The Affordable Care Act (ACA) just hit its 8th anniversary. Since the passage of the ACA, the uninsured rate has dropped to 12.2 %, with over 20 million people gaining health insurance since 2010. Additionally, those with coverage in the individual and small group market are now guaranteed to have quality coverage, including essential health benefits, no annual or lifetime limits, and other protections. The increase in the number of people covered and the quality of coverage has contributed to the personal bankruptcy rate being cut in half.
While the ACA has resulted in many positive outcomes, affordability of health insurance continues to be a challenge. Rather than address this in a comprehensive way, the current administration is instead finding ways to undermine the ACA’s protections. While the administration’s actions threaten the ACA’s effort to provide affordable high-quality healthcare coverage, states have the ability to take steps to counter these actions and help protect the ACA.
Here are a few ways in which the federal government is trying to undermine the ACA and what states can do or have done to mitigate those efforts:
Federal Action: Congress repealed the individual mandate in December 2017, with the elimination of the tax penalty effective as of 2019. This is projected to reduce the number of people covered by health insurance by 4 million in 2019 and 13 million in 2027, while increasing premiums in the nongroup market by about 10% annually.
State Options: States have the option of implementing a state-based individual mandate or creating incentives to encourage people to purchase health insurance.
- State-based Individual Mandate: Massachusetts instituted a state level individual mandate in 2007, well before the ACA was enacted. The Massachusetts individual mandate was comprised of 3 components (see the end of the blog for more detail).
- Insurance Incentives: States could also implement an insurance incentive program, that rather than a tax penalty. These programs encourage individuals to maintain continuous health insurance coverage by penalizing them for gaps in coverage through mechanisms such as premium surcharges, waiting periods, or limited plan choice.
- Combination: Maryland’s proposed individual mandate program combines the individual mandate and insurance incentive concepts by using the penalty payments from individuals who did not purchase insurance to fund a down payment for each of those individuals to purchase coverage in the future. Other states are now looking at creating a state level individual mandate or incentive program, including Washington DC, Connecticut, Hawaii, Minnesota, New Jersey, Rhode Island, Vermont, Washington and California.
Short Term Health Plans and Association Health Plans
- Short Term Health Plans: In February 2018, the federal administration issued prosed rules to extend the duration of short term health plans from 3 months to 1 year with the ability to renew (these rules are not yet final or implemented). Short term health plans do not have to follow the same rules as ACA marketplace plans, including covering essential health benefits, guaranteed issue, ban on annual caps, and various coverage requirements. Short term health plans threaten to take younger healthier people out of the individual market and leave them with skimpier coverage. This could destabilize the individual market by leaving only the older sicker people in the market, which would drive up premiums.
- Association Health Plans: In January of 2018, the federal administration issued proposed rules to loosen restrictions on Association Health Plans (AHPs) (these rules are not yet final or implemented). Under the new rules, it would be easier for groups to band together to form AHPS for the sole purpose of obtaining health coverage and avoid ACA individual and small group insurance requirements. The effects of the new rules also threaten to take younger healthier people out of the individual market and leave them with skimpier coverage. This means AHPs could also destabilize the individual market by leaving only the older sicker people in the market which would drive up premiums.
- Short Term Health Plans: Some states have previously taken action to mitigate the negative effects of the use of short term health plans and more states could follow suit. This includes limiting the duration of the plans, limiting the ability to renew the plans, increasing oversight of the plans offered and their marketing, and making the plans comply with some or all individual market standards. In New Jersey, short term health plans do not exist because the state requires all plans to meet the requirements of standardized health plans.
- Association Health Plans: States could implement requirements for AHPs to ensure that associations offer legitimate plans (such as actuarial soundness, proper maintenance of reserves, and adequate underwriting). States could also implement restrictions similar to the current ACA restrictions to discourage the use of association health plans. However, states may be limited in their ability to regulate AHPs depending on how the final rule is worded.
- The federal administration shortened the open enrollment period for 2018 coverage on the individual market from 90 to 45 days.
- The administration also cut navigator funding and reduced advertising spending for the federal marketplace by 90%.
- If a state has a State-based Exchange (12 states), they can extend their open enrollment period and fund their own navigator programs and marketing campaign. In fact, nine state marketplaces extended their open enrollment periods beyond the federal deadline.
- States on the federal exchange platform could choose to develop a platform and become a state-based exchange. This would give them more control over the marketplace and ability to respond to threats from the federal administration more nimbly.
Cost Sharing Reduction Payments (CSRs)
- In October of 2017, the federal government ended the payment of CSRs to insurers. The ACA requires insurers to reduce cost sharing for low income enrollees, which reduces their out-of-pocket limit, deductibles, coinsurance, and copayments. By ending the federal payments, the insurers had to pay for CSRs. Because of this increased burden, insurers passed on the cost to the consumer by raising premiums.
- As a response to the elimination of CSR payments, many states directed insurance companies to offset the cost of having to pay the CSR payments by increasing the premiums for silver-level plans. This had very different effects for subsidized and unsubsidized individuals in the individual marketplace. For unsubsidized people, this made silver level plans very expensive. For subsidized people, this made many bronze and gold plans even more affordable, with some costing individuals nothing out of pocket (see the end of the blog for more detail).
- States could try to mitigate the effect of these higher premiums by establishing a reinsurance program (see the end of the blog for more detail).
In the absence of an outright repeal of the ACA, the federal government has taken steps to undermine the law. This is destabilizing the health insurance marketplace and making health insurance less affordable. There are specific actions states can take to mitigate the impact. In addition, states can look at broader solutions to address market destabilization, such as establishing a reinsurance program (see the end of the blog for more detail). There is also potential for a market stabilization solution at the federal level. While a stabilization bill did not make it into the recent omnibus spending bill, one could be passed by Congress later in the year. The latest proposed stabilization bill, sponsored by Senators Collins and Alexander, includes three years of funding for reinsurance and reinstates CSR payments, among other provisions. Senator Warren recently introduced a bill that would more comprehensively change the ACA to offer more financial assistance to individuals in the healthcare marketplace, and would also implement market stabilization measures, such as reinstating CSR payments.
Despite all of the threats to the ACA, it is important to remember that many of the fundamental pieces of the ACA have persisted and there are actions states can take to mitigate the effects of the dismantling efforts of the federal government.
- Massachusetts Individual Mandate: The first component of the individual mandate was Minimum Credible Coverage, which define the minimum benefits a plan had to cover for an individual to avoid a penalty. The second component was a mechanism to avoid penalizing uninsured people whose insurance options were too costly for them. The third component was establishing penalty amounts and standards for exemption. When the Massachusetts individual mandate was launched it effectively drove individuals into the market, especially healthy enrollees.
- Effects of loading the CSR burden on silver level plans: Bronze and gold plans became so affordable because the calculation for the federal premium tax credit subsidies is based on the cost of silver level plans, which caused the amount of tax credit a consumer could receive to increase. In essence, states were able to mitigate the CSR payment offload onto individual premiums by making the federal government pay more in premium tax credit subsidies.
- State Reinsurance Programs: In order to administer a reinsurance program, a state would need to have the federal government approve a section 1332 waiver under the ACA. Based on the waiver’s restrictions, the state would have to find existing funds to operate their reinsurance program.