of the law do and how they play nicely with the other parts of the law will put you in good shape over the next couple of months.
I will break things down to the broadest stand alone structure and make comments as needed. This is long and wonky so it is all below the fold.
General Finance and Revenue
General taxation — these taxes are applied to upper income Americans as increases to the marginal income tax rate and as an expansion of taxable income definition. Reducing or rolling back the rate increases will have negative impacts on the federal long run budget but they will not have immediate impact on coverage availability. Other taxes such as the artificial tan excise tax would also fall into this general category.
The healthcare industry is also taxed to pay for the ACA coverage expansion. These taxes were effectively a form of gainsharing from industry players in the 2009-2010 negotiations. They are not popular as the losses are focused on well connected industrial players and there has been bipartisan support to reduce the Medical Device Tax and the fully insured premiu tax. Other taxes have been fading out as the reinsurance tax was already written to expire at the end of 2016.
The Cadillac Tax or a 40% excise tax on high cost premiums has already been pushed back two years in the 2015 budget deal. It is now due to start in 2020 but there is frequent legislation to either kill it entirely or delay it further. It is likely to fail as no one besides health policy and tax policy wonks actually likes the idea. This will need to be reframed as a feasible tax vehicle moving forward.
Employer mandate — This is a fine on employers with more than fifty full time employees who do not provide health insurance to their employees. Eliminating this will have minimal impact on coverage. KFF has a good PDF summary of the logic flow:
- Applies only to companies with more than 50 employees
- Two conditions triggering two different penalties
- If less than 95% of people are not offered any coverage
- If an eligible employee receives an Exchange subsidy than the penalty is
- 2280/12 *(Total employees-30) per month of Exchange subsidy
- If an eligible employee receives an Exchange subsidy than the penalty is
- If offering non-affordable coverage and an employee receives a subsidy penalty is 3390/12 per subsidized employee to a maximum of 2280/12 *(Total employees -30)
Major Coverage Provisions
Under-26 The ACA mandates that employer sponsored plans allow parents and guardians to treat their adult children under the age of 26 as dependents. This allows the adult children to receive employer sponsored coverage through their parents’ policy. It is the smallest piece of the coverage expansion pie.
Between two and three million people are estimated to have initially gained coverage through the Under-26 provision of the ACA. If this provision was eliminated, some of these people would lose coverage, others would gain coverage through other employer sponsored opportunities, the individual market or Medicaid.
Medicaid Thirty two states either have or are in the process of expanding eligibility of their state’s Medicaid program to all adult citizens and long term permanent residents to allow enrollment up to 138% of Federal Poverty Line. There are no asset tests. Several states have used the 1115 waiver process to create state specific expansions (Arkansas, Iowa, Kentucky, Indiana etc). Eighteen states have not expanded Medicaid. Some of these non-expansion states have some of the key stakeholders attempting to expand but in other states there is elite indifference.
The Center for Medicare and Medicaid Services (CMS) estimates approximately 16 million more people have signed up for Medicaid in October 2016 compared to October 2013. Not all of these people have signed up via the Medicaid expansion. Most states have seen a significant “woodworker” effect where people who were eligible but not signed up for Legacy Medicaid (SSI/TANF eligibility categories) were motivated to investigate their health insurance options due to the increased public salience of health insurance. Once they contacted the system, they were determined to be eligible for Legacy Medicaid.
Individual Qualified Health Plan (QHP) — This is the primary element of what people think of when they think of the ACA. This is the exchanges. This is the premium tax credits. This is cost sharing reduction subsidies. This is the area of guarantee issue, community rated coverage where everyone can buy a policy without regard to their health status during open enrollment. It is also the area where a single major finance element is needed, the individual mandate tax is used as a cudgel to get low cost and relatively healthy people into the risk pool.
There are two elements here. The first element is the on-Exchange population. It is Healthcare.gov or CoveredCalifornia or any of the other state based exchanges. People who buy on Exchange are able to receive whatever subsidies that they are eligible for. CMS expects about 13.8 million people to effectuate an on-Exchange policy during the 2017 Open enrollment period. Attrition occurs every year as the individual market is a holding area for a significant portion of the buyers.
The off-Exchange universe has no subsidies attached to the purchase of health insurance but otherwise it is fairly similar structurally to the on-Exchange elements. The Congressional Budget Office expects approximately 9 million people to be covered by off-Exchange policies in 2017.
Individual Mandate as a component of the QHP market
The penalty for not carrying coverage in 2015 is $395 or 2 percent of income, whichever is greater. In 2016, it rises to $695 or 2.5 percent of income. The federal government recoups this penalty via the tax filing process (this calculator tells you how much you would pay).
There are two sets of subsidies that make buying an on-Exchange QHP less expensive and more valuable for eligible buyers. Premium tax credits can be paid either in advance to the insurer or at the filing of the tax return. They are fully refundable and cover the difference between an individuals’ responsibility as determined by family income as a percentage of the Federal Poverty Level (FPL) percentage and the actual premium charged. The subsidy is based on the cost of the second least expensive Silver plan available. Premium tax credits are available for people who make between 100% and 400% FPL and who has no one in the household being offered affordable insurance through work.
The second subsidy is the Cost Sharing Reduction (CSR) subsidies that attach to Silver plans. These subsidies decrease the deductible and other out of pocket expenses and thus increase the actuarial value of the plans. Kaiser Family Foundation has the breakdown:
Provide cost-sharing subsidies to eligible individuals and families. The cost-sharing credits reduce the cost-sharing amounts and annual cost-sharing limits and have the effect of increasing the actuarial value of the basic benefit plan to the following percentages of the full value of the plan for the specified income level:
100-150% FPL: 94%
150-200% FPL: 87%
200-250% FPL: 73%
250-400% FPL: 70%
There is a lawsuit, House vs Burwell, working its way through the courts. The House of Representatives contends that the CSR subsidies are not mandatory appropriations and that there has been no discretionary appropriation to fund the subsidy payment to carriers. The District court has agreed with the House. Payments are still being made to carriers as the Obama administration appeals. If CSR subsidies are not funded, CMS will allow carriers to withdraw from the on-Exchange market immediately.
Charles Gaba has a good round-up of how the market could collapse. I’ve truncated some non-critical steps:
- Trump orders his Treasury Secretary not to make February CSR payments.
- This triggers exit clause for carriers, who yank all Silver plans from the exchange immediately.
- All of this likely becomes moot anyway, since without offering a Silver plan, the carrier can no longer participate on the exchange at all.
- Carriers are legally kicked off the exchanges entirely. ~12 million people (~10 million relying on subsidies, ~2 million paying full price) are immediately (?) thrown onto full-price off-exchange market.
- The 2M paying full price already presumably don’t see any change (yet), but the other 10M or so now have to pay full price for plans they can’t possibly afford in most cases.
- Perhaps ~1M at upper end of (lost) subsidy level scramble and stick it out; the other ~9M are basically screwed.
- With fully 50% of the entire individual market now wiped out, but all other regulations still in place (community rating, guaranteed issue, etc), off-exchange market is also utterly destabilized, threatening the remaining 9-10 million there as well (perhaps not until 2018?)
SHOP small business — SHOP was a tax credit based exchange for smaller businesses. It has had minimal use with under 100,000 people enrolled via SHOP in 2015. Eliminating this provision would have minimal impact as the people covered by SHOP would most likely be eligible for subsidies on Exchange.
Major Benefit/Policy Regulatory Areas
Essential Health Benefits (EHB) — Essential health benefits are ten areas that a health plan has to have to be a qualified health plan. A QHP is a plan that meets the individual mandate requirement if it was first issued after the signing of the ACA. EHB’s vary somewhat between states. The major areas of future debate will be maternal, mental health (including substance abuse) and some preventive services.
Preventive health services are a requirement that they be included at no cost-sharing to the member. Preventive health services including contraception are identified by federal rule making and not by law. Eliminating some of the categories of EHB would lower premiums slightly while also re-introducing gender and condition based effective price discrimination.
Mental Health Parity — Mental health services are required by law to be treated the same in terms of cost sharing as physical health services. On a practical basis that means mental health cost sharing usually looks like specialist cost-sharing.
Actuarial Value and maximum out of pocket limits — The ACA limits the maximum amount of money out of pocket (in addition to premiums) a person can be made to spend in a year on their health insurance. This will vary by the actuarial value level which is the expected portion of the total pool’s bill covered by the carrier. Actuarial values are set by law in the ACA for the individual market (Catastrophic, Bronze, Silver, Gold, Platinum) but there is wiggle room. There have been proposals to lower allowable actuarial value (Senator Begich’s Copper plan, Manhattan Institute proposed 40% and 55% AV plans, etc)
Lower actuarial values (all else being equal) will lead to lower premiums but much higher out of pocket maximums.
Medical Loss Ratio — Carriers are required to spend at least 80% of their premium dollars on claims or qualified quality improvement activities in the individual and small group market. This requirement goes to 85% in the medium and large group markets. If the carriers can not meet these goals, refunds are sent out.
Medicare Part D Donut Hole — the Donut hole in the Medicare Part D is shrinking. It is due to be completely eliminated by 2020 under current law.
Medicare Advantage payment equalization — Pre-ACA research showed that Medicare Advantage (Medicare Part C) plans were getting significantly overpaid for the same actual medical risk compared to traditional Fee for Service Medicare. The ACA has lowered the relative payments to Medicare Advantage to the point where most MedPAC and health policy researchers believe the two programs are getting paid roughly the same now.
System Delivery Reform and Innovation
Medicare is the primary experimental arm of federal health policy because it is the biggest single payer in the country and it is under Federal control, oversight and operational management. Medicare has been charged to institute a wide variety of payment structure and service delivery reforms including bundled payments, gain sharing and other structures that are experiments and pilot projects to move Medicare away from fee for service to some type of value based care. Several organizations within the Center for Medicare and Medicaid Services (CMS) have been granted either extraordinarily powers or significant budgetary authority and freedom to experiment and then roll out best practices if they are found to be actuarial improvements.
The Society of Actuaries commissioned a white paper by Milliman to examine non-fee for service payment methodologies in 2015. Appendix B has a good overview of the significant changes to payment reform elements of the ACA
This is a very high level overview of the major moving parts in the ACA. I think I have it organized so that one part could be eliminated without severe consequences for everything else.