AHCA Phase 1

The ACA (aka ObamaCare) was intended to have a public/private partnership. The design was to maintain the foundation of the employer based benefits platform and provide access to the market for those individual without employer based coverage. The third leg of the stool was the safety net program for the rest of the population. Medicare for the elderly was not changed.

The plan included subsidies or Advance Premium Tax Credits to help those working poor with incomes between 138-400% of the Federal Poverty Level. The expansion of Medicaid (aka MediCal in California) was the cornerstone of the safety net for children and low income adults.

As this process has evolved, it has become fairly clear that the debate of whether or not health care is a right or a privilege has not been settled. In 2015, about 36% of health care in the US was provided by some government program: Medicare, VA (Veterans Administration) and Medicaid. Employer based insurance covers about 49% leaving a balance of 7% of the population covered by individual insurance policies and another 9% still uninsured.

As of my deadline, we are preparing for a vote on the purported first stage of “repeal and replace” the ACA. The new law’s acronym (AHCA) will make the use of acronyms a bit challenging as we write about it.

This step is under budget reconciliation which means that financial matters can be addressed. Most all of the taxes that were put in place to pay for the ACA are eliminated quickly. These totaled about $600 billion. But the “Cadillac Tax” charged against “rich” benefit plans is merely postponed until 2025.

It’s interesting to note that $400 million of those taxes were due to limiting the tax deduction for insurance company Executives’ compensation to $500,000. The CEO of United Health Care was paid about $66 million last year, and he is only one of the execs. This provision will clearly be a boon to insurance companies. Further, the mergers that were declined last year will likely have more favorable treatment under the new administration, thus further consolidating control of the business to fewer insurers.

There are other insurance company taxes that will be eliminated as well. Cigna estimates that the additional insurance “industry fee” added 3-4% to insurance premiums. It was suspended for 2017, so that cannot be part of the explanation for 2017 rate increases.

Other taxes repealed are related to: tanning, net investment income, medical device, Rx and the increased Medicare tax on high earners. Soft taxes like limiting deductions for Flexible Spending Accounts (FSA), Health Savings Accounts (HSA) are eliminated as well as returning the medical expense deduction to 7.5% of income.

Individual and employer mandate penalties are eliminated. A “Patient and State Stability Fund” of $100 Billion through 2026 is established to help stabilize the insurance industry.

The ACA tax credit is repealed in 2020 and replaced by a new tax credit ranging from $2000-4000 for those with incomes under $75,000 (individual) $150,000 (family).

Obviously, greater minds that mine are at work here. I do not understand how we pay for the financial aspects of this bill. We have eliminated the taxes, but maintained some subsidies and a large stability fund. Will all of it come from the Draconian cuts to Medicaid?

Insurance market reforms include repeal of the insurance actuarial value standards, increasing the age rating requirements from 3:1 to 5:1. This means the highest rate can now be 5 times the lowest rate. If a 20 year old’s premium is $100, the 60 year old’s premium can be $500.

Actuarial value standards are repealed, so insurers can design any type of plan they believe will sell. There will also be tax credits for “catastrophic” plans and some off-exchange products. Look for the return of hospital only policies.

Insurers will continue to be required to issue coverage with no pre-existing condition limitations, but may increase premiums by 30% if there was a lapse in coverage of 63 days or more. If I am young, why would I enter the market? Would I be better off to skip the $200 monthly premium, wait until I got really sick, then pay $260, most of which would be covered by my subsidy?

I am pleased to share that I have recently been appointed to the Board of Directors of Shasta Community Health Center. I hope to learn more about public health and better inform my readers as to the effects of the proposed Medicaid changes as well as how public health delivery and financing effects our community.

Finally as stated in my first column September 2013: information provided is to the best of my knowledge at the time of writing.

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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