II. Individual Insurance (Marketplace Plans)
Over the summer of 2017, Senate Republicans failed to pass any version of the Affordable Care Act (“ACA”) repeal and replace legislation. After President Donald Trump and GOP leaders put pressure on Congress to make another attempt, and with the option to pass a bill under the reconciliation process ending September 30, several Senators have recently released bills tackling healthcare reform.
On September 13, 2017, Senators Lindsey Graham, Bill Cassidy, Dean Heller, and Ron Johnson released the Graham-Cassidy bill. The bill includes much of the same language from previous bills that the Senate failed to pass in July, including the proposed Better Care Reconciliation Act (“BCRA”). However, it also includes additional language that would send money to the states, replacing the premium tax credits, cost-sharing reductions, the Medicaid expansion, and the Basic Health Plan Program.
The bill was sent to the Congressional Budget Office (“CBO”) and the authors of the bill report that it should be scored right before the scheduled vote. Senator Rand Paul almost immediately stated the bill did not go far enough in repealing the ACA. Without 50 votes (with Vice President Mike Pence breaking the tie), the bill cannot pass.
Update 9/26/17: Senators John McCain, Rand Paul, and Susan Collins have all released statements expressing their opposition to the bill. These are crucial swing votes within the Republican Party; with their opposition, the media is hailing this bill as dead.
Below is a summary of the key provisions of the Graham-Cassidy bill and how it compares to the ACA.
You can read the official draft here.
You can view the official section-by-section summary as posted on Senator Cassidy’s website here.
You can read the official formula description here.
The Graham-Cassidy bill would change several key features of the ACA that would decrease consumers’ access to insurance, change the scope of their coverage, and alter the way they shop for plans. The bill does not technically “repeal” the ACA, but rather modifies it substantially.
A key provision of the ACA (and one that was hotly contested) is the law’s “individual mandate” requirement. This provision requires most individuals to obtain health insurance or pay a penalty for refusing to do so. In 2016, the penalty was 2.5% of total income or $695 per person, whichever was higher. You can read more on the ACA’s individual mandate here.
The goal of the ACA’s individual mandate and associated penalty is to discourage individuals from purchasing insurance only when they know they are likely to need medical services, and dropping it when they are healthy. This phenomenon, known as “adverse selection,” results in the insured population being sicker than the general population, which can drive up the cost of the plans. The individual mandate and the associated penalty aim to prevent adverse selection and to spread the risk of high medical costs across as much of the population as possible. This also creates a broader base of premiums from healthy individuals to help support sick individuals in their time of need. The ACA’s protection for those with pre-existing conditions is only possible if enough healthier people are in the pool.
The Graham-Cassidy bill would end the individual mandate, retroactively applying to 2016.
Prior to the ACA, individuals who did not qualify for Medicare or Medicaid, were not insured by an employer, and could not afford individual insurance (or were barred from purchasing due to a pre-existing condition) often went without health coverage at all.
The ACA aims to make individual insurance more affordable. To do so, the ACA offers income-based subsidies in the form of a tax credit to enable individuals to purchase health plans in the Healthcare Marketplaces. Based on individual and family income, the ACA’s subsidy program also takes geographic location and premium increases into account. The ACA allows anyone earning up to 400% Federal Poverty Level (“FPL”) to be eligible for these subsidies. For more information on the subsidy program generally, you can visit the Henry J. Kaiser Family Foundation website.
The Graham-Cassidy bill would end premium tax credits in 2019 and would instead distribute the funding to the states using a formula, discussed in the State Funding Formula section below.
In addition, while the government continued paying these tax credits, the proposed law would prohibit consumers and small businesses from receiving tax credits if they were to purchase a plan that covers abortions except where the mother’s life is at risk or where abortion is the result of incest or rape.
Prior to the ACA, health insurance companies could charge Americans aged 50-64 significantly more for health insurance on the individual market. In some states, older Americans were charged five times more for health insurance than the amount charged to younger Americans. As a result, many Americans 50 and over went without health insurance.
With passage of the ACA, insurance companies could not charge older Americans more than three times the rate charged younger people for health insurance. This provision was a significant reason for the nearly 50% drop in uninsured adults aged 50-64.
Under the Graham-Cassidy bill, states that receive funding would also have the opportunity to apply for a waiver that would allow insurers to charge different premiums based on age (and any other factor other than sex or membership in a constitutionally-protected class). States could revert to allowing insurers to charge older adults more than the five times what they charge younger Americans; the bill does not cap the amount.
Prior to the ACA, insurance companies could refuse to provide coverage to individuals with pre-existing conditions, impose lengthy waiting periods before coverage started, or exclude coverage for a pre-existing condition. In addition, insurers were free to charge those individuals significantly more for health coverage than individuals without pre-existing conditions. In one study from Kaiser Family Foundation, researchers estimate that about 27% of Americans under age 65 have health conditions that would bar them from coverage in the individual market if the ACA provisions are repealed.
The ACA changed the rules on pre-existing conditions for plans beginning in 2014 or later. Insurers can no longer refuse coverage to individuals with pre-existing conditions, nor can they charge more to an individual simply because of a pre-existing condition. By doing so, the ACA eliminated a significant barrier that many individuals, such as those with diabetes, heart disease, or even pregnancy, met when trying to purchase individual health insurance. This guaranteed issue provision has a 69% approval rating, making it one of the most popular provisions in the ACA.
Another way the ACA ensures that individuals are not negatively affected by a pre-existing health condition is by prohibiting health plans from setting premium rates based on health status. The ACA contains a community rating provision that requires insurance companies to set premiums so that all individuals pay the same rate without regard to health status, age, gender, or lifestyle. In other words, under the ACA, insurance companies cannot charge someone a higher premium because they have a pre-existing condition.
The Graham-Cassidy bill would require insurers to provide coverage to everyone, regardless of pre-existing conditions; however, it would allow states to obtain waivers so that they could charge different premiums based on health status. In their applications, states would need to explain how they would “maintain access to adequate and affordable health insurance coverage for individuals with pre-existing coverage.”
Additionally, states would be able to waive the ACA’s Essential Health Benefits (“EHBs”) requirements, as discussed in the next section. By allowing states to waive EHBs, insurers may have leeway to offer fewer covered benefits in their plans. Individuals with pre-existing conditions could obtain insurance but discover that their plan does not cover the types of services they need for those conditions. Alternatively, insurance companies could simply raise out-of-pocket costs. For example, if an individual has a mental illness and a state has allowed an insurance company to drop mental illness from their plans or charge higher prices for it, then that mental illness has essentially become a pre-existing condition.
Under the ACA, all insurance plans offered on the exchanges and all Medicaid plans in expansion states must cover ten categories of essential health benefits (“EHBs”). The ACA defines ten broad categories of services as EHBs:
– Ambulatory patient services;
– Emergency services;
– Maternity and newborn care;
– Mental health and substance abuse disorder services, including behavioral health treatment;
– Prescription drugs;
– Rehabilitative and habilitative services and devices;
– Laboratory services;
– Preventative and wellness services and chronic disease management; and
– Pediatric services, including oral and vision care.
The ACA requires these EHBs in order to prevent insurers from selling policies that have minimal or nonexistent coverage. According to the Center on Budget and Policy Priorities, prior to the ACA, “62 percent of individual market consumers had plans that didn’t cover maternity care, 18 percent had plans that didn’t cover mental health treatment, 34 percent had plans that didn’t cover substance abuse treatment, and 9 percent had plans that didn’t cover prescription drugs.”
The Graham-Cassidy bill would allow states to waive the EHB requirement in the individual market. In some states, this may mean that insurers could offer policies with significantly less coverage. As the New York Times has pointed out, this may result in meaningless coverage — a person with a pre-existing condition might be able to purchase insurance, but the insurance may not cover services for their condition.
Residents of states that choose to redefine EHBs may also end up losing other protections as well. Under the ACA, insurers can no longer impose lifetime or annual limits on any benefits that qualify as EHBs. However, because the ACA only bans lifetime limits on “essential health benefits,” if a policy does not contain benefits designated as essential in that state, a lifetime limit would apply to it.
This could ultimately affect employer-based plans as well because of the way the ACA set up the EHB requirement. Large group employer plans would not have to comply with the ACA’s EHB requirements except when covering catastrophic costs. Rather, employers offering large plans (which often cover employees in multiple states) can choose to apply whichever state’s EHB requirements they like. If a large employer wants to avoid covering maternity benefits, it could simply choose to adopt the EHB definitions in a state that does not include maternity benefits as an essential health benefit. The Brookings Institution, a nonprofit organization that provides high level analysis of public policies, has a detailed explanation of how allowing states to redefine EHBs would affect both individual and the employer based insurance.
Similar to the individual mandate, to encourage employers to provide insurance to their employees, the ACA required employers with 50 or more full time employees to provide health insurance for their employees. The Graham-Cassidy bill, like the American Health Care Act (“AHCA”), would completely remove that requirement. The tax penalty for large employers that do not provide health benefits would be reduced to zero and retroactively enforced to January 1, 2016.
Small business health insurance tax credits would also be repealed as of 2020.
Additionally, the bill would change the definition of “qualified health plans” to not include any health plan includes coverage for abortions except where necessary to save the life of the mother or where the pregnancy is the result of rape or incest.
The ACA expanded Medicaid eligibility to all U.S. citizens earning less than 133% of the poverty level. In 2016, this meant that a family of four with a household income of about $32,000 was eligible for Medicaid coverage. The Medicaid expansion allowed approximately 10.8 million Americans to obtain coverage. Although the ACA originally mandated that all states expand Medicaid, the Supreme Court determined in NFIB v. Sebelius (2012) that the federal government could incentivize, but not require states to expand their Medicaid programs. As a result, 19 states chose not to expand their Medicaid program.
The Graham-Cassidy bill would end the Medicaid expansion in 2020. States would be unlikely to afford offering Medicaid to all low-income adults, even with work requirements or other stipulations as was seen with the BCRA. The funds would instead go to states in a formula, as described in the State Funding Formula section below.
Currently, the states and federal government share the cost of Medicaid, meaning that the federal government matches state spending on qualified Medicaid expenditures dollar for dollar. Under this open-ended funding scheme, the amount the state receives from the federal government is determined by actual costs rather than projected ones. For instance, if there is an epidemic or natural disaster that increases health needs, state Medicaid programs can respond and federal payments automatically adjust to match that change. An excellent explanation of how Medicaid is currently funded can be found here.
Under the Graham-Cassidy bill, starting in 2020, the federal government would no longer match state spending on Medicaid programs. Rather, the bill would establish a per capita cap model that would limit federal spending to a set amount per state Medicaid enrollee without consideration of the state’s actual needs or costs. Annual federal contributions would be based upon data from the state’s choosing, so long as it was based on eight consecutive fiscal quarters sometime between 2014 and the third quarter of 2017. The state would need to select the period by 2018. These selections would need to be chosen using a complex formula spelled out in the statute.
The federal government would increase its contributions based on the medical care component (“CPI-M”) of the consumer price index and the applicable annual inflation factor, which varies by beneficiary categories (such as disabled, aged, or children). For the elderly and the disabled, the inflation factor would be the CPI-M+1 through 2024 and then the CPI-M after 2024. For children and non-elderly, non-disabled adults, the inflation factor would be CPI-M through 2024 and then, after 2024, the Consumer Price Index for All Urban Consumers (“CPI-U”).
Beginning in 2020, any state with spending higher than those specified amounts would receive reduced Medicaid funding for the following fiscal year. If a state has a natural disaster that requires increased and unanticipated Medicaid spending one year, the HHS Secretary could grant more money to that state, subject to a limitation. The HHS Secretary would then audit the impacted medical assistance expenditures no later than six months after the public health emergency declaration to ensure that the money was spent only on regions where the public health emergency occurred.
Additionally, under the Graham-Cassidy bill, starting in 2020, a state could choose a block grant rather than a per capita cap to fund its for non-elderly, non-disabled, non-expansion adults. The federal government would pay the states that choose this option via block grants for a five year period. States choosing a block grant would have flexibility in determining which populations they would cover and the services they would provide to them, so long as they provide following services:
– inpatient and outpatient hospital services;
– laboratory and x-ray services;
– nursing facility services for individuals aged 21 and over;
– physician services;
– home health care services;
– rural health clinic services;
– federally-qualified health centers;
– family planning services and supplies;
– nurse midwife services;
– certified pediatric and family nurse practitioner services;
– freestanding birth center services;
– emergency medical transportation;
– non-cosmetic dental services; and
– pregnancy services.
States would be able to determine the amount, duration, and scope of the targeted health assistance. States would also be required to provide mental health and substance use disorder coverage that complies with federal mental health parity requirements.
According to the Center on Budget and Policy Priorities, “block grant funding in 2020 would be $26 billion, or 16 percent, below projected current law federal funding for Medicaid expansion and marketplace subsidies.” The formula would only allow for 2% growth percent annually, well below medical cost inflation. Accordingly, the Center projects that by 2026, states would only have access to funding that would be $83 billion, or 34%, below projected current law federal funding. As a result, states would need to scale back coverage.
You can view the bill’s official formula description here. For further discussion of the Graham-Cassidy bill’s per capita and block grant models, read Sara Rosenbaum’s summary at the Health Affairs Blog. For analysis on whether the bill adequately divvies up the money to states, read the research from the Center on Budget and Policy Priorities.
Since 1965, Medicaid has included retroactive eligibility as one of its key safety-net provisions. Under current retroactive eligibility, individuals who apply for Medicaid may receive benefits for up to three months prior if they would have been eligible during that period had they applied. This allows for indigent people to receive care even if they are not yet Medicaid enrollees. If an individual receives health care and is later determined to be Medicaid eligible, because of retroactive eligibility, their care may not result in medical debt. Viewed from a healthcare provider’s perspective, this means the care they provide to low income people will not go uncompensated.
The Graham-Cassidy bill ends federal funding of retroactive eligibility. The elimination of this protection would likely lead to increased debt for poorer individuals and uncompensated care for health care providers. For further discussion of eligibility modifications and their impact, read Georgetown University’s Health Policy Institute’s article here.
The Graham-Cassidy bill would create the Short Term Assistance for States and Market-Based Health Care Grant Program. This program would terminate the ACA’s Medicaid expansion, premium tax credits, cost-sharing reduction payments, small business tax credits, and Basic Health Program as of 2019 and redistribute the money funding those programs to the states, using complicated formulae described below. The states must spend this money on at least one of the following options:
– Establish a program to help high-risk individuals purchase healthcare coverage, including through reduction of premiums.
– Create a program to encourage arrangements with health insurance companies to stabilize premiums and promote state health insurance market participation.
– Pay health care providers for their services.
– Provide funding for out-of-pocket costs, such as copayments, coinsurance, and deductibles for individuals enrolled in the individual market.
– Establish or maintain programs to help individuals purchase health benefits, including through reduction of premiums on the individual market or for individuals who don’t have insurance through an employer.
Additionally, states could use up to 20% of the funds to establish or maintain a program with insurance issuers to provide coverage for individuals who are eligible for Medicaid.
This distribution formula would change over time from 2020 to 2026. In the first fiscal year, a base period amount would be assigned to each state. This amount would be based on the federal funding that was allotted to the state during a specified time period in 2018. Those funds would be based on what the state received through the ACA’s premium tax credits, cost-sharing reduction payments, the Medicaid expansion, and the Basic Health Program. From 2021 to 2026, the amount would be adjusted according to population of lower-income Medicaid recipients in a complex formula. For discussion of that formula, see the official formula summary and explanation.
The bill would also allot an additional $6 billion for 2020 and $5 billion for 2021 for states with low-density populations and for those states that have not expanded Medicaid. This, combined with the formula, demonstrate the bill’s main objective: to move money from those states that have expanded their Medicaid programs to those that chose not to expand. For further discussion about this point, you can read Timothy Jost’s article on the Health Affairs Blog.
The Graham-Cassidy bill would repeal several ACA tax provisions, including the:
– Over-the-Counter Medications tax, which requires that a medicine or drug must be a prescribed drug or insulin to be considered a qualified expense in terms of spending from a tax-advantaged health account. Effective beginning tax year 2017;
– ACA’s increase in the penalty for the use of HSA and Archer MSA funds for non-medical purposes (reducing the penalty from 20% to 10% for HSAs and 20% to 15% for MSAs). Applies to all distributions made starting January 1, 2017;
– medical device excise tax starting in 2018;
– requirement that employers reduce their deduction for expenses allowable for retiree drug costs without reducing the deduction by the amount of retiree drug subsidy. Effective starting in 2018;
– Medicaid provider tax threshold reduced from the current level of 6% to 5.6% in 2021, 5.2% in 2022, 4.8% in 2023, 4.4% in 2024, and 4.0% in 2025 and beyond.
The Graham-Cassidy bill would significantly restrict access to abortion in a variety of ways. First, it would alter the definition of a “qualified health plan” so as to prohibit consumers from receiving tax credits for any plan purchased on the individual marketplace that covered abortion care (unless the mother’s life is at stake or the pregnancy is a result of rape or incest). Individuals may be unable to afford plans on the individual market without these tax credits and therefore would be unlikely to obtain plans that offer abortion care. The bill would also eliminate the tax credit available to small employers that purchase health plans for their employees if the plan offered abortion coverage. As a result, small business employers may refuse to provide health plans that cover abortion because they would lose tax credits.
In addition, the bill would prohibit federal funding to any entity that provide abortions, such as Planned Parenthood, for a period of one year. Currently, Planned Parenthood receives 75% of all its federal funds from Medicaid reimbursements for services provided to low-income women. Under current law (the Hyde Amendment), Planned Parenthood and other essential community providers cannot use any of those federal dollars to provide abortion care. The Graham-Cassidy bill would take this even further and defund Planned Parenthood entirely, even for services that are unrelated to abortion.
This could have significant and devastating results for women. Approximately 2.6 million women receive some health care from Planned Parenthood annually. This includes cancer screenings, contraceptive care, sexually transmitted infection screenings and treatment, as well as other primary care services.
At least two Republican senators have expressed concerns about the defunding of Planned Parenthood in previous bills. Because the Senate can only afford to lose 2 GOP votes in order to pass the bill, defunding Planned Parenthood may prove to be a challenge.
A health savings account (“HSA”) is a savings account available to those enrolled in a high-deductible health plan. When an enrollee contributes to the account, those funds are tax-deductible, not subject to federal income tax at the time of deposit, and can grow tax-free. As long as the individual uses the funds for qualified medical expenses, withdrawals are not taxed.
The Graham-Cassidy bill alters the laws governing HSAs in many ways. First, it changes the definition of qualified medical expenses to include any medical expenses for children who are under the age of 27, effective 2018. Also beginning in 2018, HSA holders could use their funds to pay premiums for a high deductible health plan for which no deduction is allowed, even as a self-employed individual or under any employer-sponsored plan even if an exclusion does not apply, subject to certain tax credit limitations.
Additionally, an individual would be permitted to pay primary care service arrangement costs from an HSA. The law would also allow an eligible taxpayer enrolled in a high-deductible health plan to take a tax deduction for cash paid into an HSA, even if the taxpayer is simultaneously enrolled in a primary care service arrangement. Under a “primary care service arrangement,” an individual’s coverage is restricted to primary care services in exchange for a fixed periodic fee or payment for such services. The bill would also amend the definition of a “qualified medical expense” to include periodic provider fees paid to a primary care physician for a defined set of medical services provided on an as-needed basis.
Effective 2018, the bill would also increase the HSA annual contribution limits for self-only and family coverage to match the out-of-pocket limits for HSA-qualified high-deductible health plans. In addition, married individuals would not have to take into account whether their spouse is also covered by an HSA-qualified high-deductible health plan with respect to the contribution limit. In other words, spouses’ aggregate contributions to their respective HSAs could be more than the annual contribution limit for family coverage. Their annual contribution limit would be reduced by any amount that either spouse paid to the Archer medical savings accounts (“MSAs”) for that year, and then the remaining contribution amount would be divided equally between the spouses unless they agreed on a different division. Both spouses are eligible to make catch-up contributions before the close of the taxable year, then each spouse’s catch-up contribution is included when dividing up the contribution amounts between the spouses. This provision would effectively allow both spouses to make catch-up contributions to one HSA.
The Graham Cassidy bill would also allow an individual who has to withdraw from an HSA to pay for qualified medical expenses that they incurred before they established the HSA if an individual established the HSA within 60 days of when an individual’s coverage under an HSA-qualified plan began. In that case, the HSA would be treated as having been established on the date the coverage began for purposes of determining whether an HSA withdrawal is used for a qualified medical expense. This policy would begin at the start of 2018.
Finally, beginning in 2018, HSA holders could not use the funds to pay for an high-deductible health plan that provides coverage for abortions except to save the life of the mother or if the pregnancy is the result of rape or incest.