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Analysis of H.R. 1628, the Senate’s “Better Care Reconciliation Act of 2017”

2018-01-14T16:07:42+00:00June 29th, 2017|Social Security Policy Papers|

On June 22, the Senate Republican Leadership released a draft of the Better Care Reconciliation Act (BCRA), legislation to repeal and replace the Affordable Care Act (ACA).

On June 26, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) released an estimate of the budget impact of this legislation.

According to CBO/JCT projections, over the next decade, 22 million people will lose health insurance under the proposed legislation compared to current law. CBO/JCT project that losses will occur due to the proposal’s repeal of the Medicaid expansion, restructuring of the Medicaid program into per capita caps, changes to the Affordable Care Act’s (ACA) individual market reforms, and repeal of the individual mandate.

CBO estimates that spending on Medicaid would decline in 2026 by 26 percent in comparison with what CBO projects under current law. Overall, over a 10-year period, the BCRA would cut $772 billion dollars from the program between the phase out of the Medicaid Expansion and restructuring the program.

Private Insurance Changes

  • Changes to premium tax credits, cost sharing reductions

The ACA provides subsidies to individuals with incomes from 100 to 400 percent of the federal poverty level (FPL) to help defray the cost of premiums for marketplace health insurance plans.  The BCRA would drive up out-of-pocket costs by restructuring the ACA’s subsidies. Although tax credits would still be based on income and the cost of health insurance, they would be tied to lower-quality insurance and would require some older individuals to pay a larger share of their income to cover the cost of premiums than younger individuals would pay. Under current law, premiums cannot cost more than nine percent of income. Under BCRA, adults 59-64 would pay up to 16.2 percent of their income, and subsidies to help pay for insurance would end at incomes of 350 percent of FPL.

 

According to CBO, for individuals with income over 150 percent of the federal poverty level, the legislation would reduce the percentage of income younger people must pay toward their premiums while increasing that percentage for older people.

 

For example, a 64-year-old individual with an annual income of $26,500 (175 percent of the FPL) would pay $4,800 or 282 percent more for a silver plan in 2026.

 

The BCRA also ends in 2020 the Cost Sharing Reductions, payments to insurance companies to help pay deductibles and coinsurance for very low-income individuals.

 

Continuous Coverage

 

The BCRA would require insurance companies beginning in 2019 to impose a six-month waiting period before individual plan coverage can start if a person has been uninsured for more than 63 days within the previous year. The diagnosis of a life-threating illness during this waiting period without coverage could be devastating.

Age Rating

Under the ACA, marketplace plan enrollees, including “near seniors” age 50 to 64, can be charged no more than three times what a 21-year-old would pay. The Senate bill would broaden the age bands to 5 to 1, allowing insurers to charge the oldest consumers five times more than younger ones. States could choose different ratios that could be even less favorable to near seniors. CBO predicts that this provision would substantially increase premiums for older people ineligible for subsidies. For instance, a 64-year-old individual with an annual income of $56,800 (375 percent of the FPL) would pay $13,700 (201 percent) more for a silver plan in 2026.  A 21-year-old individual would pay $1000 (20 percent) less.

Preexisting Conditions/Essential Health Benefits

Under the ACA, coverage cannot be denied or cost more for people with pre-existing health conditions. The BCRA would also require companies to provide insurance to individuals regardless of their health status. However, it would allow states to request a waiver so they could reduce the number of “essential health benefits” covered by health insurance plans. This could limit coverage for people with pre-existing conditions if the health services they needed were not included or it could make policies with comprehensive coverage unaffordable.

IMPACT ON SENIORS

Because of these changes, CBO finds that people between 50 and 64 years old with income of less than 200 percent of the federal poverty level (FPL) would make up a larger share of the uninsured, from just over 10 percent under current law to nearly 30 percent under the BCRA.

CBO and JCT estimate that the BCRA would increase average premiums by 20 percent in the nongroup market prior to 2020 because the repeal of the mandate would mean fewer healthy people would enroll. After 2020 premiums would be lowered because the actuarial value of the plans to which the tax credit would be tagged would be lower, premiums would be lower but for less robust insurance.

Changes to Medicaid

Millions of Medicare beneficiaries rely on Medicaid to help fill in Medicare’s coverage gaps. Medicare does not pay for most long-term services and supports; consequently, middle-class Americans often rely on Medicaid for long-term services and supports when they exhaust their savings. Medicaid also helps seniors through innovative programs such as Community First Choice, which allows people in need of long-term care to remain in their homes. Additionally, the Medicare Savings Programs administered through Medicaid help low-income seniors pay for their Medicare premiums, copays, coinsurance and deductibles. According to the Kaiser Family Foundation, Medicaid assists 20 percent of all people on Medicare in 17 states and the District of Columbia with their health care costs.

Medicaid Expansion

Under the ACA’s Medicaid expansion, the federal government pays for 90 percent of the cost for enrollees in states that expand Medicaid eligibility, a higher rate than for the non-expansion Medicaid population. Beginning in 2021, the Senate bill would gradually reduce this enhanced match until it reached the regular Medicaid match in 2024. The regular federal Medicaid matching rate is, on average, 57 percent of Medicaid costs. States wishing to continue covering the expansion population would have to pick up the other 43 percent of costs.

Medicaid Restructuring

The BCRA would restructure the way federal funding is provided to the states – changing from the current matching rate formula to per capita caps or block grants at state option. Per capita caps limit federal funding for state Medicaid programs to an arbitrary per beneficiary funding level. This would ultimately shift costs to states by eliminating the guarantee of additional federal funds if state costs increase because of underlying health care costs, demography or complexity of care. For example, as the baby boom generation nearly doubles the senior population by 2030, state Medicaid programs would be unable to keep up with demands for long-term services and supports. From the year 2025 on the Senate bill bases the per capita cap on an even less generous measure than the House bill. While the House bill used a measure based on medical inflation, the Senate bill would allow Medicaid to grow only at the rate of general inflation. Medical inflation has historically grown at a higher rate than general inflation.

The BCRA also allows states to choose a block grant instead of a per capita cap. The block grant would initially be tied to the state’s target per capita medical spending and would increase at the rate of general inflation thereafter.

Using general inflation to index federal Medicaid payments to the states starting in 2025 would coincide with the first wave of baby boomers turning 80 years old at a rate of 10,000 per day.

The Senate bill would also restrict the ability of states to assess taxes on providers to raise revenue for the state portion of Medicaid financing. While there was abuse of these financing mechanisms decades ago, federal regulations successfully curbed these abuses. Now states use this to raise revenue for their Medicaid programs. Limiting provider taxes would likely exacerbate the program cuts by other Medicaid cuts in the BCRA.

Medicaid Eligibility Rules

Many people do not enroll in Medicaid, often because they aren’t aware they are eligible. Under current rules, when they come to a hospital for care and are eligible for Medicaid, they can be enrolled temporarily. Current rules allow for 3 months of retroactive enrollment. The Senate bill would prohibit hospitals from choosing to enroll people before a formal enrollment process has been completed. It would also end retroactive enrollment. Also, for expansion enrollees beginning October 1, 2017, the states would have to reevaluate eligibility every 6 months. This would make Medicaid more difficult to access for people.

Repealing Community First Choice

Under current law, states can elect the Community First Choice State Plan Option, allowing them to receive a six-percentage point increase in their federal matching rate for some services provided by home and community-based attendants to certain Medicaid recipients. CBO found that the same provision in the House bill would cut $12 billion dollars over 10 years from this vital program that allows disabled individuals to stay in their homes.

IMPACT ON SENIORS

Over time, states that lose money under per capita caps would have to make up the funding themselves, by cutting benefits and/or limiting eligibility, if federal funds do not keep up with their Medicaid population’s needs. States that expanded their Medicaid programs under the Affordable Care Act would be especially hard hit if the Medicaid expansion is eliminated or reduced as part of ACA repeal.

States could address their funding shortfalls in ways that would harm seniors and their families, including:

  • Scaling back nursing home quality, service and safety protections.
  • Requiring patients’ spouses, children or other family members to cover the cost of nursing home care, exhausting much or all of their savings.
  • Tightening eligibility criteria for home and community-based services, resulting in more individuals moving into nursing homes.
  • Limiting the number of people served.

Impact on Medicare

Repeal of the High Wage Earner Medicare Payroll Tax

The ACA includes a 0.9 percent Hospital Insurance Trust fund payroll tax on wages above $200,000. By repealing this tax on high wage earners, the Senate bill would accelerate the exhaustion of Medicare’s Part A Trust Fund. The Centers for Medicare & Medicaid Services in a letter to Senator Ron Wyden (D-OR) about the same provision in the House bill estimated this would hasten Trust Fund exhaustion by three years, from 2028 to 2025. CBO estimates that the Part A Trust Fund would forgo $58.6 billion over ten years if the ACA Medicare payroll tax is repealed. In addition to raiding the trust fund, this could lead to cuts in Medicare, including privatizing the program, that would be detrimental to current and future beneficiaries.

Increase in Medicare Disproportionate Share Hospital Payments

Medicare makes “disproportionate share hospital” (DSH) payments to facilities that serve a high percentage of uninsured patients. Given that the BCRA would increase the number of uninsured people and decrease the number of beneficiaries covered by Medicaid, CBO projects that Medicare DSH payments would increase by $42 billion between 2018 and 2026. Since part of DSH payments are paid by the Part A Trust Fund, this spending increase – in addition to the repeal of the ACA high wage earner Medicare payroll tax – would reduce the fund’s solvency.

Repeal tax on drug manufacturers

The BCRA repeals a tax on branded prescription drugs that would decrease revenue to Medicare Part B by $25.7 billion over ten years. According to the Chief Actuary of the Centers for Medicare & Medicaid Services, repeal of this tax would drive up Part B premiums by $8.7 billion over the next ten years.

Government Relations and Policy, June 2017