“HIT assesses a levy on every fully-insured medical-plan premium. For example, a retired couple enrolled in Medicare Advantage plans will pay an additional $510 for coverage in 2018 to pay this new tax, according to actuarial consultancy Oliver Wyman. Working families are projected to experience a similar $525 – $550 increase.”
William G. (Bill) Stuart
Director of Strategy and Compliance
January 18, 2018
While some members of Congress and a number of health care experts still dream of a world in which the Affordable Care Act is repealed, that effort remains largely a pipe dream that’s unattainable unless a majority in the House of Representatives and 60 senators vote to repeal the law. The House barely passed a law last May to make some amendments to the ACA and Senate Republican leaders couldn’t muster 50 votes (the party controlled 52 seats at the time, down to 51 now) necessary to pass the legislation under special Senate rules. Thus, it’s unlikely that the GOP will repeal the signature legislation of the Obama administration.
Not that some won’t try. Meantime, members of Congress have returned to Washington, DC, with a full agenda, including a number of issues related to medical services and financing. Here are some of the issues that will surface on both sides of Pennsylvania Avenue in the coming months:
Reps. Billy Long (R-MO) and Kurt Schrader (D-OR) introduced a bipartisan bill in mid-December to include broker compensation in the MLR formula in the individual and small-group markets.
The ACA currently includes the following provision:
- 300gg–18. Bringing down the cost of health care coverage
(a) Clear accounting for costs
A health insurance issuer offering group or individual health insurance coverage (including a grandfathered health plan) shall, with respect to each plan year, submit to the Secretary a report concerning the ratio of the incurred loss (or incurred claims) plus the loss adjustment expense (or change in contract reserves) to earned premiums. Such report shall include the percentage of total premium revenue, after accounting for collections or receipts for risk adjustment and risk corridors and payments of reinsurance, that such coverage expends on the following:
(1) reimbursement for clinical services provided to enrollees under such coverage
(2) activities that improve health care quality
(3) all other non-claims costs, including an explanation of the nature of such costs, and excluding Federal and State taxes and licensing or regulatory fees.
This bill would include broker commissions in with medical costs, investments in quality improvement and various taxes and other mandatory expenditures that constitute “medical costs.” If these costs exceed 80% of collected premiums in the nongroup and small-group markets, insurers must offer rebates to every policyholder (individuals in the nongroup market and employers in the small-group market).
This bill may actually slow premium increases. The 80% MLR requirement, meant to reduce premium growth, can have the perverse effect of increasing the cost of coverage. If insurers need an additional $10 to support administrative activities (everything from executive salaries and real estate to customer service, marketing and compliance with ever-increasing federal and state regulations), they can’t simply increase premiums by $10. Instead, they must increase their costs by $40 and their premiums by $50 (preserving the 80:20 ratio) to cover their administrative spending.
This bill recognizes the importance of broker in bringing together and educating buyers and sellers and acknowledges that such matchmakers deserve compensation. Including compensation in with expenses that represent 80% of total premium reduces insurers’ incentives to increase total premiums simply to finance this cost.
Long, the chief sponsor, spent much of his professional life as a realtor, receiving compensation from sellers to provide valuable services to complete business transactions, thus understands the role that brokers play in the process of buying coverage. Schrader, a veteran politician who has spent most of his adult life in elective office, both chambers of the Oregon legislature and now Congress, is a strong supporter of the ACA, demonstrating that a politician can be supportive of the ACA without being beholden to every provision in the law.
Stabilizing Individual Marketplaces
When President Trump complied with a federal district judge’s decision and ended the Cost-Sharing Reduction (CSR) subsidy program in late 2017, his action injected a new level of uncertainty into the individuals markets. The CSR subsidies offset much of the out-of-pocket financial responsibility on Silver plans purchased by individuals and families with incomes below 150% of the federal poverty level (FPL). Congress hasn’t funded the CSR program since its inception, and absent federal reimbursement, the burden of offering these subsidies rests with insurers. The total cost is expected to exceed $8 billion in 2018.
As a result, many insurers, encouraged by state insurance regulators, filed two sets of proposed Silver premiums for 2018. One set assumed no reimbursement for the CSR subsidies, while the other assumed that Congress would appropriate the funds needed to pay the subsidies.
During some furious negotiations last fall to stabilize the individual marketplaces, the Senate Health, Education, Labor and Pensions (HELP) committee, committee chairman Lamar Alexander (R-TN) and ranking member Patty Murray (D-WA) proposed legislation to fund the subsidies in 2018 and 2019. Congress adjourned without voting on the measure.
The bill gained added visibility late last year when Sen. Susan Collins (R-ME), whose opposition to the Senate’s ACA amendment package in July put one of the final nails in that legislation’s coffin, cited passage of Alexander-Murray as part of the price for her support of the GOP tax bill. The provision wasn’t included in the tax legislation or Congress’ temporary spending bill in late 2017.
The Trump administration has used administrative action, which doesn’t require congressional approval, to increase the range of product choices available to individual and small-group purchasers. The administration allowed all consumers, not just the young, to purchase catastrophic plans formerly available only to individuals under the age of 30 and a handful of others with a hardship or affordability exemption and allowed the purchase of “temporary insurance” for up to one year with renewability, rewriting an Obama administration restriction of 90 days and no renewal of these plans. And the administration recently reduced restrictions on association health plans [http://www.washingtonexaminer.com/everything-you-need-to-know-about-trumps-executive-order-on-association-health-plans/article/2638502 ], allowing smaller companies to come together for the sole purpose of purchasing medical insurance as a group to expand the claims pool and reduce administrative costs.
The Trump administration recently solicited ideas from insurers, buyer consortiums and other interested parties to increase innovation, expand options and manage costs. These ideas are being evaluated. I’ve been involved in drafting one such initiative that would allow states to offer a consumer-driven health option within Medicaid. Coverage would include a deductible, a state-funded HRA to cover the deductible and an HSA funded by individual enrollees and through transfer of part of their HRA balance. The proposal is based on several years of such a program in Indiana, whose Medicaid program was overseen by current Centers for Medicare and Medicaid Services head Seema Verma.
You can expect to see administration officials choose a handful of projects to implement in the coming months. Each offers hope of some improvement in cost or choice. The results may not have a huge impact in the aggregate, but they offer the potential to curb costs in some areas, like helping states manage the runaway cost of Medicaid, particularly in states that adopted the ACA expansion, as in the case of the effort in which I’ve participated.
The Children’s Health Insurance Program provides services for children whose family incomes are too high to qualify for Medicaid but too low to purchase private insurance. Currently 8.9 million children are enrolled.
A joint federal-state partnership (like Medicaid), CHIP can run either in parallel with Medicaid or be folded into Medicaid at the discretion of each state.
CHIP is a popular program among both Democrats and Republicans. Some lawmakers have questioned whether the program’s design is optimal and have delayed supporting reauthorization through 2022 without looking at the program’s effectiveness.
Expect CHIP to be reauthorized for another three to five years early this year.
The 40% excise tax on high-cost health plans, dubbed the Cadillac Tax, has been in critics’ crosshairs since the ACA passed in 2010. President Obama and Congress delayed implementation of the tax from 2012 to 2020. The levy is nearly universally unpopular with:
- Insurers, who must pay a 40% excise tax on all premiums above a threshold figure.
- Employers, to whom insurers will pass along the tax bill.
- Employees, who’ll have less access to Health FSAs and HSAs (elections and contributions are included in determining total premium and thus will be subject to the 40% tax).
- Democrats, because union plans traditionally offer rich benefits with accompanying high premiums that will be subject to the tax.
- Republicans, although they’ve been reluctant to push for outright repeal because (1) they don’t have a convenient revenue offset and (2) as long as Democrats want it abolished, they retain a bargaining chip in negotiations.
Its chief defender, President Obama, is no longer in the political picture. He and some economists defended the Cadillac Tax as a levy necessary to reduce premiums by increasing patient out-of-pocket costs to limit “overinsurance” – excess utilization because patients pay only a small portion of the total cost of services.
The failed GOP ACA amendment bill included a delay in the Cadillac Tax until 2026. That bill didn’t become law. A delay wasn’t included in the GOP tax bill passed in December. As of now, the tax will go into effect on all medical plans that renew in 2020. Since large employers are already finalizing their 2019 benefit plans and thinking about 2020, some certainty around the tax would be welcomed.
Other ACA Taxes
The Cadillac Tax isn’t the only ACA tax generating opposition. Its siblings, the Health Insurance Tax (HIT) and the Medical Device Tax, are equally controversial. HIT assesses a levy on every fully-insured medical-plan premium. For example, a retired couple enrolled in Medicare Advantage plans will pay an additional $510 for coverage in 2018 to pay this new tax, according to actuarial consultancy Oliver Wyman. Working families are projected to experience a similar $525 – $550 increase.
The impact will be larger in the future. Employers can avoid the tax by moving to a self-insured arrangement. Many have done so already to increase their benefits flexibility, manage costs and avoid taxes. The smaller the pool of fully-insured coverage (which always includes individual purchasers and nearly always includes all small employers), the more dramatically other taxes will have to increase to achieve revenue projections.
The Medical Device Tax is a 2.3% levy on gross sales (not profits) on medical equipment ranging from imaging and diagnostic equipment like CT scan machines to implantable devices. The tax has drawn the ire of tax enthusiasts like Sens. Elizabeth Warren (D-MA), Ed Markey (D-MA) and Amy Klobucher (D-MN), whose states have a high concentration of manufacturers impacted by the tax. Warren, Markey and Klobuchar have all introduced legislation to eliminate the tax.
I spent time with colleagues in late 2017 visiting Republican and Democrat lawmakers, their staff members and congressional committee staffers to discuss the Cadillac Tax. Beyond the recommendation that we eliminate these taxes (which most members of both parties dismissed without revenue offsets), we encouraged lawmakers to think of these three levies collectively rather than each individually. At that time, lawmakers were focused on HIT and the Medical Device Tax, while the Cadillac Tax wasn’t surfacing as an urgent issue because it was delayed until 2020, while the other two taxes were scheduled to take effect in 2018.
All three raise costs, limit options and reduce coverage, the very antithesis of the intent behind any reform measures. And all three impact some combination of employers, employees and other insurance buyers, patients and providers in 2018, either because they’ll be levied beginning this year or they’ll impact the next rounds of benefits planning.
What We’re Reading
Some economists measure the cost of goods and services not in dollar terms (since the value of the dollar changes over time), but rather in the number of hours of labor needed to purchase an item. How do medical costs fare when measured in units of time rather than dollars? Here’s the answer.
Residents of Maryland, including women, could soon find themselves without an HSA-qualified coverage option thanks to a state law that requires full coverage for male sterilization. The law is designed to provide equity between women’s and men’s sterilization procedures by covering both genders’ procedures in full. The IRS, which governs HSAs, doesn’t recognize vasectomies as a preventive service that can be covered outside the deductible on HSA-qualified plans. The state law applies to all fully-insured plans in the state and doesn’t provide an exception for HSA-qualified plans (as some state mandates for full coverage do in other states). Absent action from the IRS or a change in the law, Marylanders covered by fully-insured plans that otherwise are HSA-qualified won’t be able to open or contribute to HSAs in 2018.