Posted December 12th, 2016 in Top Stories, Legal Insights
Considerations for Payors Regarding Tom Price’s HHS Secretary Appointment
On November 28, 2016, President-elect Donald Trump nominated current House Budget Chair Representative Tom Price for Secretary of Health and Human Services (HHS). Price introduced an Affordable Care Act (ACA) replacement plan in 2015 entitled the “Empowering Patients First Act” (EPFA). EPFA suggests extensive healthcare reform applicable to payors in both the public and private sectors. Upon his nomination for HHS Secretary, Price promised that the impending healthcare reform overhaul would bear significant resemblance to his 2015 proposal, which ran on a two-year implementation timeline. While Congress will present the ultimate reform initiative to Price to implement in his new role, Price’s past healthcare reform efforts, both via EPFA and other congressional activities, are likely to help shape the final decisions. Some key policy changes from these pieces of proposed legislation that payors should be aware of are highlighted below.
- There would be no requirement to have health insurance.
The most significant fundamental change to healthcare reform that EPFA offers is the removal of the ACA’s individual mandate. EPFA would no longer require that every American have health coverage of some kind or face a tax penalty. However, like the ACA, EPFA still requires insurers to cover all individuals, regardless of health status, often referred to as “guaranteed issue.” Additionally, EPFA allows insurers to charge higher premiums by rating an individual on his or her health status if that individual does not maintain “continuous coverage.” Under EPFA, a lapse in coverage would allow an insurer to charge a consumer up to 150 percent higher premiums, whereby that consumer would be eligible for the standard, lower rate again after maintaining at least 18 months of coverage. This is a significant deviation from the ACA, where only age, geographic area, and smoking status are allowable rating factors for calculating health insurance premiums. Many predict that the concept of guaranteed issue without the individual mandate will cause many healthy or young people to be unwilling to pay the price of rising insurance premiums in the individual market if they do not have to, causing the market’s size and demographic that payors currently cover to change considerably.
- Medicaid expansion would be repealed without replacement.
EPFA significantly cuts eligibility for Medicaid by repealing the ACA’s Medicaid expansion efforts in its entirety. Unlike other ACA reform initiatives, Price’s EPFA does not offer any replacement or alternative mechanism to find a landing spot for the over 15 million people who enrolled in Medicaid since expansion began in 2014. Those who are no longer eligible for Medicaid when the expansion is repealed can revert to purchasing their own coverage in the individual market. However, the high premiums in the individual market may be too substantial for those just around the poverty line to afford. This is especially likely given EPFA’s tax credit eligibility reform; while the ACA determines tax credit eligibility by income, EPFA determines it by age, giving an individual more tax credits the older he or she becomes, regardless of income. While an individual becomes eligible for a higher tax credit as he or she ages, insurers could also increase prices based on age beyond the current ACA limit of charging older consumers three times the price of the youngest enrollee with that plan. Therefore, payors can expect significant changes to the size and demographic of both Medicaid and individual market pools as a result of Medicaid expansion repeal under EPFA.
- Medicaid would be funded as a block grant.
Medicaid block grants give each state a set amount of federal funding for the program on an annual basis. This deviates from the current funding structure, whereby the federal government pays a certain percentage of each Medicaid enrollee’s bill, regardless of how many people are enrolled, leaving the state to pay the rest. Medicaid block grants give the federal government more control over how much it will spend overall, since the grants are determined up front and do not vary based on enrollment. Medicaid block grants could also give states more control over how to spend federal funding within the program, and proponents of block grants claim that this increased control would result in increased efficiency in running the programs as well.
Likely, switching to a block grant mechanism would cut overall federal spending on Medicaid. The Congressional Budget Office (CBO) estimates that the block grant in Price’s 2017 FYB would cut Medicaid spending by $1 trillion over a decade. The CBO has also estimated that while states may be able to improve efficiency with additional flexibility in the program, the magnitude of the reduction of spending relative to those gains would still require significant cutbacks in enrollment. It is difficult to predict how many fewer people would be covered under Medicaid as a result funding cuts. For reference, House Speaker Paul Ryan’s 2012 Medicaid block grant proposal estimated that between 14 and 20 million fewer people would be receiving Medicaid coverage by 2022. While no concrete calculations have been similarly conducted for Price’s 2017 FYB plan, it is safe to assume that an overall cut in Medicaid funding would result in many fewer people in the program who would need to seek health insurance coverage via the individual market or forgo coverage altogether.
- Payors will have more flexibility with their plan design.
EPFA removes many mandated covered benefits from fully-insured market plans, notably removing the current “essential health benefits” (EHB) that all insurers in the individual and small group markets must currently include in their health plans. EPFA would allow insurers to cut whatever benefits they no longer want to cover and/or add cost-sharing for benefits previously mandated to be free, such as benefits that fall within the definition of “preventative care. ”
Price’s block grant proposal in his 2017 FYB does not detail if any specific groups of people will still automatically qualify for Medicaid, such as pregnant women, or what required benefits must remain, such as primary care. Therefore, it is currently difficult to predict how this change in federal funding would affect plan design and provider network requirements. However, payors should expect a continued emphasis on efficiency and necessity, especially if overall funding for Medicaid programs is cut.
- Expect significant structural changes in the individual health insurance market.
EPFA proposes adding a state-based, high-risk pool component to funnel funds into a separate pool for those with pre-existing conditions who cannot afford other coverage to the individual market. EPFA proposes a $3 billion budget for a high-risk pool over three years, as opposed to Congressman Ryan’s $25 billion budget over 10 years in his “Better Way” health reform proposal. Funding mechanisms for past high-risk pools have varied. In Minnesota, the Minnesota Comprehensive Health Association was funded by a life and health insurance industry-wide assessment, but other states’ high-risk pools were funded from the state’s general funds. High-risk pools are intended to control the extreme premium increases in the individual market spurred by a small number of high-cost individuals.
Another major structural change is in EPFA’s allowance of interstate sales of health insurance. Proponents of interstate health insurance sales assert that allowing insurers to sell policies approved in one “home state, ” where they are initially licensed, to consumers in other states will lower plans’ regulatory requirements and therefore lower costs. Opponents are concerned that allowing interstate insurance sales would concentrate insurance companies in states with the fewest insurance regulations, yielding bad results for insurers based in states with greater regulations and required benefits who may be unable to compete with the lower price tags associated with more relaxed regulation. While it is unclear whether the proposal would increase or decrease competition, payors will still need to maintain local networks and doctors in any state or county where they sell, regardless of specific, state-based benefits requirements and regulations, or lack thereof.
- Medicare payment mechanisms will be updated.
While not explicitly outlined in EPFA or his 2017 FYB, Price has supported plans to turn Medicare into a voucher program, which would give Medicare beneficiaries premium support to purchase their own commercial products. This setup gives the federal government more control over spending on the program with a set cost per beneficiary up front. It also gives beneficiaries more options to choose from. However, payors would need to adjust their product designs to match any resulting increased demand for commercial products. Additionally, payors should be cognizant as to how a voucher model would affect Medicare Advantage plans, where demand will likely increase for these products without any clear indication of increases to the Medicare trust fund that helps keep the premiums for these plans affordable.
Our healthcare team at NJL will continue to closely monitor the changing landscape of healthcare reform and its impact to our clients. For more information on this subject and how it could impact your healthcare business, contact healthcare attorney Steve Warch at 612.305.7663 or swarch@nilanjohnson.com.
