3 weird AHCA individual health product effects

If the House Republicans’ American Health Care Act proposal really becomes law and takes effect as written, what could it do to the individual major medical insurance products and supplemental health products?

A team at the Congressional Budget Office, a congressional research agency, has given insurers, agents and brokers some clues by analyzing all 122 PDF pages of the proposal well enough to “score” it, or estimate how it might affect health coverage, federal revenue and federal spending over a 10-year period.

Related: ACA definitions: Enrollment period basics

In the CBO analysis, which is available here, the CBO team estimates that the AHCA as a whole would cut spending by $1.2 trillion, cut revenue by $883 billion, and cut the federal deficit by about $337 billion, or about $1,000 per U.S. resident, compared with what it might be if the current rules stay in place (and health insurers generously decide to continue providing health coverage under current rules).

The CBO team predicts commercial insurers could cover 23 million people through individual and family coverage in 2026, compared with 25 million if the current Affordable Care Act rules stay in place (and the individual major medical market continues to exist). The number of people with commercial nongroup coverage might about the same as it is today. The CBO estimated a year ago, in March 2016, that about 22 million had nongroup major medical coverage, purchased either through an ACA exchange or through the off-exchange market.

Related: Jeff Smedsrud’s ACA replacer plan

The CBO team also talks a little about what the AHCA world individual health market might be like.

Here’s a look at some of what the CBO team sees in its crystal ball. 

Clients could end up with policies that cover a Pap smear and a colonoscopy “for free,” but little else till the deductible is met. (Image: Allison Bell/LHP)

1. Benefits warp

For political reasons, many of the Republicans supporting the AHCA proposal call it an “Obamacare repeal” bill, and many Democrats and reporters who don’t know any better echo that language.

But, for complicated reasons related to traditional Senate procedural rules, all the AHCA proposal would do is change ACA provisions that relate to the federal budget. The proposal includes many provisions that would cut ACA taxes and spending provisions. The proposal would, for example, kill an ACA preventive health fund that’s supposed to try to prevent flu pandemics and other catastrophic disease outbreaks.

The proposal would not kill most ACA product mandates.

The proposal would eliminate an ACA provision that now requires an individual or small-group major medical plan to cover about 60 percent of the actuarial value of the ACA “essential health benefits” package, or list of benefits a solid health plan ought to cover. The proposal would also eliminate the need for insurers to fit plans into “metal level” tiers. Today, insurers are supposed to classify plans as bronze, silver, gold or platinum plans, with actuarial values ranging from 60 percent of the EHB for bronze plans and up to 90 percent of the EHB for platinum plans.

The proposal would, however, keep the ACA cap on what a plan can expect an enrollee to spend each year, out of pocket, on in-network care covered by the plan. The 2017 out-of-pocket spending maximum limits are $7,150 for individual coverage and $14,300 for family coverage.

In the real world, efforts to create basic, “bronze level” plans, which cover about 60 percent of the actuarial value of the EHB package, already lead to plans with relatively low monthly premiums, individual deductibles at or near $7,150, and skimpy benefits before enrollees meet the deductible.

Under AHCA rules, the same conflicting forces would be even stronger in 2026, but they would probably make offering a product that covered much less than 60 percent of the actuarial value of the EHB difficult, the CBO team says. 

The CBO is predicting that a combination of the elimination of the 60 percent actuarial value minimum, the out-of-pocket spending maximum, and market forces would reduce the average actuarial value of an individual or family plan to about 65 percent of the value of the EHB, compared with an average of about 70 percent if the current rules stay in effect (and current-rule products stay on the market).

In other words: The CBO believes that the typical consumer in the individual market would get a mid-level silver plan in 2026 if current ACA rules continue.

In AHCA world, the same consumer might end up with a plan that was more like a bronze plan than a silver plan.

For an agent or broker, that means any accident insurance products, hospital indemnity insurance products, or other products that help consumers fill in major medical coverage gaps today could be even more popular under AHCA rules.

Whatever AHCA rules do, they are unlikely to hurt sales of gap-filler products.

Related: Walden framework could shape post-ACA health underwriting