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Yodelayheehoo… Obamacare Repeal and Replace Taking Shape

Yodelayheehoo… Obamacare Repeal And Replace Taking Shape

About one month into President Trump’s administration, the strategy to repeal and replace Obamacare is beginning to take shape. This past week, newly sworn-in Secretary of Health and Human Services (HHS), Tom Price, and the House GOP met to discuss a timeline and parameters to repeal and the House unveiled a semblance of a plan to succeed the Affordable Care Act (ACA).

What’s wrong with our healthcare system

Before we get to the meat of our analysis of what we know now, let us stipulate two things.

First, by any measure, the Obamacare Exchange is in trouble. Premiums have shot up noticeably in the past several years and, at the same time, health plan participation and consumer network access have dwindled demonstrably. A new regulation, started during the Obama presidency and recently unveiled by Trump’s HHS, will make it harder for enrollees to sign up outside of the open enrollment period and cuts the open enrollment period in half. Plans also would be given slightly more flexibility in benefit design and the Centers for Medicare and Medicaid (CMS) will cease regulating networks.

But these changes will not fundamentally alter what is occurring. National plan Humana said it would exit the Exchange next year. It had already reduced its foot print over the past year considerably and now Exchange members comprise only about one percent of Humana’s overall enrollment. Other large national and regional plans are likely to downsize even more next year or totally exit, especially given the end of the proposed mergers of Aetna-Humana and Anthem-Cigna. Without efficiencies and growth in revenue from mergers, these plans rightfully will focus efforts on cost-cutting and margin in existing products.

Second, an overhaul of the American healthcare system is a must. Medicare, Medicaid and Obamacare benefits are fundamentally too rich to be sustained. Rich plan benefits and a lack of personal responsibility encourage waste, fraud and abuse, little focus on prevention and management, and excessive utilization of high-cost services. Specific to Obamacare, high benefit levels drive high premiums overall and provide little incentive for younger and healthier individuals to sign up – no matter the tax penalties. This creates an enormously adverse risk insurance scheme that will never be financially tenable. Defenders of the Obamacare status quo try to peddle the idea that somehow the system is stable, that it is not in a rate death spiral. Perhaps in some regions. The fact is that while universal access is a worthy goal, the current construct is based on some very flawed assumptions that have caused the turmoil we are seeing.

The House GOP plan

Notwithstanding all of this, the Republican plan for replacement that is emerging carries huge risk for the GOP. On its face, it seems to portend a massive reduction in state funding for Medicaid as well as the risk of millions losing health coverage in both Obamacare and Medicaid.

We call this a semblance of a plan as it has major holes and no cost estimates or projected impacts yet. Largely, it holds true to what Republicans and President Trump said on the campaign trail: the changes would repeal Obamacare, replace it with Health Savings Accounts (HSAs) with refundable tax credits, and change the face of Medicaid.

  • To seek to cover the uninsured, the House GOP plan would focus on HSAs, increase the amount that can be set aside (nearly doubling), and create portable refundable tax credits that individuals and families could use who do not have access to other coverage. These refundable tax credits are similar to the premium subsidies offered in the ACA, but few details are provided and it is unknown how rich they will be and who the winners and losers would be. The framework says the subsidy will increase with age — a must. However, the GOP does not propose basing the subsidy on income. Insurance regulation would be turned back to states. States would determine what plans could be sold in the marketplace and any plan allowed by insurance regulators could be funded by the tax credits. Most of the ACA taxes would disappear, including the employer and individual mandates.
  • Medicaid would experience radical change. The GOP proposes phasing out the 90 plus percent subsidy the federal government is giving states for expansion under the ACA, reducing it to match the regular federal rate of each state. The current and far-reaching Medicaid eligibility and benefit mandates would be lifted to allow states to design their own benefits and eligibility. Over time, the Medicaid program would move from an entitlement (where states can get unlimited match) to a fixed, per capita annual allotment that will be inflated each year. The allotment can be drawn on at the state’s matching rate. Some federal payments, including disproportionate share hospital (DSH) payments, administrative costs, and others, will be excluded from the total allotment. The GOP also likes State Innovation Grants and wants to use the grant program to tackle covering high-risk individuals. Theoretically, grants would be made to high-risk pools and other mechanisms as well as to help reduce out-of-pocket costs overall and emphasize prevention.

Policy and political obstacles

The replacement plan faces a number of policy and political obstacles. On the policy side, we see some things that don’t add up yet

  • The proposal frees up subsidy dollars to be spent flexibly on any type of coverage, not just on an overly rich, one-size-fits-all benefit design. This has a real chance of bringing younger and healthier people into the risk pool for insurers. At the same time, unless the age-based tax credits are exceedingly generous, we don’t see how lower income Americans will be able to afford coverage, opening up the prospect that millions who now rely on the Exchange for health coverage will become uninsured again. We have issues with Obamacare’s exceedingly generous premium and cost-sharing subsidies (that dissuade personal investment and responsibility), but not with the concept used in a reasonable fashion. Providing universal, affordable access to quality health coverage at all income levels is the only way to shift our healthcare system from one that is reliant on high-cost crisis services (inpatient and emergency room coverage) to one that is prevention and care management based.
  • Will guarantee issue and prohibitions on excluding pre-existing conditions continue? If yes, the issue of high premiums affecting everyone may only be partially solved with benefit flexibility. At the same time, not continuing them creates coverage barriers or gaps for high-cost individuals. How will the GOP balance this?
  • The GOP plan seems to rely heavily on the high-risk pool concept to cover high-cost individuals in some form, perhaps either in distinct products or through additional subsidies (one might conclude then that guaranteed issue might get the axe, while pre-existing limitations protections might still be saved). But in the past, many of these state pools suffered from high premiums and deductibles and insolvency. The GOP needs to think this through carefully for fear of orphaning the sicker patients that have coverage now. Remember that ensuring consistent access to coverage is absolutely necessary for these populations. Right now we pay billions to cover the uninsured at high-cost facilities through grants to hospitals.
  • Whatever the phasedown period for Medicaid expansion funding to return to historic match levels, the GOP proposal ultimately shifts the burden of covering the expansion populations to states, lest millions more re-enter the ranks of the uninsured. Admittedly, the cost of the Medicaid expansion has come in much higher than expected and cannot be sustained as is; but the cost and stability of the program is far better than what has been seen in the Exchange. Private Medicaid plans contracting with states have been able to serve members better with reasonably adequate networks and make money. We would rather see a concentration on lifting the benefit mandates, encouraging cost-sharing, and other reforms to save money here.

On the political side, there will be a long and winding road before the President finally inks any repeal and replace bill. Moderate GOP Senators are known to look suspect on radical Medicaid changes as well as an Obamacare replacement with big holes and uncertainty. And for fear of displacing many new Trump Republican voters, even the House GOP and the President will be forced to rethink various aspects as details begin to emerge.

What is interesting about the GOP’s skeleton proposal is its similarities to the Swiss model, where healthcare spending as a percentage of Gross Domestic Product (GDP) is well below the United States and health outcomes are much higher. The Swiss model is unlike European single payer systems. The Swiss model leverages government regulation (the government mandates a set of basic benefits) with private insurance delivery. There is no employer-based coverage and citizens are mandated to purchase coverage, which provides unprecedented transparency. Subsidies exist for lower income citizens. To emphasize prevention and personal responsibility, about one-third of costs of care are paid by recipients.

Certainly there are distinct socio-economic and demographic differences between Switzerland and America. America, too, will likely always have an employer-based system of healthcare and a Medicare and Medicaid safety net. But, the Swiss model is successful and more than one conservative policy-maker has signaled that looking to Switzerland makes sense. It could be a logical compromise between a broken ACA and the current GOP proposal if Republicans could overcome what would be knee-jerk political reactions by some lawmakers to certain features.

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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