What next for the ACA?

As of this writing, the first order of business was for President Trump to sign an Executive Order expressing his intentions to repeal the ACA (Affordable Care Act aka Obamacare). This is a simple order that starts with the summary intention to repeal the act, but also states that the law must be enforced.

It further states the departments may at their discretion “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden” on pretty much anyone- except employers were not specifically mentioned. Oversight or intentional? It reaffirms compliance with the Administrative Procedure Act of 1946 that requires notice-and-comment rule-making. So you can bet all stakeholders, particularly your insurance company will be watching the process closely.

Assuming Mr. Price is confirmed as the head of Health and Human Services (HHS) he will have a great deal of power in this process. This is where the nuts and bolts are really worked out.

So what should we look for in the future? Most all voters support many provisions of the ACA such as coverage for dependents to age 26, no pre-existing conditions, guaranteed issue etc. The biggest objections are to the mandate for coverage and the associated tax penalties for non-compliance.

When policymakers were working with insurers to craft the law, the mandate was a key provision. Without it, insurers simply would not play. The tax penalties were the “big stick” to encourage participation of employers and individuals.

How might this be addressed in the future? One idea is that in order to qualify for the guaranteed issue and no pre-ex provisions, individuals would need to show no break in coverage. Assuming that means absolutely no break in coverage, insurers might buy into this one. The law now allows up to a 60 day break. More than 100,000 people enrolled in the individual exchange on the day after the election. Maybe they were hoping to get in before the rules change.

It is my understanding that Congress and the Office of Management and Budget must approve the funding associated with any of these changes. So now we come to the bigger question. When the law was written it was funded by a series of new taxes. Should the law simply be repealed, then it would follow that all the taxes would also be repealed, right? (Good news for real estate investors, insurance companies, device manufacturers).

These taxes paid for the subsidies. So without the subsidies for the working poor, how will they pay these premiums? Budget reconciliation should have started by last Friday. This is where the subsidies could be withdrawn.

What drives premiums? Health care costs!

Under the ACA 80-85 cents of every $1 must be used to pay direct medical claims to doctors, hospitals, pharmacies etc. So we know that 80-85% of every premium dollar is going directly to health care costs.

The Trump administration supports a free market in health care, although he has suggested regulating Rx costs. Selling across state lines or creating buying groups does nothing to address the 85 cents! It will not increase competition.

To “increase competition” you need to allow the companies to offer “swiss cheese” plans again. These are plans that have holes and it is “buyer beware” to find them.

So the reality is that health care costs are driving premium increases. Pretty simple.

So how do you reduce costs? There are a number of ways. You may cut benefits. If it’s “last in first out”, then mental health and wellness benefits will likely be the first benefits to go.

You may provide a more efficient delivery system. According to Kaiser Health,”One of the main ways the Affordable Care Act seeks to reduce health care costs is by encouraging doctors, hospitals and other health care providers to form networks that coordinate patient care and become eligible for bonuses when they deliver that care more efficiently”.

“The law takes a carrot-and-stick approach by encouraging the formation of accountable care organizations (ACOs) in the Medicare program.” About 6 million people are in ACO’s nationwide and 10,000 locally. (A future column will explain our local ACO’s).

The fact that the ACA is far-reaching and complex cannot be overstated. How will repeal effect these efforts to control health care costs? Again unknown.

The reality is that repealing the ACA is not a simple proposition. The collapse of the individual insurance market is only one very real concern. There are many more. This must be approached with thorough and thoughtful analysis. No $1.5 billion errors allowed!

Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.

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