In case you haven’t subscribed to the same “Google Alerts” we do and missed the countless push alerts about the news, House Republicans have unveiled their plan to repeal and replace the Affordable Care Act (or the “ACA” …also commonly called “Obamacare”). There are plenty of opinion pieces out there—this is not one of those pieces. This is an attempt to simply explain what, if ultimately enacted, the legislation would actually look like. Remember, the reality is that as of this moment in time, this is not a new law yet. This represents the wording for legislation that Republicans are going to attempt to get enough support for. Things could still change, but exploring the proposed ins and outs of this starting point legislation is what this article is attempting to do.
As we begin to explore, let’s be clear that this is not a full-blown repeal of the ACA. Rather, this proposal seeks to repeal and replace certain aspects of the ACA, while still actually preserving others. The highlights of this reality are the GOP’s plan to repeal affordability provisions, individual and employer mandates, some taxes and Medicaid reforms, yet leave untouched what the ACA did to insurance carrier’s needs to cover children up to age 26, make policies guaranteed issue (no underwriting) and guaranteed renewal (can’t be cancelled for over-utilization), as well as prohibitions against lifetime and annual limits. So, the truth is this bill is a mix of leaving certain ACA pieces intact, and then repealing/replacing other pieces.
One such key provision that this legislation would usher in would be a change to Medicaid. Medicaid (or Medi-Cal here in California) is a jointly funded, Federal-State health insurance program for low-income people and people with certain other qualifying needs. What this means is the way the program works is that States provide some of the money and also the Federal Government provides some of the money that pools together to fund the people who are covered under this program. The ACA allowed States to make a decision on expanding the people who would be able to be eligible for Medicaid such that those who earned up to 138% of the Federal Poverty Limit would be able to qualify. For States that chose this expanded eligibility option, the ACA dictated that the Federal Government would pay 100% of the costs of those people in that expansion pool from 2014-2016 and gradually phase down to 90% of the costs in 2020 and remain at that level. The GOP plan would account for both the States that did choose the expansion and those who didn’t. For States that did expand Medicaid, the new legislation would have the Federal Government continue to pay the same amounts it is currently paying until the year 2020. In 2020, it would set funding at 90% of the added costs of the expanded pool and also it would only cover these costs for those who enrolled prior to 2020. To put that more simply, if a State chooses to keep the Medicaid expansion beyond 2020, then a person in this income bracket who signed up prior to 2020 would have 90% of their costs paid by the Federal Government. Conversely, in this scenario, a person who signed up after 2020 would be the financial responsibility of that State. For the 19 states that did not expand Medicaid, the legislation would provide $10 billion, spread over five years, which States could use to subsidize hospitals and other providers of care that treat many poor patients. Additionally, as a whole, the Medicaid program would convert from its current form of entitlement to anyone eligible into a per capita cap on funding to states, depending on how many people they had enrolled.
Another change that this GOP bill has the potential to usher in is the manner in which some people buy individual plans. Currently, for those that are not offered “affordable coverage” (most typically an employer plan, or a Government plan like Medicaid/Medicare/some sort of Military plan etc.) they might (depending on their income) be eligible for a subsidy. The subsidies are based on their income and also based on the cost of insurance plans available to them. In other words, qualifying people have the total cost of an insurance plan capped at a certain percentage of their income, where they pay their part and the Federal Government sends a check to the insurance company to subsidize the remainder. Under the GOP option, rather than subsidizing the plan, the person would see the full cost of the insurance product. Having said that, not all people would have to pay that full cost out of their pocket because the Federal Government would issue a refundable advanced “tax-credit” (basically just a check from the Federal Government) that they would use to offset the cost of the insurance plan. Under this proposed plan, the tax-credit would be a calculated amount based off of a blend of a person’s age and their income. Beyond assistance with premiums (aka, what you pay on a monthly basis simply to be a member of the plan), the ACA also included a subsidy provision for utilization costs. For those of a certain income level, the ACA had provisions that lowered the prices these individuals paid when they received medical care (plans had subsidies so that members saw lower co-pays, lower deductibles etc.), and the new GOP plan repeals this cost-sharing assistance without replacing it.
On the topic of individual plans, one of the changes that is generating the most, shall we say debate, is how the legislation deals with the individual mandate. The ACA introduced an idea known as the “Individual Mandate.” Essentially, what this part of the ACA did was to say to people they must have coverage or pay a fine—so, if they don’t have an employer health insurance policy, or they don’t qualify for a government plan, then they need to either get an individual insurance policy or face a tax penalty at the end of the year. While the individual mandate wasn’t universally popular, it was an inextricable partner to another part of the bill that was—guaranteed issue. Strictly speaking, the individual mandate was used to solve a key problem, which is that if you want to guarantee coverage for those with preexisting conditions, you need to protect the insurance carriers from adverse selection. The long and the short of it is that if policies were always guaranteed to be issued, then too many people would wait until they are sick/in need of medical attention to pay into the system. The individual mandate was an attempt to get a broader group of people paying into the system to protect the pool, and have a profitable mix of people paying and not using + people paying and needing care. Without this protection, the fear is that the pool will be disproportionately unhealthy which means that insurance carriers would need to charge more and more to cover the claims utilization of the pool they insure—ultimately driving individual plan prices even higher, even faster. The issue of needing to steer the healthy into the overall pool in order to contain costs remains a reality no matter who the majority party is in Washington, but the GOP bill seeks to repeal this provision and replace it with an alternative attempt to address the issue. Under the GOP plan, rather than incenting people to get a policy by levying a tax penalty, they propose a system whereby individuals are charged a 30% increase on insurance premiums if they ever allow a policy to lapse and attempt to buy back in. Put another way, if a person has continuous coverage, then they will only ever pay the going market-rate for insurance. However, if a person allows coverage to lapse, and goes without insurance, when they do go to buy back into the system they will face a 30% “penalty” (in the form of increased premiums) for the first year that they are back under a policy.
What is important for employers to know is that the bill not only eliminates the individual mandate, but also seeks to eliminate employer penalties. Under the ACA employers of a certain size are required to offer their full time employees affordable coverage or they face penalties. This legislation retroactively eliminates these penalties (back to years beginning with 2016). What this mean is that the new legislation would remove the potential $2,000 “pay or play penalty” some employers faced as well as the potential $3,000 affordability penalty that was also included in the ACA. However, what employers will find significant is that the bill does not eliminate the ACA’s employer and insurer reporting requirements. Speaking of things that are important to employers, while there were early drafts of the bill that leaked which implied an employer would possibly lose the ability to write off premiums, that sort of language is not included in this bill.
Some of the other aspects of the bill that are newsworthy are prohibition on Federal Funds going to Planned Parenthood, language that ensures tax credits won’t be available to pay for insurance policies if they include abortion coverage, and changes to HSA plans (where HSA dollars could be used to cover medical expenses up to 60 days prior to the HSA coverage, and the amounts one can set aside into an HSA would nearly double).
Lastly, of note, several taxes contained in the ACA would be repealed at the end of this year, including taxes on health insurers, pharmaceutical and medical device manufacturers and a further postponement of the “Cadillac-Tax” on high premium plans is included as well that pushes that back until at least 2025.
Again, it remains to be seen whether this proposal will make its way into law or not, but the key is to understand what major changes would result if it were to be enacted, and to prepare for them early. What is also incredibly important to understand is that there is a degree of politicking that goes into the passage of any legislation. Speaker Paul Ryan is largely credited as being the main force behind this particular initiative’s legislative push. When he himself describes this bill, he points out that it was written so that it only includes language which would protect its ability to be introduced to a Senate vote in such a way that it only needs a simple majority, or 51 votes. This gets a little technical, but the bottom line is that some legislation (depending on what’s included in the bill) can be passed with just a 51% simple majority vote and other legislation (again, depending on what’s included in the bill) can be blocked by just 41% of the Senators. Because of the slim majority the Republicans have in the Senate, the concern is that if they included language that takes the bill outside of a 51 vote majority style bill, then the legislation will surely be blocked by the Democratic minority. In order to account for other things that they (1) did actually want in the bill but (2) could not include (to protect its voting future), Paul Ryan talks about a secondary course of action that will effectively “round out” this legislative effort. Long Story short, this bill (in and of itself) is admittedly an incomplete picture, and the rest of the changes will be introduced through alternative means. This somewhat technical “Washington-ese” explanation gives us the rationale behind truths like an exclusion of any wording promoting “selling insurance across State lines” even though it’s been a major Republican talking point and might otherwise confuse people by its absence from this bill. The expected course of action to get to a truly finalized “Post-ACA world” is to blend a mix of this legislation with orders from HHS (the Secretary of Health and Human Services, Tom Price, can issue edicts), and then voting 1 by 1 on other standalone items that they also want included in a finalized product.
There is an old adage that compares the legislative process to making a sausage—sometimes its better just to look at the final product than to consider all of the steps along the way that went into its creation. The process can be a little convoluted and messy, but hopefully this article has shed a little further light on where we are today.