On the eve of the House Republican Plan – called the American Health Care Act, or AHCA – we will see one of the most major moves to reverse the coverage gains of the Affordable Care Act.
The ACA had primarily three targets:
(1) private health insurance reform (e.g. defining what a minimum mix of benefits in a plan should be; prohibiting the use of pre-existing conditions, etc.)
(2) the creation of Health Exchanges (i.e. Covered California in our state)
(3) expansion of Medicaid (Medi-Cal in our state).
All of these focus areas of insurance/coverage are very complex and inter-related. However, it is not only complex, it is also very personal to most people. The very complexity of how we as a society provide health insurance coverage is at the heart of why we struggle with understanding it. We are also the most expensive county in the world when it comes to healthcare costs at about $9,000 a year per resident, and about $2,500 a year more than the next country on the list. It has also been documented that for all the money we spend, we are not even close to being in the top 10 – let alone the top one or two – in health outcomes.
That all said, the House-proposed AHCA makes some major bets on issues of risk, choice and costs. On the risk front, the AHCA will eliminate all health insurance mandates, both for individuals as well as companies. The hope is that if there was a way to make insurance cheaper and put in a penalty for last-second, “when-you-absolutely-need –it” coverage penalties, then you will get enough younger/healthier people to join in the marketplace without mandating them. The way you lower coverage costs is to primarily cut benefits in your plan package, and/or lessen how much the insurance company has to insure the benefit plan (the less they provide the more out of pocket you must provide). The other premise that selling insurance over state lines, while sounding reasonable, has not worked out that way in states that allow this. In fact, no out-of-state plan has moved into these places, and even if they did, local providers will not sign on with “cut-rate” plans because of the shortages in health professionals, and therefore services in our area does not force them to do this. If the young and healthy do not sign up, the health plans will respond in one of two ways: (1) leave the market; (2) price the product much higher to mitigate the risk.
The Congressional Budget Office (CBO) has indicated a 15-20 percent increase in the first couple of years and then has it leveling off after that. The use of “high risk pools” could have an impact on underwriting and the cost of policies if they are used to reduce the risk of very expensive patients buying into the market, but then again, most states – including California – have tried high-risk pools without much success.
How private insurance responds to the potential new reality will be pretty quick as they will be deciding soon if they will do any underwriting in the Exchanges in 2018.
The Exchanges have had their issues from the poorly launched program in the beginning to the narrow choices of insurance products, particularly in rural areas such as ours. Some states – like California- have done a reasonably good job of getting decent, competitive pricing in most sub-markets, in part by attracting a healthy enough younger population to join.
One of several challenges to the use of Exchanges has been costs. Two factors influence costs. The first is that the United States healthcare system is excessively expensive for lots of reasons (e.g. technology, drug costs, high specialty to primary care ratio of clinicians, etc.). The second is that the more comprehensive to make the required benefit packages, the more expensive it is. For those who received subsidies under Covered California, for the most part their insurance was affordable. These subsidies were tied to income, age and location of coverage, among several other factors. However, if your income was above the ceiling, you paid the full bore of that insurance. For those who had fairly “skinny” coverages – i.e. light on benefits and in some cases only coverage for major medical/catastrophic care – sticker shock was very real.
What the ACHA is proposing is to essentially lessen the requirements of what is in the minimum benefit package, use competition (where it exists) to drive some prices down in markets and to do away with the income, age and location adjustments for subsidies. Instead it proposes strictly a tax credit system that provides anyone, up to certain income, somewhere between $2,000 and $4,000, based upon age, to help offset insurance costs for people who individually buy health insurance. The one big push-back so far on this issue is for people in the 50-64 age brackets (before Medicare kicks in). At the high end of the tax credit of $4,000, this would result in covering less than one third of the cost of coverage in most markets. This would be a substantial reduction in subsidy compared to the ACA. The House Republicans are already making adjustments to their plan (bouncing it to the Senate) and talking about adding some additional subsidy for this older cohort given that this group tends to vote and be a pretty forceful political block if unnerved.
For the younger population, it is uncertain if the $2,000 tax credit is meaningful enough to have them purchase coverage. As noted, many area saying no, that the penalty for not purchasing coverage and later signing up when you absolutely need to (a 30 percent increase in your annual premium) is such that sign ups, over the short to medium term, will significantly drop off, making the cost of health insurance for the other more older and potentially sicker cohorts that much more expensive as insurance companies adjust to this reality.
Finally, the impact to our region will be most felt by changes to the Medicaid program (Medi-Cal in our state). The traditional funding formulas and regulations, as well as further expansions under the ACA, have been played out to a huge degree in our state. Our federal matching share for those very low income individuals (under 100 percent of federal poverty) is at a match rate of 50 percent federal, 50 percent state. Given the millions of Californians who meet these low-income thresholds, this adds up to billions in our state budget. To keep costs down, the Governor and the Legislature has historically depressed payment rates to providers/hospitals and others, to among the lowest in the United States. In addition, the ACA did expand Medicaid by including single adults and other sub-populations who met the income requirements and increased eligibility to 138 percent of Federal Poverty. They also relaxed some of the eligibility rules in Republican Congressman Doug LaMalfa’s district. This expansion of ACA coverage has resulted in over 75,000 people gaining new Medi-Cal coverage, with another 25,000 gaining coverage through the Exchanges.
The proposal by the House Republicans on reshaping the Medicaid program is among the threatening of changes to the state of California, including our region, and to many of the people who have gained coverage, some for the first time in their lives. Rather than a shared program, financed by each, the ACHA proposed to fix Medicaid payment to the state by a “per capita cap” reimbursement that provides a fixed amount by the number of people enrolled, adjusted by an inflation factor, known to not meet the historical health care inflationary rates. There are other provisions that greatly reduce federal support of the Medicaid program that I will not get into here except to say that these changes represent one of the greatest shifts of financial risk from the Federal Governments to the states seen in many decades. The tools that governors will have, as costs will exceed adjustments because of new technologies and as costlier drugs appear, etc., is to curb or limit eligibility, invoke enrollment limits, benefits reductions, further reduce payment to providers, etc.
Governors, particularly those from Medicaid expansion states, including Republican governor’s, realize the pain they will be taking on. They are of course asking for more flexibility, likely so that can effectively respond so as to manage the cuts, reductions and generalized pain that will come from rising costs and insufficient support from the Federal Government.
So why does Medicaid matter to those with private insurance in our community? Well, one in three people in our region relies on it. Many jobs are created or supported by this program. Medi-Cal, despite its very poor reimbursement rates, does allow our communities to respond to at least some of the mental health and substance abuse needs all around us. For children in school, a third to a half or more of kids gets their wellness care including immunizations, screenings, dental care, etc., paid through the Medi-Cal program. As much as 60% of all births are paid for by the Medi-Cal program. For institutional providers like area hospitals, reimbursement compared to those who are uninsured is at least a stable additional source of income to help cover costs. In conversations with area hospitals, the expansion of Medi-Cal to more people has been a huge improvement in their ability to manage services and costs. In addition, as we compete for physicians and other clinicians, a very high mix of uninsured (it was around 24 percent of our population before the ACA) makes it that much harder to recruit clinicians, including specialist physicians that everyone benefits from at one time or another.
The CBO estimates that the net impact of the proposed AHCA will be a net loss in coverage of over 24 million legal residents in the US over 10 years, most in the first few years.
In our Congressman’s district, it is projected that around 65,000 people will lose their coverage if the AHCA is enacted as it stands. Partnership Health Plan, the local Medi-Cal Managed Care plan, estimates that in Shasta County alone, a severe reduction in coverage of Medi-Cal would mean the loss of around $146 million annual dollars in our local economy and the loss of more than 900 jobs. Moreover, for those who lose coverage, the human cost is priceless, particularly if you have a chronic disease or face the onset of cancer or an accident needing hospitalization.
In short, the AHCA represents very little good for this region as it stands.
Dean Germano is the chief executive officer of Shasta Community Health Center in Redding.