The Republican bill to repeal and replace the Affordable Care Act provides huge tax cuts for health care companies, but the measure still leaves many companies facing difficult — and potentially risky — business decisions to make in years to come.
But some provisions present potential business pitfalls. The bill would generally provide less financial support to lower-income people who currently sign up for insurance through the exchanges. That could create big problems for insurers if it deters people — especially healthy people — from buying coverage, as insurers depend on a mix of healthy and sick people to keep their plans profitable and premiums affordable.
And the bill wouldn't affect all health insurances companies equally. Many large insurers have pulled back from offering plans on the laws exchanges, leaving them less exposed to future risks.
Mario Molina, the chief executive of Molina Healthcare, a small insurer that is a big player in both the Medicaid market and the exchanges, said that the bill does not inspire confidence.
“The present bill, in the current form, doesn’t do much to reassure this is a long-term, viable insurance product,” Molina said. “I'm actually more concerned about Medicaid and what this is going to do to our safety net.”
The bill would preserve much of the status quo until 2020, when the Affordable Care Act's financial assistance to consumers would be replaced by age-based tax credits.
“How the tax credit plays out will be critical,” said Elizabeth Carpenter, a senior vice president at Avalere Health. “The change in the tax credit amount may cause some individuals — especially at the lower end of the income scale — to have to pay more for premiums and make coverage unaffordable. From an insurance company's perspective, who continues to buy insurance is critical.”
Here's more of what companies wanted, and what they got:
1) Elimination of taxes
Insurers wanted the health insurance tax repealed. Drug companies wanted the prescription drug tax repealed. Medical device makers wanted to kill an excise tax. Big employers wanted to abolish the Cadillac tax, a 40 percent excise tax on high-cost employer health plans. With the exception of the Cadillac tax — which was previously delayed to 2020 and now will be been delayed to 2025 — they all got what they wanted.
An analysis by the Joint Committee on Taxation estimated that, over a decade, repealing the health insurer tax would cost $145 billion; repealing the prescription drug tax would cost $25 billion; repealing the medical device tax would cost $20 billion; delaying the Cadillac tax would cost $49 billion.
Still, companies are pushing for the Cadillac tax to be scrapped entirely, instead of the current delay.
“The delay is better than current law,” said James Gelfand, senior vice president of health policy at the ERISA Industry Committee, a lobbying group that represents large companies. “Now is the chance, and this is the bill that must completely eradicate the Cadillac tax.”
2) A replacement for the individual mandate that will encourage healthy people to sign up for insurance
Health insurers need both healthy and sick people to sign up for insurance to have a balanced risk pool. This was a major problem in the Affordable Care Act exchanges, where too many healthy people were willing to pay a fine rather than sign up for insurance.
Instead of a mandate and a fine if people don't sign up for insurance, the bill would create a continuous coverage requirement that would penalize people who have a gap in their coverage. Anyone who lets their insurance coverage lapse could experience a 30 percent premium hike the next time they sign up.
One possibility is that people will be incentivized to avoid any gaps in coverage, to avoid that 30 percent premium surcharge. But here's another scenario: A young, healthy person lacks coverage. She goes to sign up, but she faces a penalty that would make her plan more expensive. Why not just wait until she really needs insurance, since she'll be paying the penalty either way? In contrast, sick people who need insurance are more likely to pay the penalty.
Molina argued the requirement could result in confusion and more gaming of the system — he questioned how it would even work logistically, with insurance companies researching whether people had been continuously covered or issuing some certificate that people had coverage ending at a certain date. And, he said, the premium hikes still wouldn't cover the cost of people who are really waiting until they are sick to sign up — on average, he said those members cost about twice as much as a normal member, not 30 percent more.
3) Help providing affordable coverage
The bill would replace the premium tax credits and cost-sharing subsidies in the Affordable Care Act with a flat tax credit, based on age. Currently, only people who make between 138 percent and 400 percent of the federal poverty limit are eligible for tax credits that defray their premiums. The size of the credits are pegged to people's incomes and the cost of a benchmark plan in the marketplace where they're buying insurance. That helps account for the fact that the average premium can vary widely depending where a person is buying insurance.
The new tax credit would gradually peter out for people who make more than $75,000 a year or $150,000 for a couple, but it ignores the fact that care costs more in different geographical regions or that someone who makes $20,000 a year might be more strained in trying to buy an insurance plan with the same amount of financial help as someone who makes $74,000. The graph below shows how a flat tax credit would do little to defray the monthly cost of insurance in markets where health insurance is more expensive.
4) Continued support for subsidies that help people pay for insurance in the Affordable Care Act's marketplaces
The insurance industry has been clear that it wants a stable transition, meaning that subsidies that help people pay for their insurance premiums shouldn't be abruptly yanked out from underneath them. The bill keeps in place those tax credits and cost-sharing reductions that help lower the out-of-pocket costs for people based on their income — until 2020.
Molina, however, said that since the money hasn't been appropriated yet, he fears that Congress could stop funding the cost-sharing reductions as early as May.
“With the possible lost of the cost-sharing reductions, I think insurers will probably raise their prices as much, if not more than they did this year,” Molina said. “I wouldn’t be surprised if we see rate increases and more plans dropping out.”
5) More flexibility in the ability to design health coverage benefits
Insurers requested fewer rules, regulations and red tape. The draft bill takes steps toward easing insurers' ability to design health coverage, but leaves in place the 10 categories of essential health benefits that must be covered.
Insurers currently charge more to people based on their age, but current rules limit the spread to three times the costs of the youngest group of insured people. The bill would allow them to charge five times as much to older people. It also does away with a requirement that plans offer products with a specific value — a provision that created bronze, silver, gold and platinum plans that were progressively more expensive.
“In general, plans would like flexibility to design a product to meet the needs of their consumers in a particular market, and certainly getting rid of those tiers is one way to increase flexibility for plans,” Carpenter said.