Two weeks ago, the United States House of Representatives passed the long anticipated Republican healthcare bill. It passed with only the Republicans’ support, and even then, it was by a very slim margin of only four votes, 217 to 213. Not a single Democrat voted for the bill and 20 Republicans defected and voted against it. The bill now moves on to the U.S. Senate where by all indications and public statements, the Senate seems set to write their own version.
Let’s take a moment to review the key parts of this bill; later, I will comment on my opinion of the impact on the industry, consumers and employers.
First, let’s do a brief overview of the Affordable Care Act of 2010. Though I have never been a fan of this legislation, I have advocated for major provisions. The facts are that without a major overhaul, the insurance industry and the ACA will collapse. Furthermore, my position and comments are non-partisan; they are based on my own experience and firsthand knowledge of how healthcare and insurance markets work.
As of today, many states, particularly in the South and Midwest, have access to only one or two insurance products as part of the ACA exchanges. The states where more than 50% of participants have only one choice in the healthcare exchange are: Florida, Georgia, South Carolina, North Carolina, Alabama, Tennessee, Kentucky, Oklahoma, Missouri, Wyoming, Arizona, Nevada, Utah, and Alaska. In the United States, 50% or more are covered by only two insurance companies – the states of Texas, Kansas, Nebraska, South Dakota, West Virginia, New Jersey, Pennsylvania and Hawaii. It is likely that the number of states serviced by only one or two insurance companies will increase in AHCA. The possibility also exists that at least one or two states, maybe more, could lose all insurance coverage as part of the ACA. This confirms without question that the ACA is in real trouble.
With that as a backdrop for the situation that we are in with the ACA and what that future holds, let’s review the House of Representatives version of the AHCA.
For the moment, it appears that the most noticeable impact to Americans will be how the AHCA deals with pre-existing medical conditions. This is not as easy of an answer as it may seem, as one cannot waive pre-existing conditions into a very complex healthcare actuarial matrix. In general, insurance companies would be banned from denying coverage for pre-existing conditions; however, this is not certain, since in the House version, a state can now ask for waivers if the insured allows their coverage to lapse. The premium would most assuredly increase substantially once they renew, which in prior years without the pre-existing protection, could result in very limited insurability with an exception for a pre-existing condition. The House version provides the states with access to $8 billion in federal funds over five years to set up high-risk pools; for these beneficiaries, this can minimize risk for the insurance companies. The reason is quite sound as this would assure that those with existing conditions would not allow their coverage to lapse, instead of only signing up for insurance when their healthcare condition deteriorates.
Health insurance companies will receive a benefit from the AHCA based on the elimination of the tax on the industry established by the ACA. This tax was used along with other taxes on the healthcare industry to finance the ACA premium payments. It also eliminates the individual mandates that could increase adverse selection, and further reduces subsidies that may create higher costs for consumers.
Additionally, it appears that hospitals will be impacted materially by the AHCA. First, it is likely that many millions of Americans will lose healthcare coverage. This exposes the hospital to more uninsured patients, particularly hospitals with emergency rooms that will see an increase in uninsured traffic. Moreover, this will have a very direct adverse impact on hospital gross income and a substantial increase in indigent care. There is no question that hospitals will be impacted by billions of dollars in reduced revenues and additional bad debt write-offs.
However, employers will have more options under the AHCA. In addition to the elimination of the mandates, it will also will allow them to modify coverage. The AHCA will also delay the tax on “Cadillac Health Plans” to 2026.
Medicaid beneficiaries will be impacted in nearly every state. Those Medicare beneficiaries and states that participated in the ACH, a Medicaid expansion, will feel the largest impact. It is possible that 5 to 10 million Americans could lose coverage because of the changes in the House version of the AHCA.
Older Americans, most likely those between 50 and 65 years of age, will also be adversely impacted, as the AHCA allows insurance companies to increase the ratio that can be charged to those senior consumers. It will change the previous 300% maximum difference (from lowest to highest cost premiums) to 500% that reduces the cost to the younger, and generally healthier age groups, and materially increases the cost to the senior population. Furthermore, as previously noted, states can ask for waivers; however, the likelihood is that even with the waiver funds, the coverage gap between the cost of healthcare benefit, plus the higher premium cost, will increase the overall cost of healthcare to these individuals even more.
Finally, the states will also be materially impacted by changes in the Medicaid formulation. This will force states to restrict access, limit coverage, create a life-time benefits ceiling and/or require work and even drug testing, as part of the requirements to receive Medicaid.
Our conclusion, in its present state, if the AHCA becomes law, there will be millions of Americans losing coverage. How many? We will have to wait to see what the next Congressional Budget Office report has to say since that will provide the measure of the new legislation, as well as express the analysis of who will be impacted by the changes. We expect benefits to be reduced and deductibles to go up. The next result will be that consumers will likely have to spend billions upon billions of dollars from their own pockets to access healthcare.
Though the ACA needed material changes, the AHCA is actually taking a few steps back, and the net result, in our opinion, will be negative to the American healthcare consumer.
The AHCA is a major missed opportunity to foster more transparency, better use of technology and free market dynamics as solutions that would impact the largest segment of the U.S. economy that is in desperate need of an overhaul.
– Noel J. Guillama, President