II. State Waiver Options Under the MacArthur Amendment
A. Age Ratings
B. Essential Health Benefits (EHBs)
C. Pre-Existing Conditions
D. Upton Amendment
III. Waiver Requirements
IV. Links to Our Earlier Analysis on the AHCA
V. External Discussion and Analysis
On April 24, 2017, Representative Tom MacArthur offered an amendment to the American Health Care Act (“AHCA”), referred to as the “MacArthur Amendment.” The amendment was a successful maneuver to garner necessary support from the House Freedom Caucus, a group of approximately 40 far-right conservative members of the House who believed the first version of the AHCA did not go far enough in repealing the Affordable Care Act (“ACA”). In particular, the Freedom Caucus had pushed for elimination of the Essential Health Benefits (“EHBs”) required by the ACA, which the MacArthur Amendment accomplished. Representative Mark Meadows, head of the House Freedom Caucus, reportedly agreed to the amendment.
The MacArthur Amendment is an attempt to sway the Freedom Caucus to approve the AHCA. The amendment would significantly alter the health insurance requirements that the ACA currently places on states. Under the amendment, states could apply for a waiver to “encourage fair health insurance premiums.” This waiver would allow states to opt out of many provisions of the ACA.
This page offers a non-exhaustive summary of the MacArthur Amendment. You can read the original language of the amendment and an official section-by-section summary on the House website. You can read additional analysis of the amendment at the Health Affairs Blog website. The House has voted on, and passed, the AHCA (with the McArthur Amendment added) despite the fact that it has not yet been scored by the Congressional Budget Office (“CBO”).
Under the MacArthur Amendment, states can apply to opt out of many provisions of the ACA. In states with these waivers, insurers could charge more based on age, change or eliminate the ACA’s essential health benefits requirements, and charge individuals with pre-existing conditions higher premiums.
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 in this age group 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 between ages 50-64.
The AHCA originally amended the ACA to increase the age rating from 3:1 to 5:1, meaning insurers could charge older adults five times what they charged younger adults. The MacArthur Amendment takes this a step further. Pursuant to this amendment, a state could obtain a waiver that would allow insurers in some states to charge older Americans more than five times what they charge younger Americans starting in 2018. The amendment does not limit the amount insurers could charge older Americans.
Older Americans would see their premiums rise if age ratings were raised to 5:1 or higher. According to an analysis by Standard & Poor, older Americans would see a premium increase of approximately 30% if age ratings were increased to 5:1. As a result, this would significantly increase the number of uninsured individuals in this age group as older Americans would be unable to afford the premiums.
1. Ambulatory patient services;
2. Emergency services;
4. Maternity and newborn care;
5. Mental health and substance abuse disorder services, including behavioral health treatment;
6. Prescription drugs;
7. Rehabilitative and habilitative services and devices;
8. Laboratory services;
9. Preventative and wellness services and chronic disease management; and
10. Pediatric services, including oral and vision care.
The ACA required these EHBs in order to prevent insurers from selling policies that had 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 MacArthur Amendment would allow states to apply for a waiver of the ACA’s EHBs requirement. Beginning in 2020, states could define the EHBs that insurance companies must offer in that state, just as they could pre-ACA. 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 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 deign a particular benefit as essential, a lifetime limit would apply to it.
This could ultimately affect employer-based plans as well as individual marketplace plans 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 will affect both individual and the employer based insurance.
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 pre-ACA conditions applied.
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. This is one of the most popular provisions of the ACA, with a 69% approval rating.
One way the ACA ensures that individuals are not charged more based on pre-existing health status is by requiring “community ratings.” According to the Kaiser Family Foundation, community ratings refer to “a method of setting premiums so that risk is spread evenly across the community, with all individuals paying the same rate regardless of health status and other factors such as age, gender, and lifestyle characteristics.” Thus, under the ACA, an insurer cannot charge a person more based on their health status.
The MacArthur Amendment would allow states to seek a waiver that would exempt insurers in those states from the community rating requirement. In waiver states, insurers could factor in an applicant’s health status when setting premiums if that person had a 63 day break in insurance coverage during the preceding 12 months. According to Professor Timothy Jost of Washington and Lee University School of Law, this type of health status underwriting allows for insurers to charge “a higher (possibly much, unaffordably, higher) premium to people with pre-existing conditions.” So while the MacArthur Amendment states that companies may not deny coverage to individuals with pre-existing conditions, insurers could easily price such individuals out of any type of coverage. Many adults between ages 50-64 have pre-existing conditions and would likely be priced out of coverage in states that receive a waiver.
A state would only be allowed to opt out of the community ratings requirement if it demonstrated that it was operating a program under the Patient and State Stability Fund (“PSSF”). One way it could demonstrate compliance would be to set up a high-risk pool for consumers who would be priced out of the marketplace due to their health status. High-risk pools are not new. Prior to the ACA, approximately 35 states had high-risk pools as a source of coverage for individuals who did not have group health insurance. According to the Kaiser Family Foundation, nearly all of these pools excluded coverage for pre-existing conditions for 6-12 months and imposed lifetime dollar limits on benefits. Most of these plans also had high deductibles. In addition, many of these plans had unaffordable premiums, with some premiums 1.5 to 2 times higher than those in the individual market.
When Republicans introduced the MacArthur Amendment, some critics argued that the high-risk pools were underfunded and would not be able to cover the amount of need. In a last minute corrective amendment called the Upton Amendment, Republicans proposed to create a new fund of $8 billion that would be available from 2018 to 2023. This money would go to states that permit insurers to charge higher premiums to individuals with pre-existing conditions.
Although this fund is intended to fund high risk pools, Timothy Jost writing for the Health Affairs Blog suggests that states might choose to use the funds to subsidize premiums and other other out of pocket costs for consumers instead. Aviva Aron-Dine, a senior fellow and senior counselor at the nonpartisan Center on Budget and Policy Priorities, has commented that the fund of $8 billion is not enough money to ensure coverage to consumers with pre-existing conditions. The Center on Budget and Policy Priorities reports that this “would leave these pools underfunded by at least $200 billion.” For further analysis of the last minute amendment, read the report from the Center on Budget and Policy Priorities or the Center for American Progress.
Each state that seeks a waiver must apply to the Department of Health and Human Services (“HHS”). In order to obtain a waiver, the state must describe in its application how the waiver will do any one of the following:
- — Reduce average premiums for health insurance coverage in the state;
- — Increase enrollment in health insurance coverage in the state;
- — Stabilize the market for health insurance coverage in the state;
- — Stabilize premiums for individuals with pre-existing conditions; or
- — Increase the choice of health plans in the state
If the state is seeking a waiver of the age rating limit, it must specify the higher ratio that it plans to use. Likewise, if it is seeking a waiver of EHB requirements, the state must specify how it will define EHB.
If a state is seeking a waiver of the community rating requirement (that would allow insurers to charge premiums based on health status), then the state must demonstrate that it can operate a program under the PSSF. This requires states to show that they can:
— Provide financial aid to high-risk individuals or to provide cost-sharing subsidies.
— Provide incentives to insurers to enter into reinsurance programs for the individual market; or
— Participate in the AHCA’s federal invisible high risk sharing program, which also reinsures high cost cases.
The MacArthur Amendment also incorporates rules of construction that state that nothing in the AHCA may be construed as “permitting health insurance issuers to discriminate in rates for health insurance by gender or limit access to health coverage for individuals with [pre-existing] conditions.” However, as mentioned previously, the very language of the bill allows for discrimination based on pre-existing conditions.
The Secretary of the HHS would determine whether the state has met its obligations for the waiver. Under the Amendment, the waiver is granted by default; the Secretary must notify the state within 60 days if it did not adhere to the requirements for the waiver. Essentially, any state could receive a waiver with minimal (if any) interference.
These waivers may be in effect for up to 10 years. However, if any state with an approved waiver ends its risk-sharing program, the waiver becomes void.
Making a Prohibition on Preexisting Condition Exclusions Effective Requires Additional Measures
Health Affairs Blog
May 2, 2017
Amendment to House ACA Repeal Bill Guts Protections for People with Pre-Existing Conditions
Center on Budget and Policy Priorities
April 27, 2017
Freedom Caucus Endorses Revised Obamacare Bill
April 26, 2017
Pre-Obamacare, Preexisting Conditions Long Vexed States And Insurers
Kaiser Family Foundation
April 26, 2017
A New Attempt Emerges to Bridge GOP Divisions on AHCA
Health Affairs Blog
April 21, 2017
The Most Popular (and Unpopular) Parts of House Republicans’ Health-Care Plan
The Washington Post
March 7, 2017
High-Risk Pools for Uninsurable Individuals
Kaiser Health News
February 22, 2017
Drowning in a ‘High-Risk’ Insurance Pool, At $18,000 a Year
February 18, 2017
Pre-existing Conditions and Medical Underwriting in the Individual Insurance Market Prior to the ACA
Kaiser Family Foundation
December 12, 2016