The House GOP, led by Speaker Paul Ryan released their alternative to the Affordable Care Act (ACA) on June 22. Similar to the original starting point of the ACA, the GOP’s plan read more like a mission statement than a roadmap to change. Ryan emphasized that the plan they released was simply a starting point for reform and a continuation of earlier proposals by party members. Based on previous statements and suggestions it’s possible to infer what means the House GOPs will suggest to implement their plan.
The two main changes the House GOP suggests are the repeal of both the Individual and Employer Mandate. But it would also reform many other aspects of healthcare and the insurance industry.
Arguably one of the biggest changes in this plan, House GOP’s would repeal the Employer Mandate. While designed to increase employer-sponsored healthcare many employers complained it only increased their headaches with its numerous rules and requirements. The GOP plan would remove the obligation to provide coverage to full-time employees. Proponents of the change have argued that employers will continue to offer health coverage for other reasons, including attracting new employees and retaining current employees.
House Republicans follow their theme of less federal oversight by suggesting the elimination of the Independent Payment Advisory Board (IPAB) and the Center for Medicare and Medicaid Innovation (CMMI). The age of Medicare eligibility would be eventually altered to come into alignment with the Social Security retirement age so both programs run harmoniously. A few other tweaks are planned, such as combining Medicare Part A (which covers hospital services) and Part B (which covers outpatient services), creating a single deductible for all services and capping out-of-pocket expenses paid by beneficiaries.
The plan would phase out the federal matching rates for Medicaid and replace it with per-person allotments to states. States would be provided with an allotment for each of the four eligibility groups (elderly, disabled, children and able-bodied adults) based on historical spending costs in each group. The states would be responsible for the excess amount if a group costs more than what the federal government provides. However, states who don’t want to deal with the per capital payment system may choose to receive a full block grant instead. These states would receive an adjusted fixed payment based on what the state spent in a reference year. Additionally, at least $25 billion in federal funding would be available to assist states in reforming their Medicaid programs. In the application states must be able to convey their target goals for improvement and how their reforms would decrease the number of uninsured. Bonuses are available for states that achieve or surpass their goals.
The House GOP also intends to give consumers and states more control in decision making. The plan would keep pre-existing condition protection and prevent premium and coverage adjustments but only for individuals who stay continuously insured. If an individual have a lapse in coverage, they would lose this protection.
Young adults would still be allowed to be on their parents’ plan up to age 26. Additionally, the current age rating ratio of 3:1 for older to younger enrollees would be relaxed. Under the proposed plan, the ratio between premiums charged to the oldest consumers to the youngest would be 5:1 and states may adjust the default limitation.
Despite proposing the repeal of the individual mandate, the House GOP’s plan makes no mention of getting rid of the Marketplaces. Instead, various reforms would be implemented to account for the new healthcare system. This includes replacing the current income-based subsidies with an age-based system. Younger consumers would be able to pay less for health insurance while the older would be required to pay more. If the customer has an excess credit after purchasing a plan on the Marketplace, they would be allowed to deposit the remaining amount into a Health Savings Account (HSA) for future use.
However, those consumers with higher claims would find themselves in a high-risk pool to keep the premiums down for everyone else in the Marketplace. Premiums are partly determined by the amount of claims a group incurs. The higher the amount of claims the higher the premiums raise to keep pace with the increasing costs. The theory is that the market is gathering risk (and the associated higher cost) into one pool to insulate consumers with lower to normal claims. The plan suggests $25 billion in federal funding to establish these pools but does not explain the method for choosing consumers to participate.
For those who wish to go to the Marketplaces for coverage, consumers would also be able to purchase plans licensed and provided in other states. Theoretically, interstate sales would increase market competitiveness and cause lower premiums. Others argue that this is very difficult, if not impossible, to implement. Varying state regulations, provider participation and the costs associated with setting up an interstate system are all barriers to success. Some even fear issuers will simply move to the states with the easiest regulations to make their work easier.
Various Taxes and Rules
Many politicians have spoken out about the “Cadillac” tax on high cost health coverage. The Cadillac tax is a 40% excise tax on high-premium plans designed to rein in overly generous health plans and help finance the ACA. Before it was delayed until 2020, the Kaiser Family Foundation estimated 26% of employers would be hit with Cadillac tax for at least one of their plans. The GOP’s plan would curb overly generous health plans by replacing the Cadillac tax with an upper limit on federal tax preference for employer-paid premiums. The federal tax system currently has no limit on preferential treatment to health insurance purchased through employers. Employers’ payments for health insurance are also exempt from income and payroll taxes which further encourages spending. Under the GOP’s plan, employer-paid premiums exceeding the local threshold (taking into account the high cost of healthcare in certain areas) would be taxable income to the employee. Because the threshold is not yet set, it’s unclear how this would affect collective bargaining groups which often have very rich plans.
The House GOP plan wants to promote the use of HSAs. Republicans recommend setting the annual maximum contribution to an HSA at the same level as the underlying deductible, allow excess subsidy amounts to be contributed to the HSA, and changing the distribution rules to allow for greater spending freedom. The plan would allow people to use HSA funds to purchase direct primary care arrangements and direct-practice medicine and allow spouses to make catch-up contributions to the same HSA account.