America's Health Insurance-Part 1-The American Health Care Act of 2017-The Winners and Losers
Updated: Aug 29
The AHCA (aka Trumpcare) has passed the U.S. House of Representatives and is, understandably so, a hot topic. Being an insurance broker for nearly 30 years, I’d like to share my opinions on this matter that’s so vitally important to us all. This blog post is Part 1 in a series that will address the issues. First, let me set the stage of my overall view on health care reform. I found our pre-ACA (aka Obamacare) system in severe need of repair. Although it produced winners and losers over our pre-ACA system, the ACA was drastically different than my idea for reform. Similarly, the AHCA is also a radical departure from my reform preferences, although it too will produce winners and losers over our current ACA system. But alas, no one in a position of power asked for my opinion. Let’s start dissecting the AHCA. The winner of the ACA system over the pre-ACA system seems to be those with pre-existing conditions. Is this actually true? Possibly. First, it depends on the state where you live. Here in California, we had a major risk pool for the uninsured (MRMIP), as did many other states. It was subsidized by the state to help keep costs as low as possible. Let’s compare rates. In 2013, a Kaiser MRMIP plan for someone living in Sacramento County cost approximately $452 for a 40-year-old, $573 for a 50-year-old, and $727 for a 60-year-old. This was for a plan that offered low copays, no deductible and a $2,500 maximum out-of-pocket. However, it did have a $750,000 lifetime maximum. For similar coverage through Anthem Blue Cross in a PPO plan, the premium was about $670 for a 40-year-old, $822 for a 50-year-old and $1,246 for a 60-year-old. Now, let’s compare today’s premiums for the similar Platinum Plan ($0 deductible, but $4,000 max out of pocket). Kaiser/Anthem is $514/$708 for a 40-year-old, $718/$989 for a 50-year-old, and $1,091/$1,504 for a 60-year-old. Looks eerily similar. But remember, we’re comparing rates for those who were declined medical coverage, so they had to go with the MRMIP plan. Now, let’s compare premiums for those who passed their medical screenings. In 2013, Kaiser would have charged a healthy 40-year-old $451 for similar coverage; $508 for a 50-year-old and $646 for a 60-year-old. Anthem’s rates were a comparable percentage decrease. If we only consider those who couldn’t get coverage previously, who are the winners? You could argue no one wins on that issue alone. However, once we mix in the Advanced Premium Tax Credits and subsidies, we will see more winners. You may be surprised that the biggest losers are people who pass their health screenings. For those who were unable to get coverage in California and who are above 400% of the federal poverty level, it was practically a wash.
How does the AHCA differ? If you apply during open enrollment or other times of the year, but you have a qualifying event such as loss of group coverage or getting married, you continue to have access to coverage without paying extra. However, AHCA added a “not continuously covered” penalty. This means that if you go more than 63 days without coverage, you pay a 30% up-charge for that plan year only. If signed into law, this would begin in 2019. Now, before you worry about the 30% up-charge, let’s look at what is removed. The AHCA eliminates the individual and business mandate that requires all individuals to have coverage (with a few exceptions) or pay a tax. If approved in its present form, the retroactive effective date of that tax removal is “months beginning after December 31, 2015.” Will a finalized copy adjust this to a more current date? Likely. If not, does this mean that those who already paid the tax for the 2016 tax year will be reimbursed? That remains to be seen, so stay tuned.
Who are the winners in regard to coverage for those with pre-existing conditions? People with pre-existing conditions who stay covered will see no change except potentially lower premiums—if this penalty results in more people staying covered. However, I doubt this penalty is steep enough to strong-arm a significant number of those who prefer to or, due to economics, need to remain uninsured. The 30% --charge applies to individual coverage only and not to group plans.
At this point, I expect some of you are about to pounce and ask about the AHCA loophole, aka the MacArthur waivers that states may apply. One waiver is that in lieu of the 30% up-charge, a state may instead require that individuals with more than a break in coverage of 62 days go through medical underwriting and be potentially charged a higher rate than those without pre-existing conditions. Again, this is only for those with more than a 62-day break in coverage. Based on an individual’s answers about health history, medical underwriting analyzes what percentage of up-charge is warranted. Only states with programs to provide financial assistance to high-risk individuals and states that participate in the federal program that helps offset the risk can apply for the waiver. Approximately $8 billion would be set aside to help those states fund a risk-share program to help reduce the premiums for those high-risk individuals.
However, the gender rating protection cannot be waived, so males and females will continue to pay the same premium. If a state decides to implement this waiver, some who go more than 62 days without coverage might find themselves paying more than they would under our present ACA system. Is that wrong? I think this system is a good balance. Prior to the ACA, we went too far in one direction making it difficult for those with even the slightest pre-existing condition to get covered. For example, a client was declined coverage for having high blood pressure and high cholesterol. The ACA went too far the other direction and made it much too easy to go without coverage, get sick and then get covered all the while paying the same as someone who stayed continuously covered and perhaps rarely used their plan. Now, those who purposefully decide to be uninsured until they need services contribute to higher increases in premiums that all have to pay. To be sure, there will be some who, due to no fault of their own, find themselves without coverage, which would be a shame. Fact is, I do not know how to avoid the latter without allowing those who are tempted to game the system with greater ability to do so. There will still be protections for those who honestly cannot afford it, which I will address in a future blog.
Please don’t get me wrong. I love guarantee issue coverage in which one is not declined for their pre-existing conditions. I’m glad it is sticking around so I no longer have to ask my clients intrusive medical questions. I also appreciate that those who lacked insurance due to no fault of their own would have easy access to coverage without MRMIP’s typical six-months waiting period. In addition, both the ACA and the AHCA eliminated the much-too-low $750,000 lifetime limit on the MRMIP plans. An extremely long hospital stay in California, for example, would surpass that lifetime maximum in about two weeks. I do, however, wish that health care reform would provide discounts to people who engage in wholesome habits, so even someone with a severe medical condition could qualify for savings. But again, no one in a position of power asked for my opinion. Stay tuned for the next issue that will discuss the change in the tax credits helping citizens afford the coverage.