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Will Common Sense Prevail In Repeal and Replace?

Will Common Sense Prevail In Repeal And Replace?

Last week, we told you about the emerging House GOP plan to repeal and replace Obamacare. True to the fast-paced world of President Trump’s administration, more details have come out over the past several days.

The House GOP plan is a fundamental remake of the healthcare system when it comes to Obamacare (or the Affordable Care Act (ACA)) as well as Medicaid. The Republicans in the lower house would end the Obamacare premium and cost-sharing subsidy scheme in favor of a much lighter alternative, repeal the ACA Medicaid expansion, and end the entitlement nature of Medicaid.

As we have stated ad nauseam at this site, we believe fundamental changes have to be made in healthcare. And we don’t panic at radical proposals in Washington. What grinds its way through the political sausage-making process often comes out looking very different – perhaps even tasting good – over time.

Nonetheless, it is hard not to question some of the more radical approaches espoused by the GOP plan, especially with additional leaked details. We learned some key possible answers to some of the questions we leveled in last week’s blog. This came in the form of a draft bill from Capitol Hill that no one took credit for but certainly read like and built on the House GOP outline.

Medicaid Expansion and State Funding At Risk

First, we learned that under the bill the Medicaid expansion would be fully repealed by 2020, with the biggest hits to state budgets coming toward the end of the decade. The 90-plus percent funding would be moved down to regular federal match standards in the program. Additionally, as we reported last week, the House GOP would like to reduce spending dramatically over time in the program by migrating to a per capita allotment program. This system is far better than a strict block grant but, wisely, states suspect that the federal allocations will not keep up with population growth, aging, and inflation. Strict parameters need to be agreed to. At any rate, even more of the program’s costs are implicitly shifted to state taxpayers in the remake, hence Governor’s concern about expansion monies going away .

As we have noted, we believe Medicaid needs an overhaul – the benefit and entitlement is too rich. And, the cost of the Medicaid expansion has come in well north of estimates. But, as we have maintained, expanding Medicaid is a relatively cheap and stable way (at least compared with the Exchanges) to extend healthcare access to millions (at last count, 72 million have Medicaid coverage, with 16 million people being added to the rolls since 1/1/2014 through the ACA expansion). Why?

  • Private Medicaid plans have augmented their networks and created decent (although not perfect) access and prevention.
  • One in two births today are covered by Medicaid. Where would we be without the important prenatal and post-partum focuses of Medicaid?
  • About half of all long-term care costs are covered by Medicaid today. With the aging of America, this is significant. A radical erosion of Medicaid funding at the state level puts even more pressure on state budgets for acute and long-term care. And, as we know, combining the management of acute and long-term care under one roof will be key to future affordability. Private plans undertaking these experiments could very well abandon the programs if funding becomes insufficient as more and more costs are shifted to state governments.
  • It is a bargain from the federal standpoint. Today, $576 billion is spent on Medicaid but the costs are shared between the federal and state governments. While it is all the same tax money, about 33 to 40 percent is state funding rather than federal tax dollars.

The House GOP plan, too, has its political land mines for Medicaid. To date, 31 states and the District of Columbia have expanded Medicaid. Interestingly, 16 of those states have Republican Governors (not all were Republican at the time of the expansion). Many of these Governors support the expansion. These Republican Governors are worried about the budget, policy and political implications of the millions added to the Medicaid rolls since 2014 and their future under a replacement. While GOP Governors are less sympathetic to Obamacare’s Exchanges specifically, the combination of the Medicaid cuts and the Obamacare changes have monumental implications for them. A National Governors Association study of the House GOP plan (conducted by Avalere Health and McKinsey and Company) found that a non-Medicaid expansion state would see a decline of 80 percent in funding for their current Exchange covered residents if the Obamacare Marketplace component went away, with an anticipated 50 percent decline in actual coverage in the state after the replace plan came into force. In a Medicaid expansion state, there would be a one-third decline in such Exchange funding and coverage for residents. But this is before the Medicaid expansion goes away.

These Governors are busy working with their Democratic counterparts on an alternative – one that saves state and federal tax dollars but comes closer to guaranteeing the coverage for the 16 million who have gained Medicaid coverage. Governors and Congress should come together on a smarter plan that:

  1. reforms the entitlement but protects states;
  2. maintains coverage but lightens the regulatory and benefit burden;
  3. encourages personal responsibility and cost-sharing; and
  4. keeps the focus on consistent access to preventive care.

Proposed Age-Based Subsidies Insufficient

Second, the House GOP outline would replace the rich Obamacare premium and cost-sharing subsidies with Health Savings Accounts (HSAs) and refundable tax credits. We questioned whether age-based credits alone would be generous enough to ensure access to all Americans. The leaked bill would set the age-based tax credits from $2,000 per year for those under 30 to $4,000 per year for those over the age of 60.

On its face, the levels seem generous. But consider that the average Medicare expenditure is about $1,000 per month or $12,000 per year. The tax credit levels are inadequate for two reasons. They do not come close to covering costs for older Americans. As well, it is hard to imagine that those who are lower income or lower middle income could truly afford coverage in concert with the tax credit. Indeed, one of the biggest complaints today is that the almost 10 percent of income that middle income families need to pay before they get an Exchange premium subsidy is too high, leading to large numbers of uninsured between 300 and 400 percent of the federal poverty level (FPL). This proposal is at least as problematic.

As we have maintained in the past, we are no fans of the exceedingly progressive nature of the Obamacare tax credits. And the system is broken. Plans have suffered $20 billion in losses since inception, just a quarter to one-third of plans are profitable, and plans are abandoning the Marketplace by the droves. At the same time, ensuring access is important to encourage primary care and prevention and bend the healthcare cost curve. Any refundable tax credit would need to anticipate the huge increase in costs as Americans age as well as the need to have some income-based component to the credits. With the credits proposed, it is hard to imagine many of the 10 million Americans today covered on the Exchanges able to afford coverage in a post-Obamacare world.

High-Risks Pools and Funding Just Not Enough

Third, the leaked House bill would allocate $100 billion over eight years in state innovation grants in large part to seed new high-risk pools for the sickest and most expensive individuals. This group has flocked to the Exchanges for coverage. These funds would either be used to create separate high-risk plans or become additional subsidies for these individuals in other programs. This is up considerably from earlier estimates of just $2.5 billion annually being dedicated for such purposes.

Again, on its face, $12.5 billion per year looks generous – until you look at this population’s actual costs. Today, America spends more than $3.2 trillion on healthcare, almost 18 percent of gross domestic product (GDP). The top one-percent consume 23% of total spending. The top five-percent account for 50 percent of all spending. In the individual insurance market, underwriting standards would normally target about 15 percent of applicants for denials of coverage and another 20 percent for higher than standard premiums. (The rest would get standard or preferred rates.) While many of these high-cost individuals are covered by Medicare, Medicaid and even the small and large group world, the statistics above seem to imply that $12.5 billion a year to ensure coverage for high-cost Americans without access is a mere pittance. The troubled financial history and low enrollment of high-risk pools supports the assumption.

Time For Common Sense To Prevail

Former House Speaker John Boehner (R-OH) recently said he laughed when he heard President Donald Trump and the Republicans in Congress would repeal Obamacare. Boehner, who saw any number of fights within his own caucus over the years, predicted that Congress and the President will settle on something more akin to a tweaking of the ACA and then declare victory. Indeed, the President and lawmakers (although they don’t want to admit it) ultimately are politicians that need to be sensitive to the election coming two, four, or even six years down the road. Politics’ fierce ideological squabbles often give way to recalcitrance and gridlock (customarily) or sensible policy compromise (on one of those few good days). So Boehner may yet be right with his hypothesis.

For our part, we would rather see the latter, as our healthcare and economic future weighs in the balance. The American healthcare system teeters on the brink, soon consuming 20 percent of GDP with little to show for quality, prevention, or care management. Other developed nations ensure universal access in one form or another and thereby perform much better on outcome measures. Ensuring reasonable access to insurance coverage (at all income levels regardless of health) is the only way to achieve quality outcomes and reduce costs over time. Many Democrats and Republicans are hostage to ideologies that militate against reasonable healthcare reforms. Democrats built a system that is so benefit- and subsidy-rich that it is unsustainable. The latest Republican proposal seems destined to go back to where millions (perhaps tens of millions) rely again on expensive forms of healthcare (emergency rooms and hospitals) in lieu of insurance coverage.

So, are we destined to be on some sort of healthcare seesaw, never to reach equilibrium? Consider other events this past week. Both the Trump administration and House Republicans have asked a federal appeals court in DC for three more months to come to a resolution on what once was House of Representatives vs. Health and Human Services (HHS) Secretary Sylvia Burwell. In the 2014 case, a federal district judge ruled on behalf of the House, which argued that the cost-sharing subsidies granted to certain Exchange participants were illegal because they did not have an appropriation. The judge sided with the House but stayed the decision under appeal by the Obama administration.

About 85 percent of Exchange enrollees qualify for premium subsidies as they are under 400 percent of FPL for their family size. Almost 60 percent of enrollees are under 250 percent of FPL and get additional subsidies to dramatically reduce their cost-sharing (deductibles, co-pays, and co-insurance). Now, with the change in the administration, the lawsuit has been renamed House vs. Price (for Trump’s HHS Secretary Tom Price, former U.S. Representative from Georgia). Ironically, the House is suing a former member who is one of the harshest critics and principal foes of Obamacare. The appeals court was ready to hear the case before the joint request for delay.

The request is a clear signal that the new administration and Republicans in Congress know stakes are high. The Exchange program as we know it cannot survive without both premium and cost-sharing subsidies and removing the subsidies will be the death knell. Additional healthy individuals will drop out, adverse selection will increase, and more plans will exit. So if advocates for repeal and replace understand how important subsidies are in the short-term, perhaps sensible policy compromise could win the day. Based on conversations Ohio Gov. John Kasich had with the President on Medicaid last week, Trump seems open to a sensible compromise. We hope common sense, not ideology, prevails. Our message: Keep the eye on ensuring true access for all. It is the only way to obtain permanent cost-containment and quality.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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