off the charts
BEYOND THE NUMBERS
BEYOND THE NUMBERS
Republican Health Proposal Likely Means Less Coverage, Higher Costs, Fewer Consumer Protections
January 28, 2014 at 3:02 PM
Senate Republicans Tom Coburn (OK), Orrin Hatch (UT), and Richard Burr (NC) proposed yesterday to repeal all of health reform (the Affordable Care Act or ACA) except for certain provisions related to Medicare, cap federal Medicaid funding, and create a new tax credit for people to buy health insurance in the individual market. The proposal lacks essential details, but what we know about it suggests that it would likely:
- lead to federal Medicaid funding shortfalls that could cause many poor beneficiaries to lose needed care;
- leave coverage unaffordable for many low-income people by significantly raising their premiums, co-payments, and other charges compared to current law; and
- drop or significantly weaken the ACA's consumer protections and market reforms, especially for people with pre-existing conditions.
Let's look at each of these in turn.
Likely Deep Cuts for Medicaid Beneficiaries
The plan apparently would convert most of Medicaid into a block grant and fold the Children's Health Insurance Program into that block grant. States would receive fixed federal Medicaid funding to cover pregnant women, children, and low-income families and provide long-term care services and supports to seniors and people with disabilities.
Each state's allotment likely wouldn't reflect its actual spending needs. While total federal funding would be based on total states' historical spending, each state's share would reflect its number of poor people, not its Medicaid costs. Moreover, after the first year, federal funding for states would grow each year at the rate of overall inflation plus 1 percent -- not enough to keep pace with the growth in health care costs.
Federal funding would also be adjusted in some unspecified way to reflect population and other demographic changes. But those adjustments likely wouldn't fully account for the aging of the population and rising health care costs. (For example, seniors' per-beneficiary costs will grow more rapidly than in the past as the seniors in Medicaid become older, on average, and hence have greater needs.) Moreover, if Medicaid enrollment rises due to an economic downturn, federal funding wouldn't automatically increase as it does under the current financing structure. (CHIP funding also would likely be lower than under current law.)
As a result, states would face significant risk of federal funding shortfalls relative to current law. And the shortfalls would likely grow over time. Consequently, states would either have to contribute more of their own funds or (as would more likely occur) use their greater flexibility under the block grant to deeply cut eligibility, benefits, and payments to health care providers. Many poor Medicaid beneficiaries would likely end up uninsured or without needed care.
Seniors and people with disabilities who rely on Medicaid would be at particular risk. While they make up only one-quarter of Medicaid beneficiaries, they account for about two-thirds of Medicaid expenditures.
Much Higher Costs for Many People
The plan would repeal the ACA's Medicaid expansion, under which the federal government will pick up nearly the full cost of covering individuals up to 133 percent of the federal poverty line. (Twenty-six states plus the District of Columbia will take up the expansion this year.) Not only would the millions of people who stand to gain Medicaid coverage lose out, but many people eligible for Medicaid even without the expansion could lose coverage because of (per above) the likely federal funding shortfalls from the block grant.
That's not all. The plan would eliminate the new health insurance marketplaces (also known as exchanges), which allow individuals to make an informed choice among an array of plans and thus encourage insurers to compete on price and quality. And it would repeal the ACA's premium tax credits and cost-sharing reductions, designed to make buying private coverage through the marketplaces much more affordable for low- and moderate-income people.
In place of the Medicaid expansion and premium credits, the plan would establish a new tax credit that would be the same dollar amount for everyone below 200 percent of the poverty line (and would phase out between 200 and 300 percent of the poverty line). That means that people with incomes between 300 percent and 400 percent of the poverty line, who are eligible for the ACA's premium credits, would receive no help.
Legal immigrants would be ineligible for the plan's tax credit. (In contrast, legal immigrants are eligible for the ACA's premium tax credits.)
In addition, the tax credit wouldn't be based on the actual cost of decent-quality coverage or fully account for differences in people's premiums based on their age. Nor would the plan offer any help with plan deductibles, co-payments, and co-insurance to replace the ACA's cost-sharing reductions.
The plan would also repeal the ACA's requirement that insurers spend at least 80 percent of their premiums on health services rather than overhead and profit. Individuals would likely pay higher premiums for less coverage.
Altogether, low- and moderate-income income individuals would likely face much higher premiums, deductibles, and other out-of-pocket costs than under the ACA -- especially for poor and near-poor individuals who would otherwise be eligible for Medicaid and older people who would otherwise buy coverage through the marketplaces. Many would likely find coverage unaffordable. As a result, many more people would be uninsured or underinsured than under the ACA.
Far Weaker Consumer Protections and Market Reforms
The plan apparently would allow insurers to do a number of things that they can't do under the ACA as of January 1 of this year, such as set an annual dollar limit on the coverage they provide, require cost-sharing for preventive care, and charge women higher premiums than men. Insurers could also charge older people five times -- or more -- what they charge younger people (depending on what their states allow), rather than the ACA's 3-to-1 limit. And they wouldn't have to cover adult children up to age 26 on their parents' plans if their states let them not do so.
Also, unlike under the ACA, insurers in the individual and small-group markets wouldn't have to provide a full set of essential benefits or set an annual limit on out-of-pocket costs.
People with pre-existing conditions would face additional problems. To be sure, the plan would prohibit insurers from varying premiums or denying coverage based on health status when people try to buy coverage in the individual market -- but that's only for people who had continuous coverage through an employer or already had coverage through the individual market for at least 18 months. And while insurers couldn't deny coverage upon renewal because of a person's health status or claims experience, they likely could charge much higher premiums based on those factors, as they did before the ACA.
The uninsured would have a one-time enrollment period in which they couldn't be denied coverage outright, but insurers apparently could charge higher premiums based on a pre-existing condition or health status (or even deny coverage of the pre-existing condition for a period of time) during this enrollment period. As a result, individuals in poor health or with a pre-existing condition may not find this enrollment period meaningful.
The only alternative that the plan provides for people with pre-existing conditions is unspecified federal funding for states to operate high-risk pools. But relying on such pools to provide coverage would be "extremely expensive and likely unsustainable," as the Commonwealth Fund has explained. That's because they pool sick individuals not with healthy individuals but with even sicker individuals, who cost more to insure.
Indeed, experience with state high-risk pools shows that unless government financial support rises significantly over time, they eventually have to sharply restrict enrollment, set premiums above what many families can afford, and/or scale back coverage to keep costs from spiraling out of control. There is no indication that the plan would provide adequate initial funding and increase federal support as needed.
We will follow up with additional analysis of the plan in the coming days.