Two pieces of legislation stand to vastly change the health care coverage landscape if passed in coming months.
At the federal level, the U.S. House of Representatives has approved the American Health Care Act (AHCA), a bill backed by President Donald Trump and many Republican lawmakers that makes significant changes to health care provisions laid out by the Affordable Care Act (ACA). The buck has now been passed to the Senate, where health care analysts interviewed by the Business Journal expect it will undergo many revisions.
In California, a single-payer health care model is making its way through the Senate. State Sen. Ricardo Lara, who represents Long Beach, and State Sen. Toni Atkins, San Diego, co-authored the legislation, Senate Bill (SB) 562. This legislation, known as the Healthy California Act, would completely overhaul the state’s largely private health insurance system by providing government-sponsored coverage to every resident of the state, both legal and undocumented.
The Business Journal spoke with health care policy analysts to get a handle on some of the major changes these bills would make to health care as we know it. Lara also provided comments.
The American Health Care Act
“When ACA came along, I found that, like any government legislation, there were winners and losers in it,” Joe Partise, board member of the Orange County Association of Health Writers and a life and health insurance agent based in Garden Grove, told the Business Journal. “When I see what’s happening with the AHCA . . . it’s just a different group of winners and losers.”
Joe Partise, boardmember of the Orange County Association of Health Underwriters, expressed skepticism over the financial feasibility of a single-payer health insurance proposal currently working its way through the California Senate. He believes it could double the state budget. (Photograph provided by Partise)
If there is a definite loser in the AHCA, it’s Medicaid – and those who benefited from its expansion.
“It rolls back Medicaid expansion,” Brendan LaCerda, an economist with Moody’s Analytics specializing in fiscal policy and health care, said. LaCerda is based in West Chester, Pennsylvania. The Affordable Care Act expanded Medicaid to grant coverage to Americans who meet 133% of the poverty line. The AHCA would reverse this rollback, allowing only those up to 100% of the poverty line to receive Medicaid coverage.
The amount of federal funding states will receive for Medicaid would be capped at 2016 levels going forward under the House-passed version of the AHCA. Dr. Nadereh Pourat, professor-in-residence with the UCLA Fielding School of Public Health and director of the Health Economics and Evaluation Research Program at the UCLA Center for Health Policy Research, finds this problematic.
If the country were to enter another recession, more people would be out of work and eligible for Medicaid – causing states’ costs for the program to increase, she pointed out. “And then the states can’t do anything. They cannot cover the additional people without cutting benefits from other people who were already enrolled, or they will just not enroll additional people,” she said. “That particular [change], the cap, could be devastating to all of the low-income individuals that get Medicaid coverage.”
Going forward, Medicaid costs are likely to increase, according to LaCerda. “The problem is the per person costs of Medicaid are going to start rising because more and more Medicaid enrollees are actually going to be older Americans as opposed to just poorer and younger Americans,” he said.
“So it makes the federal government balance sheet look better,” LaCerda continued. “But now you have sort of imperiled the states because most states are bound by balanced budget amendments where they really can’t borrow money like the federal government can borrow money. So states are in a much tighter position because they have to balance their budgets. If they are facing these rapidly increasing Medicaid costs, they would have to make cuts elsewhere or go with some sort of painful tax increase.”
The bill would allow more people to receive what’s called the premium assistance tax credit. Under the ACA, people earning up to 400% of the federal poverty level per year were able to apply for this credit, which would make up the difference if their health care premiums rose. The Republican-backed AHCA changes this formula.
“What the Republican plan does is it says, we are not capping premiums anymore. We are just going to give you a few thousand dollars to go buy a plan,” LaCerda said. The bill revises the premium assistance tax credit calculation by removing the ACA’s income cap and instead varying the credit amount based upon household income and the age of the individual or family members on the plan.
The result is that more people will get credits, but lower-income Americans who were already receiving the credit will now receive a smaller amount, according to LaCerda.
“One of the groups of people that ended up being losers under Obamacare was sort of middle to slightly upper-middle income Americans, typically people who were self-employed in, like, small businesses where they didn’t get insurances through their employer,” LaCerda said. These people would likely benefit from the new credit formulation.
Dr. Nadereh Pourat is the director of research of the Health Economics and Evaluation Research Program at the UCLA Center for Health Policy Research, and is a professor-in-residence with the UCLA Fielding School of Public Health. She expressed concern over the Republican-backed American Health Care Act’s proposed Medicaid cuts and its potential to let states opt out of essential health care benefits. (Photograph provided by the UCLA Center for Health Policy Research)
The AHCA also changes the ratio by which health insurance premiums can vary. “Under Obamacare, they put a rule in that says the premium of a 65-year-old can’t be three times greater than the premium of a 25-year-old. And the reason is because as you get older your health expenses go up,” LaCerda said. Under the AHCA, this three-to-one ratio would be increased to five-to-one, meaning older Americans could pay premiums five times more costly than younger Americans.
The bill would eliminate the individual mandate – a tax penalty imposed on those who do not enroll in insurance – and replace it with a new method meant to incentivize people to retain health insurance. Health insurers would be required to raise premiums on enrollees in the individual or small group markets who break their coverage for more than 62 days.
Pourat argued that the population most likely to break coverage would be lower-income people. “You are really penalizing people who need coverage the most,” she said. If such a person broke coverage because he or she could not afford insurance in the first place, then increasing the cost by 30% would actually disincentivize re-obtaining coverage, she argued.
Partise theorized that more healthy individuals might opt out of coverage for just under 62 days per year in order to save money.
One of the more controversial aspects of the AHCA is a provision that allows states to opt out of the Affordable Care Act’s requirement to provide 10 essential health benefits if the state in question can “prove your alternative would lower premiums or increase coverage,” according to LaCerda. “But that’s kind of a moot point because if you reduce the number of benefits that the insurance covers, of course it would be cheaper.”
The ACA established 10 essential benefits that health care plans were required to cover. These were “ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative services, laboratory services, preventative and wellness services, and pediatric services,” according to the official AHCA summary.
Opting out of these provisions is, many argue, tantamount to opting out of covering pre-existing conditions. “I think everybody, it doesn’t matter whether you liked the ACA or didn’t like the ACA, everybody agreed that not allowing insurance companies to exclude somebody because of pre-existing conditions was a great idea,” Pourat said. “After all of these years of being subjected to those negative practices we got rid of, and now we are back to where we started again.”
LaCerda noted that states that choose to opt out of the 10 essential benefits through their own coverage would have to create high-risk pools.
Brendan LaCerda, an economist with Moody’s Analytics specializing in fiscal policy and health care, pointed out that while the Affordable Cart Act was focused on increasing the number of people who had health insurance, the proposed American Health Care Act appears to be focused on controlling government spending on health care. (Photograph provided LaCerda)
“So instead of everyone participating in the same insurance pool, the idea is that you could take the sickest, highest-risk people and you could put them in sort of a separate insurance program,” LaCerda said. “The remaining healthier people are going to get lower premiums. That would work, but . . . most experts are saying that the amount of money that the government is willing to provide to these high-risk pools isn’t nearly enough to actually cover the people in those high-risk groups. So there is a question mark about how much that is going to cost because some of the estimates are extremely high.”
Other elements of the AHCA include removing the requirement for health care benefits to conform to actuarial tiers (bronze, silver, gold, etc. plans), eliminating the large employer mandate, various provisions encouraging the use of health savings accounts to supplement health care costs, repealing the income tax threshold for itemized deductions for unreimbursed medical expenses, repealing a Medicare tax on self-employed individuals and certain employees with income above specific thresholds, and repealing a 10% excise tax on the price of indoor tanning, among other items.
Senate Bill 562: The Healthy California Act
The single-payer health care system proposed in California by Lara and Atkins was scheduled for a hearing in the Senate Appropriations Committee on May 22. Lara heads this committee.
“We are being told they put it out to some university to try and score it in terms of cost and expense,” Partise said. “Once they get that done then they will finish up their work in the appropriations committee, and then it has got to go to the Senate floor of course and then back over to the Assembly side. And then, ultimately, it lands on the governor’s desk. Assuming it gets passed.”
No other state has successfully implemented a single-payer program. The State of New York’s assembly just passed its own single-payer bill last week, and it will now move to that state’s senate. In November, Colorado voters rejected a ballot measure that would have created a state single-payer health coverage system. A program in Vermont was cut in 2015 due to burdensome costs.
(Business Journal photograph)
SB 562 would establish the Healthy California program, which would provide health insurance to all Californians, regardless of legal residency status. Residents would pay no premiums, copays, coinsurance, deductibles or “any form of cost sharing for all covered benefits.” The list of covered benefits is extensive and includes pretty much anything a person might need.
However, as stated on HealthyCaliforniaAct.org: “A payroll and income premium, which is higher for upper income earners, would replace insurance company premiums, co-pays and deductibles.”
The act allows for the participation of health care providers, and for these providers to collectively negotiate rates of payment for health care services and prescription/nonprescription drugs via a third party representative.
In an e-mail responding to questions from the Business Journal, Lara explained the reasoning behind the legislation. “California has made huge progress under the Affordable Care Act and brought our uninsured rate to a historic low,” he said. “But too many Californians still pay too much for health care that doesn’t cover enough. Healthy California will create one high standard of care for all.”
The legislation would establish a board to oversee the implementation and governance of the program and to identify a revenue plan.
One source of funding would potentially come from the federal government. The program would absorb and replace the state’s Medicare and Medicaid programs. The bill directs the state to apply for waivers from the federal government to opt out of these programs and redirect the funds to a trust fund for the new state program.
Partise said the costs for creating a single-payer system could double the state’s budget – the same premise that caused Vermont’s plan to unravel.
Asked how he justifies passing sweeping health care reform without first identifying funding, Lara responded with the following via e-mail: “We are not passing a reform without funding. We have started the policy conversation and process and will have two fiscal analyses before SB 562 even goes to the full Senate – one by the Senate Appropriations Committee and one by health care researchers at the University of Massachusetts Amherst. I won’t bring a bill to Governor Brown without a plan for how we will pay for it.”
He also noted that “California has been successful in obtaining ACA and Medicaid waivers in the past, and we expect to be successful in the future.”
LaCerda said obtaining these waivers would be entering “uncharted territory,” but that “as long as California still contributed the amount they currently are to those programs, then I don’t see why the federal government would have an objection to continue providing whatever assistance they were on their end.”
A letter from Kaiser Permanente sent to State Sen. Ed Hernandez, who chairs the Senate Health Committee, referred to SB 562 as “fiscally irresponsible.” The letter noted that in 2008 the state legislature considered a single-payer system and that “the non-partisan Legislative Analyst’s Office estimated annual costs of $210 billion in the first year of implementation, which would have grown in subsequent years to $250 billion.”
The letter continued, “Presumably, those numbers have only increased over nine years, but we simply don’t know because SB 562 does not explain how the program would be funded. This bill puts the cart before the horse. It is rather irresponsible to consider this legislation without a clear understanding of its financing mechanism and sustainability.”
LaCerda explained that the proposed single-payer system would put all Californians in the same insurance pool so that everyone would split the cost. “But the fundamental dilemma is [that] it doesn’t address that underlying problem of how much we’re spending on health care, which is really sort of the bigger issue,” he explained.
Rolling undocumented immigrants into the plan may pose some complications. “If you’re undocumented, are you paying taxes? Because they said the way they are going to fund the program is by having the premium be like a payroll deduction,” LaCerda said. “It’s typically the case that undocumented immigrants work in untaxed, very unsupervised businesses. . . . It’s sort of, I guess, a philosophical notion. If you don’t have documentation like a driver’s license or a social security number, how are you officially made a part of the system?”
LaCerda added, “If the plan is to cover undocumented immigrants, I think it’s safe to say that poses a host of logistical challenges. And then I guess, given the stance of the current federal administration . . . I would think they would run afoul of probably federal immigration rules by sort of granting this benefit to illegal immigrants.”
Partise said that the program would cause the health care industry in California as we know it “to essentially disappear.”
“Health insurance agents, all health insurance companies, anything having to do with the marketing and the administration of health insurance and claims would be completely out of business,” Partise said.
SB 562 does include a provision that the state would provide job training and transition assistance for those whose jobs were lost due to its implementation. Lara told the Business Journal that his office has not done any research on the extent of potential job losses.
Pourat noted that the bill would remove the requirement for certain employers to offer health insurance to employees. “It is an ambitious plan, and it obviously lacks a lot of detail because what it’s trying to do requires a lot of work before it can be possible,” she said.
“It is going to require a lot of negotiations. Is the federal government going to be sympathetic? Perhaps not. I don’t know,” Pourat said. “The bill wants to . . . really put in place a true single-payer program. And so you know, it does have a steep uphill climb.”