Brooks Blog

Wednesday • March 22, 2017

ACA Update: Republican Proposal to Repeal & Replace

AHCA

Sifting through the details of the recently released American Health Care Act (“ACHA”) is a daunting task. Our internal health care market experts have analyzed it in detail and we are able to provide some unique highlights along with a plethora of resources (listed at the end).

Speed

Both to fulfill a campaign promise and to meet the needs of insurers who need to know the future of healthcare law before committing to their 2018 markets, the White House is warning Congress to pass legislation quickly.

Taxes

The funding for the Affordable Care Act included 21 revenue sources, of which the new bill repeals 14. The most significant funding sources to be repealed total over $50 billion in federal revenue per year, most significantly from taxes on earners of over $200K annually and from the health insurance sector.

“The legislation would eliminate two taxes that Obamacare levied on the wealthy to help pay for the law. Nearly everyone in the Top 1%, who earn more than $774,000 a year, would enjoy a hefty tax cut, averaging $33,000, according to the nonpartisan Tax Policy Center. Those in the Top 0.1% would get an average tax cut of about $197,000.” (Read more at CNN Money)

Medicaid

The bill contains drastic changes to the Medicaid market, with the proposed legislation transitioning Medicaid from the ACA’s Medicaid expansion funding to a capitation-based allotment. This means doing away with federal contributions and the strings attached to them e.g. a baseline of services that must be available to Medicaid patients. The White House argues the changes to a capitation model will help states manage their own populations without federal involvement. Opponents argue that it will reduce coverage for low income people, and increase the number of uninsured. This number could be estimated by the CBO. However the White House argues the change will not impact the number of uninsured, even if a CBO analysis says it does.

Impacts on Pharmaceuticals and Device Companies

The proposed bill has a mix of benefits and hazards for pharmaceutical manufacturers, who benefit from the higher volume of insured Americans the ACA facilitated through the individual mandate, the ceiling on cost sharing for patients, and Medicaid expansion. However it could be good news for biologics and other innovators as the ~$3 billion Branded Prescription Drug Fee they pay annually through the ACA is lifted under this bill.

Impacts on Payers

The new legislation could help insurance companies since they are likely to sell more policies to younger and healthier people, and have more flexibility to sell HDHPs.

Impacts on Providers

Providers are speaking up against the proposal because of the increase in emergency and decrease in preventive services they believe the increased number of uninsured and loss of preventive services funding will cause. Shareholders expressed their concerns through numbers as large hospital organizations like Tenet Healthcare saw their stocks take a tumble in response to the release of the bill.

Impacts on Patients

The proposed legislation would end both the individual and the employer mandate and much of the funding for the advanceable, refundable tax credits utilized by many who purchase insurance through the marketplace exchanges. According to the recently released nonpartisan Congressional Budget Office (CBO) report, the number of uninsured would nearly double under the new legislation as compared to the ACA to include 52 million Americans by 2026, including an additional 2 million who receive insurance through their work currently. Therefore the urge for expediency may be tempered by a push for more facts before a vote. Some possible impacts to patients include:

 

  • The ceiling on insurance premiums for an older American is limited to triple the cost it is for younger Americans under the ACA; this would change to a 5-fold limit, thereby making prices go up for older and down for younger Americans.
  • With the new tax credit, the impact on the middle class could be helpful, if the overall cost of premiums stays stable because the new tax credit could be utilized by individuals earning up to $75,000, whereas the ACA offered tax credits for individuals earning up to approximately $48,000 only. However according to the CBO report and to a recent Brookings Institution report, premiums are likely to increase by approximately 20% in the near future before dropping to meet or even be less than current premiums by 2020.
  • Copay, deductible, and coinsurance subsidies that individuals earning between $12,060 and $30,150 received under the ACA would end.
  • The legislation will affect people living in different regions differently: those who live in regions with lower cost insurance options may receive higher tax credits compared to the ACA, which ties its premium tax credit to the cost of care in that region. For instance, a recent analysis found that some may pay more for health insurance than their annual income.
  • Others receiving premium tax credits may see much higher premiums. “Some subsidies under the Affordable Care Act (ACA) were $10,000 or more, and now the most you would get is $4,000 a year.”

Key Takeaways

 

  • For citizens, the costs versus benefits of the new legislation will largely depend on their circumstances over time. While they are young, healthy, and are earning middle to high incomes, their premiums will be stable or less than under the ACA over time. Other than a narrower group that will be eligible for Medicaid, when they become older, less healthy, or earn less, they will be likely to pay more for insurance than under the ACA or not have insurance. Some living in rural areas may see insurance costs that are higher than their annual income.
  • For payers, success will be highly dependent on the channels and regions they operate in, as well as their bandwidth to meet the the consumerist demands of this population. (In contrast under the ACA, marketplace payers experienced high rates of adverse selection because penalties were so much lower for healthy young people than their premiums.) Although this led to some adverse selection, it also meant some insurers found ways to manage diseases more efficiently. Insurers will need to shift their game plan to stay profitable in a market that no longer offers those incentives. Therefore, if this bill passes, insurers will work to attract healthier, younger populations and renew efforts to attract them and become more consumer-oriented (think: apps, telehealth, etc.).
  • For pharmaceutical manufacturers, we expect to see a mix of benefits (no more Branded Prescription Fee) and hazards (less coverage means more pressure to provide patient assistance, and possibly lower patient adherence rates, which then reflect poorly on the product). Whatever the outcome of the legislation, we expect to see pharmaceutical manufacturers engage in more value-based contracting as both providers and payers want to see pharma take on more risk and have more “skin in the game.”

Key Resources

Congressional Budget Office. March 13, 2017. “American Health Care Act Cost Estimate

The Wall Street Journal. March 13, 2017. “GOP Health Plan Would Hit Rural Areas Hard

Tax Foundation. March 7, 2017. “The House GOP Healthcare Bill Would Repeal $574.5 Billion in ACA Tax Increases

Health Affairs Blog. March 7, 2017. “Examining The House Republican ACA Repeal And Replace Legislation

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