Vice President Mike Pence and House Speaker Paul Ryan both went on social media tears over the last couple days in an attempt to convince constituents that Congressional repeal and replace of the Affordable Care Act will–in adherence with standard Republican talking points–increase ‘freedom’, ‘patient choice’, and ‘cheaper insurance’, that is, arguing that a Republican health care plan would give patients more options and flexibility with their purchasable health insurance coverage.
ObamaCare will be replaced with something that actually works—bringing freedom and individual responsibility back to American health care.
— Vice President Pence (@VP) February 22, 2017
Freedom is the ability to buy what you want to fit what you need. Obamacare is Washington telling you what to buy regardless of your needs.
— Paul Ryan (@PRyan) February 21, 2017
Meanwhile, uncertainty over insurer participation in Affordable Care Act health insurance exchanges, magnified by Humana’s recent pull out, and the debate over rising health care costs and risk pools has left the White House scrambling to design policy to restore insurer confidence and keep them in the exchanges until a replacement plan is hammered out and agreed upon.
The Centers for Medicaid and Medicare Services (CMS) released a proposed rule last week claiming to stabilize the individual and small group health insurance markets, affecting, among other things, special enrollment periods, guaranteed availability of coverage, the timing of the open enrollment period for 2018, and most notably, the rules around actuarial value requirements, that is, the certain average percentage of health care costs that insurers must cover for each enrollee. Their plan flies in the face of the supposed promise of patient choice and cheaper insurance that the crux of Pence’s entire outreach strategy relies on and might be a sign of larger trends we’ll see in a possible concrete Republican replacement plan down the road.
This new CMS rule will make it more expensive for Americans to purchase coverage and offer worse options for health insurance. The proposed rule gives insurers more flexibility in the coverage they offer, allowing them, as understood in the rule text below, to offer lower value coverage. It does this by increasing the de minimis variation of actuarial value requirements to 4% so insurers can cover fewer out-of-pocket costs per enrollee than they could previously; in other words, coverage under new plans will be less generous.
The problem with this is twofold. First, while it allows insurers to reduce the price of premiums, in conjunction, it allows them raise the ceiling for deductibles higher than currently allowed. Importantly, this rule change won’t affect plans with cost sharing reductions (CSRs), a discount that some qualified enrollees receive that lowers the amount they have to pay for deductibles, copays, and coinsurance. However, this means that as enrollees’ incomes increase and they no longer receive CSRs, there will be a much larger drop in the generosity of coverage provided by insurance plans. It’s simple math: if insurers no longer have to pay out as much per enrollee, then consumers will have to pay more out-of-pocket for their care. CMS itself admits this in the proposed rule text.
While higher out-of-pocket costs may make enrollees more conscious of their own health care utilization and spending, the high-deductible plans promoted by this rule hurt low-wage workers most because the cost of the deductibles make up a higher percentage of low-wage enrollees’ income. Multiple recent studies have shown that, rather than incentivizing consumers to make smarter decisions with their health care purchases, higher out-of-pocket costs actually hurt care by pushing people away from preventive care, reduced effective management of chronic conditions, and increasing the rate of avoidable emergency room and hospital utilization. Put plainly, low-income enrollees in high-deductible health plans forwent health care services until their conditions worsened to a state of emergency. Ironically, despite receiving the least amount of care overall, the skew of low-income workers health care use towards emergency services and hospitalizations resulted in equally as much spending as the highest-income workers utilizing the most health care services overall. High-deductible plans didn’t save any money.
Second, the rule will erode the financial value of the tax credits that many enrollees receive to subsidize their health insurance coverage. The benchmark for all premium tax credits is based on the cost of the second cheapest ‘Silver plan’, that is, a plan that covers 70% of an enrollee’s health care costs. Now that insurers are able to offer worse coverage under a lower actuarial value, tax credits could be based on the cost of a plan that only covers 66% of costs, making coverage less affordable. As a result, low-income families receiving these tax credits will face the tradeoff of paying either higher premiums or being forced to switch to plans with higher out-of-pocket costs and fewer doctors to choose from. The net effect of lowering the value of tax credits is that, rather than stabilizing the individual and small group market, enrollment will severely decrease as more people are unable to afford exchange coverage. That’s not exactly representative of the ‘patient choice’ that Pence, Ryan, and other Republicans on the hill have been clamoring for.