Boil it down for me

A friend asked me “boil it down–how is the Republican repeal and replace different from the new status quo after the ACA?”

  • Most fundamentally, it would change the financing formula for Medicaid, and limit the federal government’s financial responsibility for same. The flexibility given to states will have to be used to decide how to cover the same number of people with less money, or increase state funding. I am not talking about expansion but the part of the Medicaid program that was untouched by the ACA–children, pregnant women, disabled, elderly.
  • It ends the Medicaid expansion that is a part of the ACA (so will increase uninsured rate).
  • It provides more people with smaller tax credits for purchasing private health insurance while making the mandate/penalty/steering mechanism to purchase health insurance weaker. Hurt are low income people who will get less, while higher income people get more. The ban on pre-existing conditions is kept, as are mandated essential health benefits. The bottom line will almost certainly be fewer more uninsured (update post), and a much more likely death spiral in the individual insurance market. There are some complicated geographical forces at work that mean the impact on uninsured rates will differ by state, but fewer will be covered as compared to the ACA. It is unclear what the changes will do to employer sponsored coverage–some say there will be lots of drops. We need to know what the CBO thinks to see by how much private insurance coverage is likely to drop.
  • The Medicare cuts that were used to partially pay for increased coverage in the ACA-and which the Republicans have viciously criticized–remain. About $700 Billion worth over the next 10 years.
  • The taxes on people making over $290,000/year in the ACA have been repealed. The exact size of the tax cut is unclear (again, we need to hear from CBO, but estimates are between $700 Billion and $1 Trillion.

In summary, this bill is a tax cut for high income folks that is funded by cuts to the Medicare program as compared to the ACA new baseline. In addition, it provides a fundamental change of the federal governments financial commitment for Medicaid which weakens the safety net we have, while wiping out coverage gains from Medicaid expansion. States get less money, but the same number of people who now qualify for coverage, leaving aside any expansion effects. And the changes to the tax credit, insurance rules, penalty structure seem likely to destabilize the individual, private insurance market, with unclear impacts on the employer sponsored health insurance system. And the bill will likely increase the deficit (update post: CBO says it reduces the deficit, because of how many more uninsured there will be), but unclear by how much.

The simplest I can do.

Molina’s Death spiral model and the AHCA

Molina Insurance, a fairly successful Exchange carrier that has usually been profitable on and off Exchange, issued a statement yesterday afternoon concerning the House Repeal bill. The statement is ugly and it illustrates a very important point of the Republican bill. It will create an on-Exchange death spiral in many counties.

So what is the model that leads Molina to believe the Exchanges would see mass disenrollment and high price hikes under the Republican plan? It is a combination of the flat age based subsidies and the late enrollment penalty being a proportion of premiums. Some markets and counties would not be affected. Portions of Texas and Pennsylvania for instance would see 21 year olds be able to buy Bronze plans at zero cost. Those counties should have healthy risk pools. But risk pools are not county specific. They are state specific single pools. High cost counties will have a very different dynamic.

High cost counties with a flat age based credit will see young people face significant out of pocket monthly premium expenses if they maintain continual enrollment. A 21 year old is highly unlikely to need much care over the course of a year so most healthy 21 year olds will leave the market. They pay no penalty at the time of their decision to leave the market. And they will make the same decision the following year assuming no new information about their health status arises. Now a 22 year old can jump into the market with a 30% penalty which they will only pay if they know that they are going to be expensive in the following year. The ACA Exchanges average about 34% enrollment under age 35. This system will dramatically reduce enrollment as a number and as a percentage of enrolled for Under 35. The composition of the young enrollment will also be significantly sicker in high premium counties.

On the other hand, moderately expensive but still profitable 60 year olds know that their uncertainty zone for future costs are higher. They could have a year that looks a lot like the current year or they could have a catastrophic year. The odds of a catastrophic year are much higher for a 60 year old than a 21 year old. Further more the penalty for being unenrolled and then enrolling in the future period is much larger. For somewhat expensive but profitable members, the 30% penalty is much more stringent than the current $650 or 2.5% of income penalty. At the same time, the really healthy members who have low utilization at age 60 will drop coverage as the relative costs of the 30% one time late enrollment penalty is less than the cost of premiums for the current year.

Very low cost enrollees will flee unless there is a minimal cost plan out there.  The risk pools will become very old and very sick very quickly.  That is how Molina is modeling their future.

AHCA impact in North Carolina

North Carolina is a high cost state for health insurance.  Under the Affordable Care Act, people who receive subsidies on are shielded from price increases because the subsidy is tied to the cost of the second least expensive Silver plan on Exchange and the individual pays a fixed amount dependent on their income.  The personal contribution amount is fixed based on the person’s income defined by the Federal Poverty Level.  That means a 21 year old who is subsidized will pay the same post-subsidy premium to the insurer as a 64 year old with the same income.

The American Health Care Act (AHCA) bill that was released on Monday night changes the subsidy formula.  Subsidies are no longer tied to the cost of insurance or the individual’s income.  Instead any qualified individual who makes less than $75,000 per year receives a fixed subsidy amount determined by age.  A 21 year old receives a $2,000 subsidy.  A 64 year old receives a $4,000 subsidy.  In the ACA premiums are allowed to be three times higher for a 64 year old compared to a 21 year old.  In the proposed AHCA, premiums are allowed to be five times as high for a 64 year old than for a 21 year old.

Since the subsidy grows far slower than the premium, this means the 64 year old, for a given deductible, will pay far more for their coverage.  I’ve used the 2017 Exchange data to see how much a 60 year old in each county in North Carolina would have to pay after their subsidy every month to buy the least expensive Bronze plan currently offered.  Bronze plans tend to have deductibles of at least $6,500 with out of pocket maximums of $7,150. The circles are larger for counties with more enrollment as of 1/31/17.

NC least expensive Bronze 2017

60 year old residents in Nash County are the best off.  They would only pay $439 per month after the newly revised subsidy is applied.  Currently, someone earning $20,000 a year in Nash County would pay nothing for the least expensive Bronze plan and only $31 a month for a low deductible Silver plan.

60 year old residents in Bladen, Cumberland, Harnett, Hoke, Richmond, Robeson and Scotland counties are the worst off by this change.  They would pay $754 for a Bronze plan under the AHCA fixed age based subsidies.  Under the ACA, someone earning $20,000 a year would pay the same as a Nash county resident.  Someone who is age 60 and earning $40,000 a year would pay $110 a month for a Bronze plan and $283 per month for a Silver plan under the current ACA income and plan cost based subsidies.

High cost states with a large number of older residents will be significantly worse off under fixed age based subsidies.

There is one caveat. I’ve intentionally underestimated the costs for all counties.  I used the current 3:1 age band for premiums instead of the 5:1 premiums as that change is unlikely to survive in the Senate under current legislative rules.  If 5:1 premiums are used, all figures should increase by approximately 20 to 30%

Data: Enrollment data from Charles Gaba  sourced by Kaiser Family Foundation

Pricing data from CMS

Subsidy data from the legislative text

Thoughts on Republican Repeal & Replace

The House Republicans dropped two bills yesterday, that they say they will vote on Wednesday, before the CBO even has a chance to score the bills’ impact on insurance coverage, Medicare, Medicaid and the deficit (they aren’t rushing to suppress good news–many fewer will be covered and they get rid of Medicare payment cuts and cut the taxes used to pay for Obamacare, so it will increase the deficit). The House Energy and Commerce bill focuses on Medicaid, while the Ways and Means bill focuses on tax credits for private health insurance.

A few key thoughts.The most consequential part of the two-bill proposal are cuts to the Federal Share of Medicaid. Several Republican Senators in States that have expanded Medicaid and/or Blue States have said Medicaid expansion had to be maintained in any repeal and replace bill. House Republicans dislike Medicaid expansion quite a lot, so it is hard to find a bill that can get 50 votes in the Senate (in which case the VP would break the tie) and 218 in the House.

  • This attempts to thread the political needle by keeping Medicaid expansion, with enhanced Federal share of the cost in the ACA until 2020. From 2020 on, anyone who is continuously covered by Medicaid will retain the enhanced cost match until the become ineligible for Medicaid; then the enhanced match will be lost. There is tremendous churn in and out of Medicaid, and so this will mean that almost no enhanced cost match beneficiaries will be left within a year or so. This effectively sunsets Medicaid expansion.
  • Equally consequentially, the funding agreement between the federal government and state will be converted to a “per capita cap” version of a block grant. In 2020, the Medicaid funding levels will revert to those that existed in 2016 for the non-ACA Medicaid pool. From this point forward, the federal match will rise at medical CPI. This is like your employer saying I will give you raises until 2020. In 2020, your salary will revert to your 2016 salary and then we will go from there.
  • The effect will be a great reduction of the federal cost of Medicaid over time, with States given “flexibility” to figure out who to pay for and how.
  • The political question is whether the Senate Republicans who are worried about Medicaid expansion will go for this. They could say, we kept expansion until 2020….and there might be a lot of wink-wink, nod-nod that during the election we won’t go through with this, and then you get a 2 year can kick. Then another, etc and your recreate the SGR/Doc Fix fiasco.

The Structure of the Private Insurance Aspect of the bill is very similar to the one we have in the ACA, just with lots smaller subsidies spread across more people.

  • The individual mandate and the employer mandate are not actually repealed in this–instead the penalty for an individual being uninsured is set to $0 as is the penalty for an employer over 50 employees dropping coverage (that is because this is a Budget Reconciliation vehicle, that can only change things that directly impact federal spending).
  • In place of the individual mandate is a continuous coverage provision that says if you are uninsured for more than 63 days after December 31, 2017, if you come back to sign up for private coverage in a State exchange than you have to pay a penalty of 30% of the value of the premium (so if monthly is $100, then you have to pay $130). Note that this is not a tax in the bill–the penalty has to be paid to your insurance company. Basically, the law tells insurers to charge more to people with gaps in coverage of 63+ days.
  • This looks nearly designed to blow up the individual insurance market to me. Under the individual mandate we have now, there is a problem with too few healthy folks signing up. The penalty is supposed to incentivize staying covered, but the penalties will be lower than they are now for many young folks. I am interested in CBO’s take here, but I think there is worse adverse selection than the current ACA.
  • Tax credits are age-based, with a means test. Basically, more people get smaller tax credits and with ending of mandated benefits (states will now decide) the key issue will be what can  you buy with the tax credits. The answer will be not much. People between $75,000 (single)-$150,000 (couple) incomes who if buying coverage now get nothing, will get a tax credit, based on their age. This is probably the one group better off in health policy terms (hospitals that get DSH cuts restored immediately, and rich folks who get tax cuts will be better off).

Extra interim money for non-expansion states. There is a provision of $10 Billion over 5 years for states that have not expanded Medicaid, but note that this is for the entire nation and is not more than a few hundred dollars per member, per month for a state’s Medicaid program. The state of N.C.’s cost of Medicaid expansion from 2017-2026 is estimated at $6.2 Billion. This provision is very little money to states.

Cadillac Tax is not repealed, but delayed until 2024 and no other financing mechanism noted. There had been talk of replacing the cadillac tax with a capping of the tax exclusion of employer sponsored health insurance, which has long been a Republican think tank thing to be for. However, they instead keep the Caddy Tax and delay it (this will help make the CBO score less of a shit-show, but they will plan to can kick this too).

  • The bills remove the financing for coverage expansion (increased taxes on high income folks, and it reinstates DSH payment cuts immediately).
  • They don’t identify alternative financing mechanisms, other than the cadillac tax in years 2024 and out (which they will later want to delay). So, this is basically a deficit financed tax cut, with a Medicaid expansion that is preserved until 2020, and after that a huge reduction of federal Medicaid cost share with the state’s left holding the bag.
  • The fact that the Commerce and Ways and Means Committees are supposedly voting on this before getting a CBO score, should put to rest once and for all that the Republican Party cares about fiscal responsibility.

I will say more later. I don’t see how this can pass the House and the Senate. I have no idea what impact President Trump will have on this debate, or really anything else–that is an hour-by-hour determination.

Annual State Costs of Medicaid Expansion

Governor Cooper released his first state budget yesterday, and he continued his call for Medicaid expansion, with the state share to be paid by hospitals that would receive more revenue from expansion. I have a piece in the January-February issue of the North Carolina Medicaid Journal making the case for expansion.

A few folks have asked me about some of the numbers in my piece above, and in particular my estimate of $6.2 Billion in State costs for the 10 years 2017-26 (that would leverage $52.4 Billion more in new federal money over the same period). The two most common questions are whether the State costs (1) account for other savings; and (2) are they the same each year?

The first answer is no, the $6.2 Billion are the estimated state flows required under expansion. This doesn’t answer what source pays them (the Governor suggested hospitals), but is just the magnitude of the flows required. The $4.9 Billion number also highlighted is adjusted for an estimate of uncompensated care savings, so is the net cost.


The answer to the second question is that the flows are not uniform across the years 2017-2026, but start lower and increase over time (with inflation and in growth in population). The table below provides the flows of new State costs with expansion, along side the state costs if we do nothing. The default federal cost of North Carolina’s Medicaid program under no change is around $135 Billion over the same 10 year period.


Note that the estimates I used are based on the Urban Institutes work and projections. There are a variety of such models and they don’t all yield the exact same answer, but provide similar magnitudes. More precise estimates could likely be developed for North Carolina, but at this point I don’t really think such technical questions are the stumbling block to expansion in North Carolina.

Age based subsidy impacts in North Carolina

One of the possible plans for healthcare that is circulating in Washington is the House bill that leaked to Politico.  Its coverage concept is to give all people who are uninsured an age based refundable tax credit.  This will benefit, all else being equal, individuals who are currently not subsidized because they earn too much money for the ACA subsidies.  It will have significant negative effect for lower income North Carolinians because it is a major change from income based subsidies to age based subsidies.  North Carolina has a fairly expensive insurance market which the current subsidies hide from people who make less than 400% of the federal poverty level (FPL).

The following map consists of the least expensive 2017 qualified health plan in each county for a single forty year old non-smoker with the flat age based subsidy applied.  This is what an individual would need to pay every month for a policy that has at least a $6,325 deductible or in more common benefit designs, an out of pocket maximum of $7,000 or more.

North Carolina 40 year old QHP.png

Other factors could apply that will change these numbers such as less expansive Essential Health Benefits that would decrease these numbers. But the costs outlined in the map above are a rough estimate of the state level impact of age based subsidies.

Rulemaking and legislative possibility space on Cassidy Collins

I chased my kids through a museum yesterday.  Part of the day had them go through a butterfly’s life cycle and there were parts where grown-ups were just too big for it.  So I stepped aside and thought about health policy.  Specifically the proposed rule that widens the actuarial value bands from +/-2 to -4/+2.  A Silver plan under that rule could range from 66% AV to 72% AV instead of 68% to 72%.

We’ve looked at the distributional consequences of that rule last week.  Now let’s think about the legislative consequences.  The major distributional improvement is that low utilizing people who are not subsidized get slightly lower premiums.  Most of the work of that rule will be increasing out of pocket maximums for either un-subsidized but expensive individuals or subsidized individuals.

In some markets (Indianapolis is a likely target), the premium of the second least expensive Silver which sets the subsidy benchmark will decrease as plans go from 68% AV to 66% AV.  In those markets the benchmark premium (which no one besides Center for Medicare and Medicaid Services (CMS) and the Congressional Budget Office (CBO) cares about) will decrease.  The federal premium tax credit subsidy is calculated as the gap filler between an individual’s capability to pay which is a function of the federal poverty line (FPL) and the benchmark premium.  A lower benchmark premium shrinks this gap.  This will lead to a lower CBO score for the same number of people covered.

Some of the lower premium tax credit payments will be counter-balanced by higher cost sharing reduction subsidies but on net anyone who is making between 250% FPL and 400% FPL and is receiving a subsidy will see a smaller subsidy.

Why does this matter for Cassidy Collins?

Their plan is to take the entire pool of ACA money that a state would have received from the ACA and take a 5% haircut.  From that smaller pool of money, states could elect to continue with an opt-in ACA as is or move towards an opt-out HSA high deductible and catastrophic plan system in their alternative methodology.

This administrative rule shrinks the CBO score for the pool of money that states would be eligible for so it shrinks the pool of money available for Cassidy Collins by a few percentage points.  This is critically true for the alternative methodology as their plan spreads the same amount of money (after the 5% haircut) over a much broader population (subsidized, un-subsidized and un-enrolled) so the baseline plans that can be paid for with either just the subsidy OR the subsidy plus the same ACA individual contribution are far skimpier with far higher deductibles.  This rule will increase the deductibles that Cassidy-Collins would have to charge by several hundred dollars more per person.