What our crystal ball tells us on Repeal & Replace

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Mainstream news continues to cover the struggles of the Trump administration and the GOP to effectively repeal and replace the Affordable Care Act (ACA) with something that will create more solutions than problems. So we thought it might be fun to look at how repeal might take shape and, based on what we’re hearing and reading, try to predict how the reform of healthcare reform might unfold. We’ll address each topic separately and let you know what we predict and why.

  • Coverage Guarantees – Rules prohibiting insurers from denying coverage for pre-existing conditions are likely to remain as part of the new replacement strategy. The general public wants people to have access to care, and without these guarantees, there are some who will be left with few, if any, options.
  • Dependent Coverage to age 26 – This has also been a popular feature of the ACA and there’s no real opposition to it from any stakeholders, so it seems that this provision will remain intact in any replacement legislation.
  • Cadillac Tax – This is one item that Democrats and Republicans alike agree needs to go. The additional cost this will add to future premiums and the burden it will place on a wide swath of American workers makes it a near certainty to be part of the repeal legislation. However, it is likely that Republicans will replace the tax with a cap on the amount of premiums that can be excluded from income in order to preserve some of the revenues that the Cadillac tax is expected to generate.
  • Employer Mandate – Whether the employer mandate stays or goes is more of a toss-up. On one hand, large employers hate it because of the complicated and onerous reporting requirements that are imposed, and for large employers who do not offer coverage, the prospect of paying a fine isn’t so attractive either. On the other hand this is a large funding mechanism of tax revenue that Republicans know they will need in some way, shape or form, in order to advance their own programs for making coverage more affordable. In the end our bet is that the employer mandate will go away. One main reason is that Trump said it would go away, and in order to get support from the most conservative of Republicans, (and because it is one of the items that can actually be changed through the reconciliation process), we expect it will be repealed. A replacement for the funding this tax created will have to be found, however it’s our bet that many employers would likely be willing to pay some type of new tax in lieu of having to pay employees, payroll vendors and reporting companies to manage the whole process of reporting.
  • Medicaid expansion – Of the roughly 20 million people who gained coverage under the ACA, approximately ½ of those did so through the ACA’s expansion of Medicaid. Taking that coverage away from some of the most in-need is unlikely. Although the Federal government does fund Medicaid, Medicaid was always intended to be run by the individual states, for better or worse. The current talk seems to lean towards Medicaid being turned into a block grant program to the states that would then determine how best to run their individual state Medicaid programs. Some states may continue with expanded eligibility, others may not, but we expect that decision to be left to each state independently.
  • Individual subsidies – In their current form, individual premium and cost-sharing subsidies will go away. However, other programs to help provide funding assistance will likely have to replace the subsidies, otherwise many will be unable to afford coverage. For example, funding of Health Savings Accounts for individuals to help offset out-of-pocket costs, and creating high risk pools for less healthy risks – both are being strongly considered as part of a replacement plan – would require additional funds to come from somewhere in order to keep premiums and costs reasonable.
  • Individual Mandate – While Trump vowed to free people from the individual coverage mandate, doing so becomes a little tricky. With Supreme Court Justice John Roberts’ determination that the individual mandate was in fact a tax, it is eligible to be removed through the reconciliation process. However, the individual mandate came about as a trade off with insurance companies in order to get them to agree to guaranteed issue and coverage for pre-existing conditions – if they were going to agree to cover more claims and pre-existing conditions, then the insurance carriers needed to collect more money from those who were less likely to have claims. Given the popularity of these two provisions, we believe the individual mandate will remain in place in order to keep insurers in the game.
  • Risk-based underwriting – The absence of risk-based underwriting, which is currently prohibited in fully-insured plans under the ACA, causes healthy risks to pay substantially more than the risk they themselves represent, thereby making coverage unaffordable, or at least unattractive, to many. Moving back to a risk-based pricing strategy would be an effective way of bringing younger, healthy individuals back to the insurance market and would help in the collection of more premiums from healthy individuals to help subsidize the sick. And for those who are not able to qualify for a standard issue, risk-based premium policy, high risk pools mentioned above would be available as a way to purchase coverage.
  • Selling across state lines – many in the GOP have been clamoring for years about how an insurance company’s ability to sell across state lines would make markets much more competitive. And while often times more players means better competition, we’re not sure there is substantial savings to be had. Most of the differences in the price of a policy in Idaho versus a price in Manhattan has to do with the cost of care in a particular location. If someone living in Manhattan were to purchase a policy from Idaho, it doesn’t mean that the company in Idaho wouldn’t make a geographical adjustment to reflect the higher cost of care they would be paying in Manhattan, thereby driving up the price of the Idaho policy. Avoiding some of the state mandates for benefits might save some money, but overall most of the mandates are benefits people would choose to include in a policy anyway, so again there’s likely not a lot of savings to be had. That said, there’s no harm in allowing companies to sell across state lines, and since this has been a talking point of the GOP for many years and there seems to be very little opposition, we expect that it will be a part of replacement legislation.

We admit, our crystal ball is a little cloudy, but for what it’s worth this is some of what we anticipate in the coming year or so in the reform of the reform.

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