GOP ACA revamp might increase insurer support

Some Republicans have been thinking about an Affordable Care Act budget reconciliation measure that could keep commercial health insurance subsidies roughly comparable to the 2017 level over the next few years.

A draft leaked Friday shows that, in a world created by that proposal:

- - - - Premium tax credit support could stay about the same.
        
        A new state grant program and new benefits package rules could offset the effects of eliminating the ACA cost-sharing reduction subsidy program.
        
        One major target of insurers’, employers’ and brokers’ wrap would be a cap on the tax exemption for employer-sponsored health benefits.

President Donald Trump is preparing to give a major address tonight to a joint session of Congress. He has said he will discuss his administration’s efforts to revamp the current Affordable Care Act commercial health insurance programs and rules.

Republicans have been talking for months about wanting to overhaul the ACA premium tax credit system and the ACA cost-sharing subsidy program, but numbers have been scarce.

The California Hospital Association has posted what is believed to be a draft of a proposal some Republicans were reviewing Feb. 10.

There is no guarantee whether anything Republicans formally propose will look like the leaked draft. Some Republicans have said they object to major components of the kinds of proposals outlined in the leaked draft.

Another source of uncertainty is how much Republicans will stick with congressional procedural traditions. The new leaked draft consists of a collection of proposed changes to ACA spending and revenue provisions, not a full effort to repeal and replace the ACA, or any major component of the ACA.

The leaked draft is modest in scope because Republicans have just 52 seats in the Senate. Under traditional Senate rules, Republicans need 60 supporters to get an ordinary bill to the Senate floor for a vote, but just 51 supporters to get a budget measure to the floor.

The Trump administration and some Republicans in Congress have expressed impatience with traditional procedural rules, and they might develop new methods for changing federal health policy.

Continue on for an analysis of what might happen if the changes proposed in the leaked draft became law.

In the leaked draft world, more people might get a somewhat smaller premium tax credit subsidy. (Photo: Kay Taenzer/Thinkstock)

Inside the leaked ACA replacement draft

Here is a look at some of its major provisions.

1. Tax credits

If the changes proposed in the leaked draft became law, the draft would replace the current income-based Affordable Care Act premium tax credit system with a new, age-based tax credit. The new tax credit could be used to pay for off-exchange coverage as well as for exchange plan coverage.

Internal Revenue Service figures show the federal government spent about $3,800 per enrollee on premium tax credits in 2015.

The median age of an exchange plan enrollee is about 45, according to Enroll America, an exchange enrollment support program. The tax credit described in the leaked draft would provide a 45-year-old with $3,000 per year in premium.

Although the value of the median tax credit might be lower, the total amount of tax credits paid to insurers for covering individual health enrollees might be about the same, because the tax credit would be available to users of off-exchange individual coverage as well. Today, roughly one-quarter of the users of individual major medical coverage get their insurance outside the exchange system.

2. Other subsidy programs

The leaked draft would eliminate the ACA cost-sharing reduction subsidy program. It does not appear to affect the existing ACA risk-adjustment program, which is supposed to use cash from individual and small-group health insurers with enrollees with low risk scores to compensate individual and small-group insurers with enrollees with high risk scores.

The ACA itself calls for the ACA reinsurance program, which has used cash from a wide range of private health coverage providers to help providers of individual coverage pay the bills of individual enrollees with catastrophic claims, to expire after 2016.

The ACA cost-sharing reduction program and ACA reinsurance program may have paid insurers a total of about $11 billion for 2016, according to Congressional Budget Office figures and the ACA reinsurance law.

The leaked draft could replace the ACA cost-sharing reduction subsidy and reinsurance program with up to $15 billion per year in grant funding for 2018 and 2019, and $10 billion per year from 2020 through 2025.

A state could use the grants for a wide variety of purposes, including setting up risk pools for residents with serious health problems or providing stabilization subsidies for health insurers.

In theory, an insurer might get more cash from the new grant program than it would from the cost-sharing reduction and reinsurance programs.

3. Cost saver provisions

Current laws and regulations require insurers to cover a rich essential health benefits package.

The leaked draft would let states set their own EHB requirements.

Another provision, a continuous coverage provision, would let an insurer charge an enrollee 30 percent more for a year if that enrollee had failed to have health coverage for at least 63 days during the previous 12-month period.

In theory, that rule could discourage healthy people from waiting until they get sick to pay for coverage. The extra penalty revenue could help make up for some of the extra cost involved with covering uninsured people who decide to get covered.

Insurers have complained about the high cost of covering the previously uninsured. The proposed cost-saving provisions might help make up for some of that cost differential.

But the leaked draft would eliminate the current health coverage mandate for individual taxpayers. That could reduce the number of healthy people paying premiums and drive up the ratio of claim costs to premium revenue.

4. Revenue raiser

One revenue-raising provision in the leaked draft that could face turbulence would put some of the value of employer-sponsored health benefits in taxable income.

The secretary of the U.S. Department of Health and Human Services would have to calculate an “annual limitation” amount.

The annual limitation amount would be the dividing line between the major medical coverage that ranks in the top 10 percent in terms of costliness and the rest of the country’s coverage.

Taxpayers would have to include the health benefits value over the annual limitation amount in their taxable income when they paid their income taxes.

Actuaries analyze high-risk reimbursement proposals

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GOP ACA revamp might increase insurer support