Kilpatrick

Industry News

Trump and Health Care Reform 2.0

(Originally posted on Nov 23, 2016; revised over time.)

The future of our health care system and how it will change under the Trump administration is still unclear. Consider this a working draft of our perspective on what’s next for health care and health insurance.

Health care will change. No question.

Without 60 seats in the Senate, Republicans enact a comprehensive “repeal” of the coverage provisions of the ACA because Democrats will filibuster. However, federal agencies and Congress can make substantial changes incrementally through other means—budget reconciliation and regulatory “revisions.” One flaw of the ACA is that it ceded significant authority to federal agencies like HHS, IRS, and DOL to define, interpret, and implement its provisions. The incremental changes will create market deficiencies, which will in turn require legislative action to mitigate. The sum total of the changes could amount to the equivalent of repeal over time, but it will be a turbulent road.

1. Reconciliation. Congress passes a budget resolution by simple majority (already done), followed by a reconciliation package (expected Mar 2017) with instructions to modify spending, revenues, and/or debt levels. The package can only implement changes that directly impact the budget, which excludes many ACA provisions.

2. Regulation. The Affordable Care Act is a structural framework only. Departments of the executive branch, including HHS and the IRS, write the rules that implement its provisions. On his first day in office, President Trump issued an executive order directing federal agencies to revise its regulations. Rewriting the regulations and agency guidance could have a massive effect on the entire system. In recent weeks, HHS has issued proposed rules and guidance to implement a few regulatory changes. On Feb 17, HHS published a proposed rule to tighten open enrollment and special enrollment periods in the individual market and to expand the actuarial value of metallic plan levels in the individual and small group markets to provide broader plan design flexibility. On Feb 23, CMS extended its transitional policy for non-compliant (pre-2014) plans through 2018. Future changes could include:

  • Regulators could decide not to enforce the individual and employer mandates and the associated employer reporting requirements prior to their likely repeal via reconciliation.
  • The ACA capped health plan cost sharing. Regulations could allow cost sharing to inflate at a faster pace.
  • The ACA defined broad essential health benefits categories that health plans must cover. Revised regulations could simplify the headache of pediatric dental and make their inclusion consistent on and off exchange.
  • Regulations invented “member rating” in the small group market and defined uniform rating factors by age in order to implement adjusted community rating. Revised regulations could eliminate both member rating and the uniform age factors.
  • Regulators imposed strict limits on plan changes allowed in order to retain “grandfather status.” Revised regulations could eliminate all plan change restrictions, adopt a non-enforcement policy under prior rules, and possibly allow policyholders to purchase pre-2010 plans. The effect of these changes would be the resurrection of pre-ACA plans (and most rules) in the competitive market.
  • The ACA allows states to apply for Section 1332 state innovation waivers from key provisions. The existing requirements for approval are impossibly stringent and effectively prevent any real deviation. New guidance could provide broad flexibility to states.

What Republicans are Saying

If Reconciliation and Regulation are the tools, then Paul Ryan and Tom Price (Trump’s HHS Secretary) will steer the direction. Applying political reality to published ideas, changes under Trump may include the following.

  • Eliminate both the individual and employer mandates.
  • Eliminate the Cadillac tax.
  • Enact health care liability reform and cap damages.
  • Provide greater actuarial value flexibility for products sold in individual and small group markets. (Included in proposed market rule on Feb 17, 2017.)
  • Replace income-based premium tax credits and cost-sharing reductions in the individual market with refundable age-based tax credits (e.g.: $2,000 if <30yo, $4,000 if >60yo) for individuals without access to employer or government coverage. Use health savings accounts as delivery vehicle.
  • Expand scope of HSA tax advantage including raising the annual contribution limit and lowering the minimum deductible levels.
  • Eliminate funding for federally facilitated exchanges and state based exchanges.
  • If retaining community rating, expand adult age band from 3:1 to 5:1 and require people who do not maintain continuous health coverage to pay a 30% penalty when they enroll.
  • If eliminating community rating, compel states to resurrect (or create in the case of 15 states) high risk pools as a solution for guarantee issue in the individual market.
  • Budget $100 billion for state innovation grants to cover high risk enrollees (after returning regulatory authority to states).
  • Cap the employer premium tax credit at 90th percentile of current premiums.
  • Allow employers to contribute towards the premium of individual market plans on a tax-advantaged basis. This idea already passed Congress via the 21st Century Cure’s Act but is not available to TX employers under existing regulations.
  • Allow carriers to sell insurance across state lines (bad idea!).
  • Repeal minimum medical loss ratio or significantly modify the framework to promote increased competition.
  • Remove all regulatory restrictions on Section 1332 state innovation waivers to give states broad exemptions from the ACA’s requirements. The ACA’s essential health benefits and out-of-pocket restrictions cannot be waived through regulation.
  • Minimize federal reporting requirements and eliminate a standardized Summary of Benefits and Coverage.

My Perspective

Private health insurance has survived the ACA because of the health of the employer-sponsored market, the cornerstone of private health insurance in America. HHS and the IRS took great care to keep the employer market intact for good reason. While certain ACA provisions are burdensome for employers has been no tangible erosion of coverage through employers, deterioration of quality of employer plans, or extraordinary inflation in premiums. The ACA’s disruptive flaws are mostly confined to the individual market. Less than 7% of Americans are covered by individual market plans. Republicans should not double down on the mistakes of the ACA. Any steerage from employer plans to individual plans will increase the instability of our system. Only 46% of private sector employers offer health insurance. 16% of all private sector employees and 52% of small business employees work for employers who do not offer health insurance. A huge opportunity for expansion.

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