“[W]e’ll see a lot of activity at the federal and state level as politicians and special interest groups formulate their political plans for 2020 and beyond.”
William G. (Bill) Stuart
Director of Strategy and Compliance
Nov. 29, 2018
Although the 116th Congress won’t be seated until early January, it’s not too early to speculate about how the split Congress will approach medical care, coverage, and financing.
The mid-term elections brought a change in party control of the House of Representatives. The Democrats gained somewhere between 35 and 40 seats (we’re still awaiting results in several districts), giving them a clear majority in the lower chamber. The Republicans held their narrow control (51 seats) in the Senate and actually gained two seats following incumbent Cindy Hyde-Smith’s victory Tuesday in a run-off election after neither she nor challenger Mike Espy received a majority of votes cast in the Nov. 6 election.
So, what does it all mean?
It’s likely that we’ll see a lot of discussion about what most analysts call health care. It registered as the most important topic in polls prior to the mid-term elections, and exit polls showed that many voters cast ballots with the topic in the forefront of their minds. It’s hard to find a Democrat who’s not in favor of fixing flaws in the Affordable Care Act, President Obama’s signature domestic policy achievement and the party’s biggest legislative success so far this century.
At the same time, a growing number of Democrats campaigned on the concept of Medicare for All, a term that resonates more positively than single-payer system among voters. And although some newly elected Democrats (like Alexandria Ocasio-Cortez of New York) made single-payer a key pillar of their insurgent campaigns, Democrats won the House by running a number of moderates, often military veterans, in districts represented by Republican incumbents and considered “swing” districts. These new Democrats, as well as centrist holdovers, are leery of proposing or going on the record with a vote on a government-run medical system. Their commitment to their principles in the face of party pressure will be an interesting battle to watch.
Even in the unlikely event that Democrats can pass a single-payer bill in the House, we won’t see the federal government assume responsibility for the remaining half of medical expenditures that it doesn’t already cover. Senate Democrats will not be able to secure 60 votes in the upper chamber to send the bill to the desk of a Republican president.
Why is this issue DOA? First, Republicans won’t give Democrats a political victory that they can parlay into winning back the presidency and control of the Senate in 2020.
Second, Republicans have watched a single-payer advocate governor in Vermont scuttle a state-run single-payer system once he realized that taxes would have to more than double to pay for the effort. They saw Colorado voters defeat a single-payer program by a 4-1 margin in the 2016 election. And they saw the California Assembly (lower chamber) fail to act on a bill passed by the Senate, in part out of concerns that the program would triple the state government budget.
The bottom line is that we’ll hear more about Medicare for All that we did when Republicans controlled the House agenda, but it’s no closer to being considered as a serious option than it was before the mid-term elections. At this point, any discussion merely sets Democrat priorities and paves a path for future implementation. The issue won’t reach the floor of the Senate.
Repairing the ACA
Democrats will attempt to repair some of the flaws in the ACA. Foremost is the Cost-Sharing Reduction (CSR) subsidies. These are the subsidies paid to insurers to reduce the net out-of-pocket responsibility of low-income enrollees (about 53% of enrollees) on Silver plans through the ACA marketplaces. The ACA requires these payments but made no provisions to finance the obligation. The Obama administration diverted funds appropriated for other purposes, but a US district court judge ruled that it couldn’t do so. Before the Obama administration could appeal, Republicans won the White House. President Trump continued to fund the subsidies temporarily under a waiver issued by the judge but subsequently ended the payments. Insurers are now responsible for covering the CSR subsidies.
CSR subsidies have been mired in politics for several years. The Republicans haven’t supported appropriations because the absence of funding provides leverage, perhaps to negotiate other changes in the law that Republicans favor. Expect more of the same in the 116th Congress. It’s likely that Democrats will pass a bill in the House to fund the subsidies. That bill may pass the Republican-controlled Senate if it’s combined with other legislation that the GOP favors.
Prescription Drug Prices
Both major parties agree that drug prices are a political issue. President Trump has suggested tying Medicare Part B (prescriptions administered in a physician office or similar site) reimbursements to an index reflecting what other countries pay for the same medications. This approach has approved controversial. Less controversial is the Trump administration’s efforts to accelerate the introduction of generic alternatives to brand-name prescription drugs into the market.
Democrats are no less concerned about the issue. The incoming chair of the House Energy and Commerce Committee, which oversees prescription-drug prices, has suggested that regulating what Medicare pays for prescriptions and speeding up generic development are on his agenda as well. Drug companies are convenient targets for both parties, although constructive approaches to rein in costs without affecting innovation are more elusive.
You can expect to see movement on bipartisan legislation to address the high cost of prescriptions, particularly specialty drugs and biologics. It will be interesting to see whether it takes the form of stand-alone legislation or is part of a grander bargain between the two parties.
Action in the Executive Branch
Following the Senate’s failure to approve legislation amending the ACA in 2017, President Trump began to take matters into his own hands. In October 2017, he instructed administration officials to recommend administrative action in three areas. His administration has delivered on two and has proposed a third.
Short-term plans. Insurers have sold short-term plans for decades. These policies require medical underwriting and are not guaranteed-issue (which means that insurers can reject applicants based on their medical history). They were typically purchased to bridge the gap between two employer-sponsored plans or employer-sponsored coverage and Medicare.
The Obama administration restricted them to no more than three months in duration. The administration’s goal was to limit the use of short-term plans as a substitute for nongroup coverage purchased through ACA marketplaces. The rationale was simple: If healthy applicants purchased short-term plans as their coverage rather than ACA marketplace plans, the pool of people covered by the marketplaces would be sicker and costlier to cover.
The Trump administration relaxed the rules, allowing consumers to purchase these plans for up to 12 months in duration, with renewal up to 36 months of coverage. A number of reports indicate that the plans are often priced at half the premium of comparable coverage in the ACA marketplaces. Some of the premium difference is due to excluded benefits (short-term plans, for example, usually don’t cover maternity services, for obvious reasons), but much of it reflects the fact that ACA marketplace plans are priced as though everyone is sick, whereas short-term plans price according to risk.
Association plans. The ACA effectively forces insurers to restrict the plans that they offer in the small-group market. Small groups – whether machine shops or medical practices – typically are limited to plans with high out-of-pocket costs and often restricted networks. And they’re priced based on the risk of the entire community of small groups in a geographic area, rather than the specific risks that a small company’s employees represent.
Community rating proponents argue that the practice shields a small company against a single catastrophic event – a hemophiliac, premature baby, or heart-lung transplant, for example – by pooling that high claimant with all others in the community. At the same time, it disincentives the employer from offering wellness programs or other proactive measures to improve employee health because the improved experience isn’t reflected in the group’s renewal premiums. And the ACA eliminated some rating factors that insurers could use to adjust premiums for high-risk (think restaurants, bars, and construction companies) and low-risk (think accounting firms and fitness clubs) companies.
Enter association plans. They’ve been around forever. What the Trump administration did in its final regulations announced in June 2018 was relax the guidelines so that more businesses could band together to purchase insurance. Today, trade associations, chambers of commerce, and other organizations offer plans that small companies otherwise couldn’t purchase. The premiums, calculated to reflect the overall risk of the association, are typically lower than community rates. And the associations can negotiate as a single large employer, allowing them to choose benefits and plans that their members want rather than limiting them to plans offered to small groups.
HRA to reimburse premiums. In October, the administration released preliminary guidance permitting employers, regardless of the group size, to fund Health Reimbursement Arrangements with pre-tax dollars that employees could then use to purchase nongroup insurance. This program is similar to the Qualified Small Employer HRAs (QSEHRAs) that Congress authorized in the 21st Century Cures Act which became law in December 2016.
Prior to this guidance, which will undergo revisions and be issued as permanent guidance in 2019 for an effective date of Jan. 1, 2020, an employer could not subsidize premiums with an HRA. The Obama administration closed that door with administrative action as part of its effort to support the ACA.
Interestingly, this program actually helps ACA marketplaces. How? It’s generally agreed that the employer-sponsored insurance (ESI) market includes better risk (younger, healthier, wealthier enrollees) than the nongroup market. This program has the potential to transfer some people from the ESI market to the ACA marketplaces. If those who are transferred reflect the SEI population, their move to the ACA marketplaces will elevate the overall quality of marketplace enrollees. They will subsidize the older, sicker, poorer people who currently purchase nongroup coverage.
For employees, the plan increases their flexibility. Currently, employees at mid-size businesses often have a choice of two or perhaps three medical plans. In the ACA marketplaces, they typically can choose among dozens of options.
There are downsides for employees as well.
First, their choices are unlikely to include coverage as rich (lower out-of-pocket costs, broad networks, the presence of plans like PPOs and POS plans that provide out-of-network benefits) as a typical mid-size employer’s menu of plans.
Second, ACA marketplace plans are age-rated, so a 60-year-old-employee will face a premium much higher than his 30-year-old colleague. Under ESI, the 30-year-olds overpay and 60-year-olds underpay for their coverage when the employer sets one payroll deduction regardless of age. Employers can adjust for this premium difference with different HRA values depending on age.
Third, employers may use the HRA as a defined-contribution approach to funding benefits and increase the following year’s HRA value at an amount less than the increase in premiums. If this were to happen, employees would pay a growing percentage of the total premium over time.
Look for the Trump administration to continue to use administrative action, which doesn’t require the approval of Congress and can be overturned by any future president, to create more competition in the marketplace. It appears that the administration could decouple Social Security and Medicare so that a working senior who supplements her earnings by drawing Social Security benefits would not be required to enroll in Medicare Part A, thus eliminating her ability to accept an employer HSA contribution. Similarly, the administration could end the practice of retroactive enrollment in Part A of up to six months when individuals delay signing up when they’re first eligible.
Action in the States
The ACA allowed states to expand Medicaid to include able-bodied adults without children. Most states with Democrat legislatures and governors accepted the expansion immediately. The federal government pays 100% of the cost of the expansion in the first few years, then ratchets down its commitment to about 90% in subsequent years. “Blue” state leaders saw this as a good deal, as it met their goals of increasing coverage. “Red” state governors and legislators were concerned that the increased publicity around expansion would lead to an awareness that would result in growing enrollment among other Medicaid-eligible residents whose costs were split closer to 50-50 between the federal and state government. In that scenario, state Medicaid budgets would implode.
In Idaho, Nebraska, and Utah – three red states – voters approved plans to petition the Centers for Medicare and Medicaid Services to expand Medicaid. Montana affirmed its expansion as voters approved tax increases to pay for the expansion. And Kansas, Maine, and Wisconsin all flipped their governorships to Democrats, boosting the likelihood that those states will expand Medicaid. Outgoing Gov. Paul LePage was the impediment to Maine, where the state legislature had voted to expand. Kansas’ new governor has advocated for expansion in her first year in office. Although Republicans still retain control of both legislative houses, Medicaid expansion has received bipartisan support the Sunflower State.
States may take other actions as well. The Tax Cut and Jobs Act of 2017 eliminated the penalty for individuals who failed to purchase coverage. Some states have installed a state penalty. Others may do so in 2019. Also, states can apply for innovation waivers under Section 1332 of the ACA. This process allows states to propose different means of reaching the ACA’s goals for coverage and cost. Although any proposals must be approved by a Republican administration, the Trump administration has proposed regulations that make it easier for states to receive approval. Look for states to apply for waivers as a political statement and possible campaign issue in 2020.
Bottom line: It’s going to be an interesting two years. We probably won’t see a lot of actual medical coverage and finance legislation. And we almost assuredly will continue not to see any proposals that address the cost of care (rather than who foots the bill for costs under the current system). But rest assured that we’ll see a lot of activity at the federal and state level as politicians and special interest groups formulate their political plans for 2020 and beyond.
What We’re Reading
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