Yesterday, the House passed the American Health Care Act (AHCA) by a slim majority: 217 to 213. A chart reflecting the contents of the legislation can be found here. The bill still has to get through the Senate, which is unlikely in the current form. I would still like to comment on some of the key changes in the AHCA. I will focus on two of the key areas getting a lot of attention in the media: Pre-Existing Conditions and Medicaid Expansion Phase-Out.
Pre-Existing Conditions
I realize the image above is a little cynical, but I am tired of reading opinions based on headlines and buzzwords in Media & Social Media. Political wins and arguments seem to be based on semantics; one of the key provisions in the AHCA is a prime example.
One of the most hotly debated topics in the ACA and AHCA is “Pre-Existing Conditions”.
Let’s dissect this a bit.
The ACA has a provision which prevents insurers from denying coverage or charging higher premiums based on someone’s pre-existing medical conditions.
On the surface, this provision is great. If someone has a serious medical condition, they should not be denied coverage when they need it most. I don’t think anyone should debate this point.
However, the only way this “Pre-existing condition” provision works is ensuring everyone (healthy & unhealthy) keeps continuous health insurance coverage. If healthy individuals decide not to sign-up for insurance, and thus do not pay premiums into the pool of money used for claims, the people that do sign-up for health insurance have to pay even higher premiums because they are paying a higher percentage of the claims costs… this is one of the main reasons premiums have gone up exorbitantly over the last few years of the ACA and why the individual market is NOT stable.
One of the most hotly debated topics in the ACA and AHCA is “Pre-Existing Conditions”.
Let’s dissect this a bit.
The ACA has a provision which prevents insurers from denying coverage or charging higher premiums based on someone’s pre-existing medical conditions.
On the surface, this provision is great. If someone has a serious medical condition, they should not be denied coverage when they need it most. I don’t think anyone should debate this point.
However, the only way this “Pre-existing condition” provision works is ensuring everyone (healthy & unhealthy) keeps continuous health insurance coverage. If healthy individuals decide not to sign-up for insurance, and thus do not pay premiums into the pool of money used for claims, the people that do sign-up for health insurance have to pay even higher premiums because they are paying a higher percentage of the claims costs… this is one of the main reasons premiums have gone up exorbitantly over the last few years of the ACA and why the individual market is NOT stable.
ACA: Individual Mandate Penalty
The ACA tried to enforce continuous coverage with an Individual Mandate Penalty, which basically requires everyone to have health insurance or they have to pay a penalty the following year when filling taxes. The problem is that the penalty (2.5% of household income) is not steep enough to drive the intended behavior. For example, a healthy 27 year-old living in Union County NJ making $35,000 per year has the option to forgo health insurance and pay a penalty of $875, OR pay nearly $3,000 in premiums for lousy coverage. Which option do you think he chooses?
The intent of the Individual Mandate Penalty in the ACA was good, but the penalty was not severe enough to drive the intended behavior.
AHCA: Continuous Coverage Requirement
The AHCA eliminates the Individual Mandate penalty and replaces with a Continuous Coverage Requirement.
Republicans are celebrating this as a win.
Republicans are celebrating this as a win.
Democrats are claiming Pre-existing conditions won’t be protected…
They are both wrong.
First of all, the AHCA does not allow an insurer to deny coverage to someone with pre-existing conditions. The AHCA proposes that a state can request a waiver from the ACA which allows insurers to charge 30% higher premiums for one year for people that have not had continuous coverage.
Again, the intent of the AHCA provision is good – continuous coverage is required to keep the individual market stable. The problem is that the penalty for not keeping coverage is still not severe enough.
The healthy 27-year old that wants to forgo insurance, is still going to forgo insurance because the potential risk of a 30% premium increase for one year at some point in the future is not a big enough detractor to pay $3,000 in premiums for lousy coverage.
First of all, the AHCA does not allow an insurer to deny coverage to someone with pre-existing conditions. The AHCA proposes that a state can request a waiver from the ACA which allows insurers to charge 30% higher premiums for one year for people that have not had continuous coverage.
Again, the intent of the AHCA provision is good – continuous coverage is required to keep the individual market stable. The problem is that the penalty for not keeping coverage is still not severe enough.
The healthy 27-year old that wants to forgo insurance, is still going to forgo insurance because the potential risk of a 30% premium increase for one year at some point in the future is not a big enough detractor to pay $3,000 in premiums for lousy coverage.
A Potential Solution: The Medicare Part B Enrollment Model
One way to help to stabilize the individual market, would be to align the enrollment penalty and delays similar to Medicare Part B.
If you miss your Medicare Part B enrollment, there are severe penalties and delays in coverage effective date, which helps prevent Adverse Selection in the Medicare system.
For example, if you miss your initial enrollment period for Medicare Part B (and you don’t have other credible coverage), you can ONLY enroll during the General Election Period (Jan 1 – Mar 31) and your coverage will not be effective until July 1. This is a severe penalty that could result in someone not having health coverage for up to 15 months (if they missed their enrollment window and attempt to apply for Part B in April, they have to wait until January of the following year with July effective date). This rule helps prevent adverse selection because most people don’t want to risk not being able to get coverage for such an extended period of time.
In the ACA (pre-65 individual market) today, the individual who forgoes insurance and then gets sick can either: enroll for Jan 1 effective date, OR find a loophole with the mid-year special qualification rules and apply in the middle of the year. There are very limited checks in place to make sure the qualification reason is accurate. So, individuals, who have not paid premiums when they were healthy, are able to get into the insurance pool only when they have expensive claims to be paid.
The other risk with missing the Medicare Part B enrollment is 10% penalty on the Part B premiums, for every year that you don’t have Part B coverage. So, if you wait 5 years to sign-up for Medicare Part B, you are responsible for a 50% penalty on your Part B premiums … not just for one year, but for the rest of your life.
These Medicare penalties and delays may sound harsh, but they drive the correct behavior --- people generally sign-up when they are supposed to and they don’t forgo insurance until they need it. (Note, Medicare has other financial issues but they are not due to Adverse Selection.)
If you miss your Medicare Part B enrollment, there are severe penalties and delays in coverage effective date, which helps prevent Adverse Selection in the Medicare system.
For example, if you miss your initial enrollment period for Medicare Part B (and you don’t have other credible coverage), you can ONLY enroll during the General Election Period (Jan 1 – Mar 31) and your coverage will not be effective until July 1. This is a severe penalty that could result in someone not having health coverage for up to 15 months (if they missed their enrollment window and attempt to apply for Part B in April, they have to wait until January of the following year with July effective date). This rule helps prevent adverse selection because most people don’t want to risk not being able to get coverage for such an extended period of time.
In the ACA (pre-65 individual market) today, the individual who forgoes insurance and then gets sick can either: enroll for Jan 1 effective date, OR find a loophole with the mid-year special qualification rules and apply in the middle of the year. There are very limited checks in place to make sure the qualification reason is accurate. So, individuals, who have not paid premiums when they were healthy, are able to get into the insurance pool only when they have expensive claims to be paid.
The other risk with missing the Medicare Part B enrollment is 10% penalty on the Part B premiums, for every year that you don’t have Part B coverage. So, if you wait 5 years to sign-up for Medicare Part B, you are responsible for a 50% penalty on your Part B premiums … not just for one year, but for the rest of your life.
These Medicare penalties and delays may sound harsh, but they drive the correct behavior --- people generally sign-up when they are supposed to and they don’t forgo insurance until they need it. (Note, Medicare has other financial issues but they are not due to Adverse Selection.)
AHCA: Medicaid Expansion Phase Out
The AHCA is proposing a rollback of the Medicaid Expansion in the ACA. When the CBO scored this proposal last month, they estimated over 20 million people would lose insurance over the next 10 years due to the Medicare Expansion phase-out. This was not addressed in any of the amendments to the AHCA and has not been re-scored by the CBO. I hope this gets addressed in the Senate before anything gets approved/signed, because this would have detrimental impacts on a huge population of people currently on Medicaid.
Still no discussion of root costs
Last month, I wrote an article and created a short video about Obamacare Reform. In the video, I mentioned there is not enough focus on the backend costs of Healthcare. All of the energy/focus seems to be placed on the insurance layer (which does require improvements), but the backend costs of healthcare are the key driver for the cost increases year after year. If we don't address the backend costs soon, the healthcare system will implode - that is not on overstatement.
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