Understanding Skinny Repeal and Its Impacts
Straight repeal has failed; repeal and replace has failed. Senate Republicans now will try to pass skinny repeal. Skinny repeal would at a minimum repeal the individual responsibility, the employer responsibility and the medical devices tax.
Its projected impacts are an increase in individual premiums by 20%, up to 15 million may drop coverage, instability in the individual market and revenues to fund the ACA would be reduced. Let’s understand each one.
Premiums in the individual market would increase because people would buy coverage only when they need it; this is called gaming the system -- it's like buying fire insurance when your house is on fire or car insurance on the day of your car accident. Open enrollment typically happens in the fall for about three months and it is now guaranteed issue to all comers regardless of their medical condition. Individuals needing joint replacement surgery, planning to start a family, or recently diagnosed with cancer would of course rapidly enroll. Some might continue their coverage only as long as needed to pay for their elective surgery or treatment. The individual mandate or individual responsibility required individuals to enroll and stay enrolled or pay a small tax unless they were exempt due to financial hardship, religious beliefs or other exemptions. CBO projections are that absent individual responsibility, individual market premiums would increase by 20% as the balance of healthy and sick patients in the individual market changes. Some worry that the increase would cause more to drop out -- setting off a death spiral as fewer and fewer healthy individuals choose to pay the escalating premiums.
CBO also projects that up to 15 million individuals may drop their coverage absent the individual mandate. This is spread across Medicaid (7 million), the individual market (5 million) and the employer markets (4 million). Personally, I think this estimate is overblown and that as long as the Medicaid expansion is funded, people are not going to drop it and that as long as employers keep offering and paying for the large share of employment-based coverage, employees will keep accepting it for their families. The drop-off in coverage will be concentrated in the individual market and among those who are healthiest and have the least subsidies through the Exchanges. Those who are sickest and those who have large subsidies to pay their premiums and reduce their cost sharing will stay in the market. Others may exit.
This adverse selection is what will destabilize the individual markets, causing insurers to drop out, reducing competition and increasing premiums. What could be done? The House proposal suggested a 30% premium increase for any individual who dropped coverage and was uninsured for more than 62 days. This was a lot stiffer penalty than the individual mandate and had the added disadvantage of locking out individuals by increasing the unaffordability, causing ever more people to become uninsured and the risk pool to trend sicker. The Senate Republican proposal would lock people out of coverage for six months; this too was a lot heavier penalty than the ACA’s tax penalty ($695 or a 2.5% tax surcharge) and would likely mean some unwary uninsured individual who unfortunately became ill would not get any coverage for six months and face bankruptcy and serious illness with no care or coverage. Senators Collins and Cassidy had an interesting proposal to auto enroll the uninsured in coverage at tax time paired with their proposed tax credits. This has potential to reach and enroll more of the uninsured and is worth considering as it would in my opinion increase enrollment.
Repealing employer responsibility means that employers of more than 50 employees would not have to offer coverage for their full time employees and dependent children. Since most medium and large employers already did offer coverage prior to the ACA, this would have a marginal impact on coverage; however its impacts would be concentrated among low wage industries such as agriculture, retail, restaurants and residential construction. The requirement was only that they pay 60% of the cost of the lowest priced bronze plans so the threshold and financial impacts were quite low. Low wage families who lose their coverage due to the repeal of this responsibility will have alternatives in the Exchanges and Medicaid expansions that may offer better coverage. There could be an exodus of low wage employers and their employees from employment-based coverage into the Exchanges and Medicaid if they can get better coverage there. That may be a good result but would cost the federal government more.
The ACA included a variety of taxes and payment and reimbursement reforms that various industries agreed to in the context of the over-all reform vastly expanding the numbers of people with insurance. These included reductions in hospitals’ Medicare reimbursements and small taxes on pharmaceutical, health plan and medical device manufacturers. Subsequent to the passage of the ACA, each industry began a process of reaching out to Congress to unwind those taxes and payment reforms. The medical device manufacturers tax of 2.3% now proposed for inclusion in skinny repeal is just one of those taxes and payment reforms that helped pay for the ACA. To understand why the industries agreed to taxes and payment reforms, keep in mind that coverage was expanded, that sick people who had been excluded by insurers got coverage, and services were expanded. The costs of an additional procedure, drug or medical device are the manufacturers’ marginal costs while their payments are for their retail costs. So a healthy profit was being made due to many more people being covered. Keeping those healthier profits without contributing to the costs of the ACA’s coverage expansions is the goal of this component of the skinny repeal.
The estimated decrease in revenues that help fund the ACA due to these three provisions is over $200 billion over the next decade. This is going to make it difficult to meet their budget reconciliation targets necessary to their 50 vote strategy.
The real goal of skinny repeal is to pass something/anything that will go to a House and Senate Conference Committee appointed by Senator McConnell and Representative Ryan to sort through all the policy choices and their political ramifications. All the House provisions to gut Medicaid, hobble the Exchanges and strip coverage of the newly insured and Medicaid populations would be in play. All the options just rejected in the Senate to take away Medicaid coverage and destabilize individual coverage for those with preexisting conditions would be back on the table.
So just say NO to skinny repeal and let’s move on to a bipartisan fix that includes reinsurance in the individual markets, improvements in rural health, improved affordability of coverage and care in the Exchanges, and a path to coverage for every American.
July 27, 2017