The Loop

Repeal and Replacement Prospects for Obamacare

Filed under: Benefits

The Patient Protection and Affordable Care Act (PPACA), in its current state, appears to be on its way toward some form of repeal. In early January, with the new Republican-dominated Congress leading the charge, S.Con.Res.3 was passed by both the Senate and House of Representatives. This resolution establishes the congressional budget for the federal government for 2017, with budgetary recommendations for federal revenues, outlays, deficits, public debt, and the major functional categories of spending.

This budget reconciliation process is the first step in the repeal and replacement of PPACA by creating a deficit-neutral reserve fund for healthcare legislation. Going forward, this resolution and its associated rules will grant special protection to bills that repeal or reform the current law even if they cause a temporary increase in spending.

The interesting thing about large-scale healthcare legislation is that it is bound to be flawed. In trying to solve many problems, Obamacare unintentionally created others. Any replacement legislation is likely to have the same result. Ultimately, the country may have to choose a path and commit to recognizing that – like all best-laid plans – problems will have to be addressed as we continue to discover best practices and efficacious solutions. Given the lack of details regarding a replacement plan as of this writing, this is a highly likely scenario.

With that being said, it's perhaps important to recognize provisions of the PPACA that are popular and likely to continue as part of any replacement legislation:

• Permitting young adults to stay on their parents' insurance policy until age 26
• The ability to purchase healthcare insurance regardless of pre-existing conditions
• Disallowing lifetime limits on insurance coverage

Then there are the mandates that are not popular, and not likely to survive a repeal:

• Minimum required benefits, including controversial birth control coverage
• Individual mandate, which requires all adults to purchase health insurance coverage or pay a tax penalty
• Employer mandate, which requires organizations with 50 or more full-time or equivalent workers to provide health insurance coverage to all full-time workers (defined as working an average of 30-plus hours per week) or pay steep penalties
• 40% Cadillac tax, currently not scheduled to take effect until 2020, would tax companies that offer excessively rich health insurance benefits to workers (annually costing at least $10,200 for individuals; $27,500 for families)
• 3.8% tax on investment income (for income over $200k/$250k)
• 2.3% tax on medical device manufacturers
• Medicare Part A tax increase of 0.9% (for income over $200k/$250k)

Unfortunately, some of the unpopular mandates are designed to provide funding to help pay for the popular benefits. Without them, or at least without other funding measures to replace them, insurers may have no choice but to raise premiums exponentially to replace the cost of providing those benefits — even with new legislation in place.

However, given the likelihood of repeal, now is a good time to consider some of the provisions that may be impacted and replacement solutions proposed. Last June, House Speaker Paul Ryan unveiled what Republicans refer to as a "blueprint" for healthcare reforms moving forward. President Trump's cabinet pick for secretary of Health and Human Services (HHS), Rep. Tom Price, repeatedly introduced the Empowering Patients First Act. These, along with a plethora of other proposed bills, offer variations of the health insurance theme.

Rather than compare and contrast the intricacies of dozens of proposed replacement bills, the following discussion offers an overview of many of the issues at stake.

Health Savings Account (HSA)
Republican lawmakers have proposed enhancing HSA usage by increasing contributions, allowing funds to be used to reimburse health insurance premiums, and giving taxpayers a one-time tax credit for HSA contributions.

Tax Benefits
Rather than offering a tax subsidy, which is money paid by the government directly to insurers, the GOP favors refundable, age-adjusted tax credits. A tax credit is a reduction in a taxpayer's taxable income. This credit would be available to people who do not have access to coverage through an employer or government program to offset the cost buying health insurance. The tax credit would promote portability, so workers could move from job to job, state to state, and into retirement years without having to remain with one employer for health insurance reasons. The tax credit would be age-adjusted so it increases as taxpayers grow older.

Another option is to cap the tax-deduction that workers receive for premiums paid by employers for a group health plan. In other words, workers would incur higher taxes on their take-home pay. This provision is designed to encourage employers to offer cheaper, high deductible policies to their workforce.

Defined Contribution Healthcare Benefit
Alternatively, employers may simply provide workers a fixed, pretax dollar amount and give them the option to select either an employer-sponsored plan or purchase a policy on the individual market. This strategy would enable workers to decide if they'd prefer to buy a low-cost plan and bank the rest of the allowance in a health savings account. Theoretically, this would help people save to pay for higher out-of-pocket healthcare costs as they grow older.

Multistate Plans
One option to promote insurance competition is to allow individuals to shop for a more affordable plan licensed in another state. However, in the near-term this would create challenges for both state health insurance department regulators and insurers who must renegotiate and broaden their provider networks.

Another way to help reduce health insurance risk and therefore premiums is to permit individual market participants to create insurance pools that would cross state lines, encouraging competition among insurers. A small business pool would be offered association health plans (AHPs) while an individual health pool (IHP) would enable the uninsured and self-employed to garner a somewhat higher level of purchasing power in the individual market.

High-Risk Pools
There also is a proposal to combine people with pre-existing conditions who are not covered by the group market into a high-risk pool to help spread out the cost of insurance, although it is likely this insurance pool would have to pay extraordinarily high premiums.

While PPACA features an annual enrollment window, some favor a single, one-time enrollment period (like Medicare has) to encourage participants to retain continuous coverage. Should a participant lapse coverage for a period of time, he or she may enroll at a later date but be subject to higher insurance premiums.

Employer Mandate
It is possible Congress could decide to change the definition of a full-time employee entitled to employer-provided coverage from the current 30 hours to 40 hours per week. However, this creates a tricky situation in which employers who began offering healthcare insurance to 30-40 hour/week workers would have to decide whether to retract it. It also opens up the option for employers to return to offering low-cost insurance that provides minimum benefits to part-time employees or in industries with high turnover.

Conscience Protections
Rather than mandate benefits, various stakeholders, including insurers, employers and even healthcare providers would be given the freedom to exercise their conscience regarding healthcare services, such as providing birth control coverage. This philosophy includes barring federal taxpayer money to be used to pay for abortion or abortion coverage.

In a reversal of federally sponsored Medicaid expansion at the state level, Republicans favor empowering states to design Medicaid programs to best meet their constituents' needs. Limited funding would be offered as either a per capita allotment or a block grant. Each state would be responsible for setting eligibility requirements for benefits, such as requiring individuals to seek a job, be employed, or participate in a training or educational program, and/or not allowing illegal immigrants to receive benefits.

To help extend funding for Medicare, the government could switch to a premium support payment –referred to by some as a voucher – that would help seniors pay for or offset premiums for the plan of their choice. Lower-income seniors would receive additional assistance to help cover out-of-pocket costs while higher-income seniors would pay a higher share of Medicare premiums.

Curbing Healthcare Costs
The question remains whether revamped legislation that promotes more competition among insurers would curb the growing cost of healthcare. After all, insurers would go out of business if they didn't charge enough premium to cover the cost of healthcare services. Therefore new legislation may not be effective if it doesn't directly address the rising costs of providing those services, prescriptions and durable medical equipment.

In fact, since half of all American adults suffer from at least one chronic condition and nearly one in three have multiple chronic healthcare conditions, the pool of healthy participants continues to shrink. With too few healthy Americans participating in insurance pools, it stands to reason that premiums must increase or be subsidized by government resources.

Regardless of what happens over the next few months, there are practical matters to consider – such as how long it takes for insurers to make changes to plan benefits and networks, file products and rates, and receive state(s) approval. As such, any significant changes slated to begin in 2018 would need to be clarified by springtime this year. With this in mind, it's hard to imagine PPACA could be repealed, replaced and implemented without a substantial transition period.

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