Newly installed California governor calls for more flexible federal funding for state health programs, beefing up Affordable Care Act reforms of non-group coverage.

The State Innovation Waiver provision at section 1332 of the Patient Protection and Affordable Care Act does not afford states sufficient federal funding flexibility to develop comprehensive reforms to achieve the triple aim of increased coverage, lower costs and improve the quality of medical care. That’s according to a letter newly installed California Gov. Gavin Newsom sent to President Donald Trump and the congressional leadership this week. “Existing law permits only limited, piecemeal innovation – not the comprehensive reform necessary to address the myriad challenges that Californians face when navigating today’s health care system,” Newsom wrote. The governor also referred to the need for stronger measures to counter an “ongoing cost crisis” in medical care. “The rising costs are unsustainable and are exerting immense pressure on the budgets of state and local governments, employers and families” the governor wrote.  A way to rein in those costs is through a single payer model like Medicare, he added.

To finance such a model, Newsom’s letter implies the pot of federal funding for states should be expanded. Section 1332 waivers allow states to apply federal dollars they receive as premium tax credits, cost-sharing reductions and small business tax credits under the Affordable Care Act to establish alternative financing mechanisms for those in the non-group and small group markets. States can also seek waivers to redesign their Medicaid programs, which are jointly funded by the federal government and the states. Without directly stating, Newsom is suggesting the pot be expanded to include other forms of federal financing of medical care. The biggest of course is Medicare for Americans age 65 and older.

The California governor’s call for increased state flexibility to adopt their own schemes to finance and deliver medical care to their residents coincides with the Trump administration’s policy expressed in regulations and guidance. In recent remarks, Seema Verma, administrator of the Center for Medicare & Medicaid Services, complained states need greater leeway to do so, arguing it was “a mistake to federalize so much of health care policy under the ACA.”

Under Newsom’s proposed Transformational Cost and Coverage Waivers, funding for Medicare and Medicaid could be combined with state funding to create a comprehensive program. Section 1332 waivers must be budget neutral, meaning no new federal dollars. Newsom’s proposed waiver would instead allow increased federal funding to flow to the states using incentives such as reducing uninsured residents, lowering medical costs and improving quality. “The waivers would serve as the funding mechanism rewarding states that are relatively more successful in achieving these goals,” Newsom’s letter states.

Newsom also requested that the Affordable Care Act’s insurance reforms be beefed up in the absence of omnibus reform such as creating Transformational Cost and Coverage Waivers. He suggests reinforcing spread of risk in non-group coverage by restoring the individual shared responsibility mandate and scrapping the current means tested scheme that provides advance premium tax credit subsidies to households earning less than 400 percent of federal poverty for non-group plans purchased on state health benefit exchanges. “Premiums should be capped for all, instead of those fitting under an arbitrary poverty level,” Newsom wrote, noting doing so would increase affordability for about 1 million Californians in households earning above the subsidy cut off and bring more covered lives into the non-group risk pool. Newsom also proposed federal policymakers expand out of pocket cost subsidies to households earning less than 400 percent of poverty levels as well as making permanent the Affordable Care Act’s temporary reinsurance program for non-group plans in order to reduce premium rates by 10 percent.

Inconsistent Trump administration policy on non-ACA compliant non-group coverage options

The Trump administration has adopted an inconsistent policy stance on the sale of non-group medical insurance plans that don’t meet Patient Protection and Affordable Care Act requirements. In February, the administration proposed rules that would extend the permissible coverage period of short term, limited duration policies from the current maximum of up to 90 days to up to 12 months. These plans are not subject to Affordable Care Act standards for individual plans – guaranteed issue and no lifetime limits, 10 essential benefit categories and 3-1 age range rating limits — because they are not categorized as individual coverage. While the administration’s proposed rules don’t refer to the renewability of these longer term short term policies, they don’t specifically bar renewability. As such, they would effectively serve as less comprehensive, lower priced substitutes for Affordable Care Act compliant individual coverage sold with 12-month terms.

Nevertheless, the administration this week warned Idaho not to permit the sale of individual plans that don’t meet Affordable Care Act standards. On one hand, the administration is sanctioning a product that would serve as less comprehensive replacement for Affordable Care Act compliant individual coverage – particularly in 2019 when the federal income tax penalty for not having such coverage in force in the absence of other creditable coverage is reduced to zero. On the other, it’s deterring states from allowing less comprehensive, non-Affordable Care Act compliant “state-based” individual plans.

Rulemaking authorizing “364 day” short term individual medical insurance policies aimed at enhancing affordability and access for the young, healthy

The Trump administration’s proposed rulemaking authorizing “364 day” short term individual medical insurance policies is apparently aimed at improving access and affordability for the young adults and those in relatively good health — particularly those who earn too much to qualify for premium tax credit subsidies for non-group plans sold on state health benefit exchanges. The proposed rulemaking would eliminate the current 90 day limit on short term, limited duration medical insurance put in place by the Obama administration, allowing policy terms not exceeding 12 months.

[W]hile individuals who qualify for premium tax credits are largely insulated from significant premium increases … individuals who are not eligible for subsidies are particularly harmed by increased premiums in the individual market due to a lack of other, more affordable alternative coverage options,” the preamble of the proposed rule states. It points to a nearly 25 percent enrollment drop among unsubsidized households between the first quarters of 2016 and 2017 based on issuer regulatory filings, representing about 2 million households. In 2018, about 26 percent of exchange enrollees have access to just one insurer, the preamble adds.

The preamble notes individuals who are likely to purchase short-term, limited-duration insurance are likely to be relatively young or healthy. Unlike plan issuers in the non-group market, short term policy issuers would have latitude to medically underwrite applicants and charge older applicants more than younger applicants than allowed under Affordable Care Act rules governing the non-group market.

The administration estimates that in 2019 after the elimination of the individual shared responsibility payment in the recently enacted budget continuation measure, between 100,000 and 200,000 individuals previously enrolled in exchange coverage would purchase short-term, limited-duration insurance policies instead. That would likely decrease the quality of state non-group risk pools, the rulemaking notes. Consequently, non-group plan issuers would have to increase premium rates to compensate for the higher risk. Those higher premium rates would in turn require the federal government to pay more in premium tax credit subsidies to those qualifying for them. The administration estimates they will annually range from $96 million to $168 million.

The liberalizing of the availability of short term policies is indicative of Trump administration policy favoring employer sponsored coverage over non-group coverage.

Comment on the proposed rulemaking is due by April 23, 2018.

Rising medical costs undermine America’s largest coverage silo: Employer-sponsored medical benefit plans.

But the longer-term risk for job-based coverage is the inability of most employers — despite their power as the largest purchasers of health care services — to stem rising health care costs. Though some very large employers that run their own health insurance plans, like Comcast and Boeing, show considerable sophistication in managing their workers’ health care bills, they are the exceptions.

Faced with these structural handicaps, employers trying to limit their exposure to health care costs fall back on a simple strategy: shifting more of those costs to their employees. That winds up increasing the number of Americans with employer-sponsored health plans who are underinsured. The Commonwealth Fund survey found that underinsured adults reported health care access and medical bill problems at nearly the same rates as adults who lacked coverage for part of the year.

Increasing underinsurance among working families should raise alarm bells for policymakers and advocates both for and against increased government involvement in health care. If employer-sponsored health insurance continues to become less and less adequate over time — and we have every reason to believe it will — the discontent of middle-class working Americans with the cost of their health care will inevitably increase.

Source: The Decline of Employer-Sponsored Health Insurance – The Commonwealth Fund

Employer-sponsored medical coverage covers as many Americans as Medicare, Medicaid and the non-group individual market combined. As such, it’s the biggest coverage silo of the nation’s multifaceted scheme to cover the costs of medical care.

According to this Commonwealth Fund analysis, the structural integrity and long term viability of that largest and traditionally quite generous of coverage silos is under enormous stress from the ever growing cost of medical care. Another appearing today in Health Affairs warns that rising medical care costs could reduce commercial medical insurance, including employer plans.

Those cost pressures could cause it to tip over. If it topples, the analysis accurately observes, it would create an environment where a wider expansion of government plans beyond Medicare and Medicaid becomes more politically possible, even probable. It could spark a consolidation of the four big coverage silos into one or two. History appears poised to turn a page over the next decade.

Growth in self employment points to need for non-group medical coverage

Another reason insurers will likely return or work to remain in the individual market is that it’s part of the future of health care, says Counihan. With so many people now working for themselves in the “gig economy,” he says, selling insurance “is going to be more business-to-consumer than business-to-business.””This market could grow,” agrees Giesa. “And I don’t think [insurance companies] want to be left out completely from this market if there’s an opportunity to break even, or make a little money. “In the end, says Counihan, regardless of what he considers the Trump administration’s “disorganized neglect, I think this market is here to stay.”

Source: What Happens If The Individual Health Insurance Market Crashes? : Shots – Health News : NPR

Kevin Counihan served as head of the Department of Health Service’s insurance exchange program in the Obama administration. Kurt Giesa is an actuarial expert at the consulting firm Oliver Wyman.

While most working age Americans are covered by employer medical benefit plans that have dominated since the 1940s, there are indications this is changing and pointing to the need for a viable method of financing medical care outside of employer group coverage. The executive summary of a recent McKinsey Global Research survey reports 20 to 30 percent of the working-age population in the United States and the EU-15 countries are engaged in some form of non-employment vocation.

State health benefit exchanges not out of the woods yet

State health benefit exchanges dodged a legislative bullet last week that would have eliminated advance premium tax credit (APTC) subsidies to help low and moderate income households purchase non-group coverage. The nation’s largest exchange, Covered California, estimated the tabled budget reconciliation bill replacing the subsidies with an age-based tax credit beginning in 2020 would on average amount to only 60 percent of that provided under the APTC subsidies. That would have made coverage for less affordable for many households and potentially led to a dramatic drop in enrollment qualified health plans sold on the exchanges, shrinking the non-group risk pool and reducing spread of risk.

The exchanges now face a more immediate threat that could significantly disrupt plan year 2018 and potentially current year enrollees: the loss of cost sharing reduction (CSR) subsidies for silver level plans sold on the exchanges. The subsidies are available to households earning between 100 and 250 percent of federal poverty levels. By reducing out of pocket costs for eligible households, the subsidies effectively increase the actuarial value of silver plans that cover on average 70 percent of medical care costs.

A U.S. District court ruling issued last May found the Obama administration acted unconstitutionally in funding the subsidies without an explicit appropriation by Congress. The decision was put on hold pending appeal, where it sits pending possible action to resolve the underlying fiscal issue by the Trump administration and Congress. Without federal funding for the CSR subsidies, health plan issuers participating in the exchanges would incur billions in losses, according to an analysis prepared earlier this month by The Commonwealth Fund. There is no requested appropriation to cover the CSR subsidies in the Trump administration’s 2018 budget blueprint. As last week’s failed attempt to advance the budget reconciliation legislation illustrates, the Trump administration and Congress are unlikely to achieve a rapid agreement resolving the litigation as they struggle to form a majority party governing coalition.

Macroeconomics underlie debate over ACA successor

Set in the larger context, the current policy debate over a successor to the Patient Protection and Affordable Care Act is grounded in the long term macroeconomics of declining widely shared prosperity and how much federal and state government should chip in to finance the medical care of more lower income households. These are households:

• Hard hit by the 2008 economic downturn that reduced middle class economic security as the nation seeks a new post-industrial, post-WWII prosperity economy.
• Not covered by generous employee benefit plans that were commonplace in decades past while at the same time more working age Americans are self-employed and thus ineligible for employee benefit plans.
• Currently eligible for subsidies for plans sold on state health benefit exchanges and potentially for Medicaid if they live in a state that adopted the Affordable Care Act’s liberalized Medicaid eligibility guidelines.

Members of these households at the low end of the income scale are often lack stable incomes and have members in poor health who utilize a lot of medical services, reinforced by negative social determinants of health. That has contributed to a multi-billion dollar black hole of Medicaid as the program enrollment expanded dramatically, owing to the Affordable Care Act’s expanded eligibility rules.

In a letter to state governors last week, the Trump administration last week explicitly acknowledged the underlying economic challenges contributing to burgeoning Medicaid enrollment. The administration cast Medicaid as complimenting programs to assist low-income adult beneficiaries “improve their economic standing and materially advance in an effort to rise out of poverty,” adding that “[T]he best way to improve the long term health of low income Americans is to empower them with skills and employment.” The letter encourages state Medicaid program proposals “that build on the human dignity that comes with training, employment and independence.”

Heavy medical utilization has also led commercial non-group plan issuers to set premiums so high that those households that purchase non-group coverage are being clobbered by high premiums that rival monthly housing costs. Adding to the sticker shock is the lingering memory of the more generous plans of the HMO salad days of the mid-1970s to the early 2000s as well as individual plans that came with relatively high deductibles in exchange for low premiums. That tradeoff that has since greatly diminished with both premiums and deductibles high, stoking righteous anger against the Affordable Care Act’s non-group market reforms as well as resentment of those who qualify for Medicaid or substantial subsidies for exchange plans.

Simmering beneath the strum und drang of payer side policy is a coming pricing crisis on the provider side. With payers and households feeling pinched and even bankrupted by the cost of medical care and with dollars to pay for it in shorter supply and potentially being more restricted in the current administration and Congress (as well as by employers looking to cut employee benefit costs), substantial pressure will build on providers to reduce what they charge for services. That pressure will take on one or both forms as either falling demand based on the economic principle of price elasticity that holds as prices increase, demand falls — with high out of pocket costs aiding that dynamic. Or government expanding beyond Medicare its role as price arbiter or becoming a monopsony. It would easy to rationalize the latter since under the current split system of payers and providers negotiating reimbursement rates, price signals don’t pass directly between the providers and consumers of medical care and affords individual consumers little in the way of meaningful bargaining power.

If commercial non-group market cannot achieve continuous, year round enrollment, it may not be able to continue in its current form

Central to the Trump administration’s approach to reforming the non-group commercial medical insurance sector is assuring its actuarial stability by incentivizing those who obtain individual coverage remain continuously enrolled. Continuous enrollment is critical to a viable insurance market because it enables health plan issuers to assume a predictable flow of premium dollars to cover the cost of medical care events and predict the likelihood and cost of those events over a given period. That policy goal is contained in the American Health Care Act, the budget reconciliation measure currently pending in Congress that would authorize health plan issuers to surcharge applicants who had a break in coverage, as well as the Department of Health and Human Service’s proposed Market Stabilization rulemaking.

The question however is whether a continuous enrollment incentive will achieve its goal and meaningfully contribute toward creating a more actuarially stable individual risk pool. Particularly given that the segment serves as a relatively small remainder market for people not covered by employer-sponsored group plans that continue to dominate among working age individuals and the government programs Medicare and Medicaid.

Enrollment in the non-group segment is inherently volatile. People shift out of the non-group market as they become eligible for one of these other forms of coverage. Many young invincibles – those age 30 and under – don’t see much need coverage in the first place. Simply paying a 30 percent premium surcharge for a year doesn’t really offer much incentive to enroll in coverage. If the young invincibles lack incentive to enroll, that also works against another critical component in the individual (or any) insurance market – risk spreading – because the pool could tilt toward older members.

If continuous enrollment ultimately proves to have little impact in terms of improving the individual risk pool – and there’s a good chance that will be the case – policymakers will need to consider the larger issue of whether the non-group market can continue to function as a voluntarily enrolled form of insurance (like life insurance, for example). Will involuntary, automatic enrollment be necessary in order for it to be a viable risk pool for those not under the big tents of employer-sponsored or government coverage? And how might that work? Might all adults age 18 to 65 be automatically enrolled and subject to payroll and self-employment taxes as the financing mechanism such as with Germany’s universal coverage system? How might automatic enrollment as a government program comport with the commercial model used for non-group medical coverage? Would commercial non-group market players be content to relinquish the enormous challenge of maintaining an actuarially viable risk pool and transfer their risk bearing function to the government and act solely as plan administrators? Or might it be structured like Medicare, where commercial plans can assume some degree of risk to offer more generous plans such as Medicare Advantage plans?