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Six questions about the American Health Care Act

House Republicans narrowly passed a controversial bill to overhaul the U.S. health care system on Thursday. VCU News spoke with Peter Cunningham, Ph.D., a professor of health care policy and research in the Department of Health Behavior and Policy in the School of Medicine, about the American Health Care Act, which now moves for consideration to the U.S. Senate.

Peter Cunningham, Ph.D.
Peter Cunningham, Ph.D.

 

What are the biggest things that would change under this bill, as compared to the current law?

1. As of 2020, states that expanded Medicaid would no longer receive enhanced federal funding for new enrollees who qualify through the expansion. Medicaid would also change from an “entitlement” program (beneficiaries are entitled to receive benefits they are eligible for regardless of the cost) to capped federal payments.

2. The mandate that individuals have health insurance coverage would end. There would be no tax penalty for individuals who failed to obtain coverage.

3. People who let their coverage lapse more than 63 days can be charged a penalty of 30 percent of their premium for 12 months by their insurer. Under current law, people are charged a tax penalty for not having coverage, but they do not pay higher premiums for having their coverage lapse.

4. In the nongroup marketplaces, people will receive premium tax credits that will be adjusted by age, but not income. Under current law, people with incomes between 100 and 400 percent of the poverty line receive “sliding-scale” premium subsidies based on their income, with the largest subsidies going to people with the lowest incomes.

5. For low-income people in the nongroup marketplaces, cost-sharing subsidies that help pay for deductibles and other out-of-pocket costs will end. Finally, premiums for older people can be as high as five times that of younger people (the ratio is 3-to-1 under the current law). This means that premiums will likely increase for older people, and decrease for younger people.  

 

How does this bill change protections for people with preexisting conditions?

In general, AHCA maintains the ban on charging people higher premiums for pre-existing conditions. However, people who let their coverage lapse by 63 days or more can be charged 30 percent higher for their premiums for 12 months when they regain coverage. Technically, this surcharge is a penalty for letting coverage lapse rather than having a pre-existing condition, but it is highly likely that most people who try to regain coverage would do so because they have a health problem that requires care.

States can also apply for waivers that would eliminate the ban on charging people higher premiums for pre-existing conditions for those who do not maintain continuous coverage. To do this, they would be required to set up special programs for people with pre-existing conditions, such as heart disease or cancer. The most widely discussed of these programs are state high-risk pools. The bill includes $8 billion in funding to help states set up high-risk pools, but there is doubt as to whether this would be sufficient to provide affordable coverage to all people who might potentially need to enroll.

 

What happens to the ACA's “essential health benefits” under this bill?

AHCA maintains essential health benefit requirements, but states would have the option of changing these requirements. The idea is that by not requiring health plans to provide a comprehensive set of benefits, insurers could lower premiums by reducing or eliminating certain benefits for people who believe they don’t need such benefits as pregnancy care and delivery, and mental health benefits. However, this could lead to “bare-bones” health plans that leave consumers exposed to excessively high out-of-pocket costs and in need of services their plan doesn’t cover. This could also lead to the “cherry-picking” of younger and healthier people by plans offering limited benefits with lower premiums, which would lead to even higher costs for people with substantial care needs who need more comprehensive coverage.

 

How is Medicaid affected?

Medicaid would shift from an “entitlement” program — which it has been for more than 50 years — to one in which there would be capped federal payments to states. Right now, federal and state spending for Medicaid is based on the services people actually use (there is generally no restriction on utilization of covered benefits). Federal spending matches state spending at a specified rate (in Virginia it is 50 percent). The costs of the program for states and the federal government vary depending on how much service utilization occurs.

Under AHCA, states would be allotted a fixed amount of federal funding that would increase at a set rate, not based on utilization. Most analysts conclude that the growth rate for per capita payments (based on the Consumer Price Index for medical care) would be much lower than the costs would be based on the actual need for care. This would create more budget certainty for the federal government, but potentially increase the costs for states. The states would be forced to either spend more on Medicaid to make up the difference, reduce benefits, or reduce the number of Medicaid beneficiaries. Important new initiatives in the Virginia Medicaid program — such as enhanced benefits for the treatment of opioid addiction — could be at risk.

 

How would Medicaid per capita allotments be calculated? How could it affect enrollment?

They would be based on historical spending patterns. This would hurt states like Virginia, which have relatively low levels of Medicaid per enrollee spending compared to other states. One view of this is states that have been more proactive in trying to control program costs will be penalized, while states with less efficient Medicaid programs and higher costs will be rewarded under the new funding mechanism.

States that expanded Medicaid coverage to 138 percent of federal poverty under the ACA will not receive enhanced payments for new enrollees beginning in 2020. They will continue to receive enhanced payments for people who enrolled prior to 2020, but given the considerable “churn in Medicaid coverage” (people frequently going on and off coverage), it is expected that total Medicaid enrollment will drop sharply after 2020.

 

How will the bill affect premiums for those who purchase insurance on the private market instead of through an employer?

Lower-income people would likely see their health care costs increase, since premium subsidies would no longer be based on income, but by age. Cost-sharing subsidies would also be eliminated, which currently benefit the lowest income enrollees in the private market. Although older people would receive higher tax credits, they could still see higher premiums because insurers would be allowed to charge premiums five times higher for older people compared to younger people. Many older people in states that receive a waiver for the ban on pre-existing condition exclusions could also see sharply higher premiums, as they are more likely to have chronic conditions.

The shift to a 5-to-1 premium variation could also benefit younger people. And, if states opt out of essential health benefit requirements, younger people are more likely to prefer health plans that offer more limited benefits with lower premiums.