American Healthcare Act Revealed

Is the American Healthcare Act (AHA) good or bad?

If you are a Democrat, you will probably be against it. If you are a Republican, you are probably for it. But does the language of the legislation meet the objectives of its authors? Let’s start with their talking points and objectives. Each one of the talking points have implications on your premium, access to providers, taxes you pay, as well as political implications for each political party. This Thursday (March 23, 2017) the legislation will come to a vote. I am not going to predict whether or not it will pass; however, the odds are slim at this time. Nevertheless, it is helpful to understand the implications of the “themes” of the proposed legislation.

 1.     Dismantles the Obamacare taxes. Yes, it does take away many of the taxes imposed by Obamacare. However, the individual mandate, which the Supreme Court called a “tax” as opposed to a “penalty” remains in a different version. This is discussed in the next bullet.

 The amount of money raised in taxes is a double edge sword. Taxes are designed to raise revenue for the treasury to offset the plethora of subsidies paid out to those eligible. Eliminating those taxes reduces revenue. On the other hand, taxing the very component of a product (health insurance) does little to reduce the cost of insurance. In fact, it increases the cost. All taxes are ultimately passed on to the consumer. Even though these taxes will disappear, it is unlikely that the insurance companies will lower their premiums accordingly. We may see a very small impact on a reduction of premiums; however, the added regulatory compliance will more than offset whatever savings would have inured to the insurance companies and then to consumers.

 2.     Eliminate the individual and employer mandate penalties. The so-called Obamacare “mandate” had an individual penalty attached if you did not buy health insurance. The word “mandate” may have been removed; however, the penalty has not been removed if you decide to purchase individual coverage, you will have a penalty if you are not continually covered. This provision will help stabilize those who intend to game the system and simply join for a month or two and then drop the insurance once they received the treatment they needed. The penalty can also have another effect; it may deter those that are relatively healthy to not purchase insurance altogether. If you have an acute and chronic condition, you will want insurance. If you have no illnesses, you may decide to forego insurance.

The late enrollment “penalty” (30% of otherwise applicable premium) applies for individuals buying non-group coverage who have not maintained continuous coverage. Continuous coverage will be assessed during a 12-month period prior to the date of enrollment in new coverage. Whether one calls it a “penalty” or “tax” is a distinction without a difference to the consumer. If an annual premium is $6,000.00, then 30% of $6,000 equals a “penalty” of $1,800. Now, that seems like a LOT of money regardless whether it is a “tax” or “penalty” if you have to pay it with or without a mandate. Thus, buyer beware.

3.     Prohibit health insurers from denying coverage or charging more money to patients based on pre-existing conditions. This is indeed a popular policy point for those who have an illness and need insurance. The problem with this policy position is that it goes against the grain as to what the definition of insurance is. Insurance is designed to protect the policy holder in the event of a current event occurs, the policy holder will become indemnified for the financial consequences of the lost subject to certain limitations and exclusions. If, however, you can purchase automobile insurance AFTER you had a bad accident and totaled your car, who would buy car insurance in advance of an accident? It would be cheaper to pay fines and simply wait until an accident occurred. This is why ALL insurance companies (with the exception of Health Insurance) do not cover any pre-existing conditions that occurred prior to one obtaining insurance. Otherwise, insurance costs would go through the roof. And indeed, this is exactly one of the drivers to the increasing cost of health insurance. 

The AHA also contemplates a high-risk insurance fund to be established in each state. In addition to have the insurance companies cover any known pre-existing condition(s) in an unlimited fashion, money will also be allocated to those who are at high risk which suggest that if someone missed the enrollment period and did not buy health insurance, they will simply wait until their disease process progresses to a state of urgency and get access to healthcare providers by applying for a high-risk insurance plan from the state. Thus, costing the consumer nothing or near to nothing at the tax payers expense.

4.     Help young adults access health insurance and stabilize the marketplace by allowing dependents to continue staying on their parents’ plan until they are 26. This and other Obamacare provisions caused almost all universities to stop offering health insurance to their students. Granted, approximately 66% of those who graduate from high school go to college. These individuals represent the same group that would otherwise, have a part-time job and likely not be offered health insurance. As to whether or not this has the effect of “stabilizing” the market place is suspect. They are a group that utilizes the least amount of healthcare services and are the healthiest population of any age group. Keeping the generous dependent age to 26 probably helps more parents and sub 27-year-olds than hurts. On a personal note, I was on my own after graduating high-school at age 17, thus it is difficult to relate to those who are 26 and actually living at home!

5.     Establish a Patient and State Stability Fund, which provides states with $100 billion to design programs that meet the unique needs of their patient populations and help low-income Americans afford health care. No doubt the states will like extra money from the federal government. It may however, allow for additional health plan designs when states allow once again for insurance companies to experiment with various plan designs. I suspect the market place will attempt to create a plan design that may just coverage catastrophic coverage at a substantially reduced monthly premium. These plans have far more limitations in coverage including as such items as organ transplants and thus money to the states to cover where these plans leave off could supplement care for those very select patients. 

As for the population with low income, we already have a program in place. It is called Medicaid. Typically, in most states, individuals are eligible for coverage if they are at 138% or less of the Federal Poverty Limit (FPL). Some states decided to expand the Medicaid eligible population up to 400% of FPL. The implications of expanding the FPL eligibility is that those states now cover a family of four making approximately $100,000.00 or less per year. That seems counter intuitive to me, that a family of four or more, making over a 100k, is now consider “poor” for the purposes of obtaining “free” healthcare.

I suspect a fair amount of the funds allocated to the states will be eaten up in administrative costs attempting to administer a “high risk fund” for those few patients that may need such financial protection. Remember, building the federal website for Obamacare ended up costing tax payers at least 2 billion dollars! Furthermore, about half the states decided to build their own marketplaces via a website at an aggregate cost nearly that of the federal government.

6.     Modernize and strengthen Medicaid by transitioning to a “per capita allotment” so states can better serve the patients most in need. The form of payment per se, neither Modernizes nor does it strengthen Medicaid. The first question we should ask is what makes Medicaid “weak”? I would say the amount of money that flows to the providers (mainly doctors) to take care of the poor. This population is a rather transient population in both their living location as well as their eligibility situation. It was designed to be a safety net for those in transition in the job market. Unfortunately, for too many individuals, the safety net has turned into a Sleeper Serta?, meaning they never transition to a stable job.

The “per capita allotment” is now what is in place for the Medicare population. Each Medicare member is assigned a “risk” score based on age, gender, zip code location, and claims experience, to name a few. The initial challenge for Medicaid adopting a similar payment system is that millions of Medicaid members have little claims experience to properly assign a proper risk score for each member. Therefore, it is likely that states will receive money that is inadequate to manage such a complex population. Just because the federal government does not have a claim on you, does NOT suggest that you are without healthcare issues. A Medicaid member could be a “train wreck” from a health perspective, because they never received care and their age, gender and zip code location, may classify that member as a healthy member and the per capita allocation, will reflect a “healthy” member when they are undiagnosed and not healthy. 

7.     Empower individuals and families to spend their health care dollars the way they want and need by enhancing and expanding Health Savings Accounts (HSAs)—nearly doubling the amount of money people can contribute and broadening how people can use it. This is the better part of the proposed legislation. My take, is that healthcare costs are not going to diminish! Furthermore, the continued increase in cost suggests that more and more of those costs will be passed on the consumer in the form of higher deductibles and copayments.  I wrote an entire article on the HSAs and why “federalizing” healthcare to cross state lines will not bring down the cost of healthcare one cent. Here is the LN hyperlink for those who are interested in learning more.  Why going across state borders will not reduce insurance costs.

If you have a health-plan that has a 5K or more deductible, you are, in essence, uninsured for the first 5K or more. It is intellectually dishonest to suggest that millions now have insurance through Obamacare, if they cannot access healthcare services without paying out-of-pocket, a huge sum of money! Obamacare gives us the illusion that they have access to unlimited healthcare. Even those that have a low deductible plan, may not have adequate access to a doctor in a timely manner if there are too few doctors on the plan. This is the problem with every model of socialism in that is almost always creates a waiting line. I wrote about this in another LN article about “Free Tuition”. Hit the link that follows. Socialism in Higher Education.

8.     Help Americans access affordable, quality health care by providing a monthly tax credit—between $2,000 and $14,000 a year—for low- and middle-income individuals and families who don’t receive insurance through work or a government program.  A better idea, would be to allow a tax credit to be placed in a Healthcare Savings Account (HSA) account to help consumers offset the first dollar deductibles and copayments. General tax credits are hard to track and regulate, whereas a qualified HSA, managed by private corporations, will have a greater likelihood that the money will actually be used to access healthcare providers and services.

Conclusion:

All proposed legislation must start somewhere. Seldom, if ever, is any proposed legislation “perfect”. What may be perfect for me may be seen as a disaster for you. Thus, there are true challenges to get any body politic (including the 535 members of Congress) to even agree what color shirt you may be wearing, more less deciding what a healthcare bill should look like.

 There are many flaws with this proposal as well. The AHA does not repeal Obamacare nor will it lower costs. It imposes additional penalties (or taxes) for those who do not purchase health insurance. If I am correct, the Trump administration should not make the same mistake that Obama did suggesting that their healthcare plan will lower costs, or that you will be able to keep your plan or keep your doctor. The marketplace will make such a determination.

On the plus side, if the bill ultimately allows states to tinker with plan design, then consumers will have choices that reflect their state of need. The private marketplace, not the government, is where innovation is born. And if the proposed legislation allows the marketplace to develop products that fit the needs of the purchaser, then we may see some innovative products. This is where congress needs to be very careful in boxing in healthcare insurance companies and providers. Too many rules and regulations will stifle any innovation that would otherwise be available to consumers, if not for the heavy hand of Congress.

Alan M. Preston, MHA, Sc.D. is the founder of a consulting firm E=(MC)3 which helps companies achieve more effective outcomes. Experienced Chief Executive Officer with a demonstrated history of working in the hospital & health care industry. Skilled in both For-profit and Nonprofit Organizations, with tremendous background in managed care and Population Health Management Epidemiology, Instructional Design, Team Building, and Biotechnology. Strong entrepreneurship professional with a Doctor of Science (Sc.D.) focused in Public Health, Health Services Research from Tulane University School of Public Health and Tropical Medicine.Very involved in risk sharing contracts, ACOs, Medicare Advantage including RAP scores, HEDIS, and STAR ratings which helps physicians and health plans alike in reducing MLR!