April 6th Amendment to the AHCA: Executive Summary

Quick Links

I. Introduction
II. The Patient and State Stability Fund
III. The Federal Invisible Risk Sharing Program

 


I. Introduction

On April 6, 2017, just one day before the House of Representatives went on its Easter recess, Representatives Gary Palmer and David Schweikert introduced an amendment (“April 6th Amendment”) to the American Health Care Act (“AHCA”).  This amendment creates a federal “invisible risk sharing program” within the AHCA’s Patient and State Stability Fund (“PSSF”) program.  The PSSF offers $100 billion to states over ten years in order to stabilize their insurance markets.  The April 6th Amendment allocates to the PSSF an additional $15 billion that states would use to cover a portion of the claims from the non-group insurance market.

This article details how the PSSF would function should the AHCA become law.  It further explains the intent of the invisible risk sharing program and how similar programs functioned in the past.

For the full language of the amendment, click here.  For the official section-by-section summary from the House Committee on Rules, click here.


II. The Patient and State Stability Fund

Congress anticipated that the AHCA would cause higher potential losses for insurance companies and increase premiums for consumers.  In response to this likelihood, the AHCA creates a program designed to lower patient costs and stabilize state markets called the Patient and State Stability Fund (“PSSF”).  The PSSF would allot $15 billion for states from 2018 to 2019, and $10 billion annually from 2020 through 2026 for a total of $100 billion.  To qualify for these funds, a state must contribute matching funds starting at 7% of federal funds provided in 2020 and  gradually increasing to 50% by 2026.  If every state elected to participate and paid the required matching funds, then the state contributions would amount to an additional $20 billion for PSSF programs.  The PSSF would then have a total of $120 billion.  The Upton Amendment allots an additional $8 billion over five years to those states that permit insurers to charge higher premiums to individuals with pre-existing conditions.

States could use the PSSF money for a variety of purposes, including to reduce premiums for the individual market.  This could be done by allowing states to reimburse insurers for some of the costs of enrollees with claims above a certain state-set threshold.  States could also set up risk adjustment, reinsurance, and risk corridor programs, which redistribute money for insurance companies that take on a higher percentage of sick patients.  Profitable insurers and/or the government pay funds into the program, and plans with higher medical claims receive the money.  States could also create high-risk pools to manage the costs of the most expensive patients.

In states without written plans on how to spend PSSF funds, the federal government would pay insurers in the individual market who have enrollees with relatively high claims.  According to the CBO’s analysis of the AHCA, most states would likely rely on the federal default program for at least one year, as they would likely not have enough time to set up their own programs before insurers set premiums for 2018.


III. The Federal Invisible Risk Sharing Program

On April 6, 2017, House Republicans introduced and incorporated a new amendment to the AHCA that creates the Federal Invisible Risk Sharing Program under the PSSF.  The amendment earmarks $15 billion for this “invisible risk pool fund” beginning in 2018 through 2026.  The Centers for Medicare and Medicaid Services (“CMS”) would develop the program (including creating enrollment eligibility requirements) within 60 days after the enactment of the AHCA, though states could take over the program beginning in 2020.

The Robert Wood Johnson Foundation (“RWJF”) and the Urban Institute note in their analysis of the AHCA’s high-risk pools that this additional $15 billion is not for traditional high-risk pools.  Rather, this money would establish a reinsurance program that would allow insurers to shift some of the higher costs of insuring high-risk individuals in the individual market to the federal government.  Unlike the rest of the PSSF funding, the Invisible Risk Sharing Program would not require state matching funding.  Spread over nine years, federal funding would cover a portion of claims (particularly the higher cost claims of high-risk individuals) in the individual market.  A high-risk individual would be allowed into the individual market, and the insurer who would cover that person could charge a portion of those higher expenses back to the federal government.

According to the Timothy Jost, the Invisible Risk Sharing Program is modeled on similar programs that were implemented in Maine in 2011 and in Alaska in 2016.  Those programs have been successful in reducing premiums on those markets; however, experts contend that $15 billion over nine years may not be enough to replicate that success on a nationwide basis.  Still, this is only assuming that states do not contribute their own funds to the program, which some experts say is inappropriate to assume.

An additional consideration is that state waivers introduced under the MacArthur Amendment would allow states to permit insurers to charge more based on age, change or eliminate the ACA’s essential health benefits requirements, and charge individuals with pre-existing conditions higher premiums.  This would likely increase premiums and reduce benefits for people with health problems.  Timothy Jost, writing for the Health Affairs Blog, contends that these changes “would significantly undermine the benefits the April 6 amendment offers for improving access to health insurance coverage.”

For more information and analysis of the PSSF and the Invisible Risk Sharing Program, visit the Health Affairs Blog (and its follow-up articles here and here), Avalere’s analysis of the PSSF, the Robert Wood Johnson Foundation (“RWJF”) and the Urban Institute’s analysis of the AHCA’s high-risk pools, and Milliman’s white paper.