Timothy Jost
6/14/2017
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On June 13, 2017, the Office of the Chief Actuary of the Centers for Medicare and Medicaid Services released its report on the Estimated Financial Effect of the “American Health Care Act of 2017.” The CMS Office of the Actuary
is responsible for evaluating the financial condition of the Medicare
program, projecting Medicare and Medicaid expenditures, and predicting
the financial effects of proposed health care legislation. Even though
the office is located within the Department of Health and Human Services
(HHS), it is generally regarded as independent and CMS actuaries have
provided unwelcome information to administrations of both parties.
The June 13 Actuary’s Report addresses different questions than the Congressional Budget Office reports on the AHCA. Where it measures more or less the same thing it offers different numbers. It is likely, therefore, to receive considerable attention. This post examines that report and notes other developments related to the health reform discussion.
The headline from the Actuary’s report that is likely to receive the most attention is that the CMS Actuary sees the AHCA as increasing the uninsured by 4 million for 2018/2019 and by 13 million by 2026. By contrast, the CBO estimated that the AHCA would increase the uninsured by 14 million for 2018 and 23 million by 2026. The Actuary also, however, projects far smaller reductions in federal health care spending from the AHCA than did the CBO—a total of $328 billion over ten years, including $160 billion reductions in federal subsidies for purchasing individual market (compared to $290 billion by the CBO) and $383 billion in Medicaid reductions (compared to an $834 billion CBO estimate).
The Actuary’s report does not address the financial effects of the AHCA’s tax cuts, but given that it foresees much smaller cuts in expenditures, it is possible that if its projections are correct the AHCA could increase rather than cut the deficit.
The Actuary’s report estimates that the AHCA would reduce gross premiums in the individual market by 13 percent below current law estimates by 2026, but net premiums after reduced premium tax credits are considered would increase by 5 percent, and cost sharing (deductibles, coinsurance, copayments, and out-of-pocket limits) would increase by 61 percent. Finally, the Actuary estimates that the Medicare Part A Trust Fund would be depleted in 2026, two years earlier than under current law. The CBO did not address the status of the Trust fund.
Deconstructing The Coverage Numbers
The Actuary projects that the AHCA would cause the number of uninsured to increase by 4 to 6 million by 2018/2019 because the repeal of the individual mandate would cause consumers to drop individual and employer coverage and because more frequent Medicaid eligibility determinations, the repeal of retroactive eligibility determinations, and work requirements would reduce Medicaid enrollments. By 2026, 8 million fewer individuals would be enrolled in Medicaid, 3.3 million fewer in employer coverage, and 1.3 million in individual coverage.
The Actuary projects that 12 million Medicaid enrollees would lose Medicaid expansion coverage under the AHCA by 2026, but that half of these would be covered under Medicaid with lower federal matching rates. The 6 million expansion enrollees who would lose coverage, combined with 2 million who would lose coverage through the repeal of other ACA Medicaid provisions, would total 8 million losing Medicaid coverage. The total number of uninsured would climb to 43 million by 2026, compared to 31 million under current law.
The Actuary projects that no Medicaid recipients would lose coverage because of the AHCA’s per capita caps on Medicaid spending, which it projects would reduce federal Medicaid spending by $65 billion over 10 years. The Actuary assumes the states would cover the reduction in federal contributions by reducing provider payments, managing utilization and increasing program efficiency, and cutting optional services rather than enrollment or eligibility—an arguably heroic assumption. The Actuary projects that no state would choose a block grant instead, as federal contributions would be lower.
The Components Of The Actuary’s Spending Reduction Estimates
The $328 billion reduction in federal health care expenditures over ten years is the total of:
Out-of-pocket spending, on the other hand, would increase by $221 billion, although household spending is projected to increase by only $21 billion because of the reduction in taxes (including taxes on high-income individuals) and in employer coverage. State and local expenditures are projected to increase by 0.5 billion. Finally, the Actuary notes that after 2026, costs would increasingly shift to individuals and to state and local government as individual tax credits and Medicaid per capita caps fall behind inflation.
The AHCA’s Effect On The Markets
The Actuary projects that the individual market would remain viable and stable under both current law and the AHCA. It recognizes that the repeal of the individual mandate penalty and reductions in the value of the tax credit would undermine stability, but believes these would be offset by continuous coverage requirements, the availability of lower-cost non-ACA-compliant plans, and the PSSF. The Actuary concurs with the CBO, however, that if states implement waivers that severely limit the essential health benefits or allow insurers to offer underwritten coverage for healthy individuals, their markets would destabilize.
The repeal of the individual mandate would have the immediate effect of moving about 2 million consumers from individual coverage to uninsured status. As these individuals would be disproportionately young and healthy, this would increase gross premiums. Net premiums consumers actually paid would be reduced, however, by the state PSSF expenditures for reinsurance and by the ACA premium and income-based tax credits, which would continue through 2019.
By 2026, some of the losses in the individual market would be offset by people moving from employer coverage or Medicaid, leaving a net loss of 1 to 2 million. The Actuary assumes that only a quarter of the states would opt for EHB or community rating waivers (the CBO estimated half would) and that those states would use the $8 billion made available to them under the MacArthur amendment to lower premiums for high-risk enrollees. States would use half the remaining PSSF funds to assist lower-income and high-risk enrollees and the other half to reduce premiums generally.
The Actuary projects that by 2026, gross premiums would be reduced by 13 percent, primarily because of increased cost sharing. Net premiums after the application of tax credits, however, would increase by 5 percent. Cost-sharing, however, would increase by 61 percent to $143 per member per month. The average individual would pay 27 percent more, $162 monthly, in combined premiums and cost-sharing than under current law.
Coverage Effects By Income
The CBO projects that 2.9 million people with incomes under 100 percent of the federal poverty level would lose coverage because of the end of the Medicaid expansions and the Basic Health Program. About 3.6 million individuals with incomes between 100 and 150 percent of the poverty level would lose coverage due to the end of the Medicaid expansions, while 0.4 million in this income group would lose individual market coverage because of the end of the BHP, the change of the tax credits from income- to age-based, and the end of the cost-sharing reduction payments.
Individual market enrollment would decrease by 0.6 million for those between 250 and 400 percent of poverty, and increase by 0.2 million for those over 400 percent. While coverage would increase by 0.5 million (10 percent) for those 29 and under, it would decrease by 0.8 million (14 percent) for those 50 and older.
The State Of Play On Insurer Marketplace Participation For 2018
Separately, on June 13, 2017, CMS released a map showing the current state of play with respect to plan participation under the ACA. Qualified health plan applications are not due until June 21, 2017 and final contracts are not due until September, so the number of plans in any market may grow or shrink between now and the beginning of the 2018 open enrollment period. The map shows that 47 counties with 35,000 enrollees have no insurers signed up for 2018 and 1,200 counties with 2.4 million enrollees have only one insurer. (The map is already out of date as Centene has announced it will cover 25 otherwise bare counties in Missouri and expand into a number of other states that would otherwise only have one insurer.) The press release blames this situation on the ACA, but insurers have blamed it on the continued uncertainty about whether the Trump administration will enforce the individual mandate and pay the cost-sharing reduction payments due to insurers.
Agreed And Disputed Class Members Emerge In Health Republic Risk Corridor Case
A couple of dozen lawsuits by health insurers are currently proceeding against the United States in the federal court of claims. The insurers claim that the government illegally refused to pay them risk corridor payments due for 2014 and 2015 under the ACA.
One of the lawsuits, brought by Health Republic, is a class action. On June 12, 2017, Health Republic filed a list of insurers that have opted in as class members. The government did not object to 150 of the class members. It did object to 26 insurers who asked to opt in either on grounds that they did not participate in the risk corridor program during 2014 or 2015 or were not qualified for risk corridor payments.
CMS Chooses To Continue Two Pilots Providing Consumer Information Rather Than Moving To Full Implementation
On June 9, 2017, CMS released two guidances announcing that pilot programs begun for the 2017 open enrollment period will be continued for the 2018 OEP. The first of these is a pilot program testing a system to disclose on HealthCare.gov ratings on relative breadth of network for pediatricians, adult primary care practitioners, and hospitals. Health plans are rated based on network information they submit for their qualified health plans and their networks are ranked relative to other plans. This rating program was piloted in 2017 in Maine, Ohio, Tennessee, and Texas. Information will be available only in these states again for 2018.
The second guidance concerns the pilot testing of quality and satisfaction star ratings for qualified health plans. The ACA requires health plans to collect quality and consumer satisfaction data and to report it to HHS. For 2017, CMS developed and pilot tested a star rating system based on the quality and satisfaction reports; the rating system was pilot tested in Virginia and Wisconsin for the 2017 open enrollment period and was supposed to be expanded to all states for 2018. Instead it will remain limited to the two states.
The Trump administration has emphasized its commitment to “empowering consumers and promoting consumer choice.” By delaying full implementation of these programs for another year it has missed an opportunity to promote this goal.
The June 13 Actuary’s Report addresses different questions than the Congressional Budget Office reports on the AHCA. Where it measures more or less the same thing it offers different numbers. It is likely, therefore, to receive considerable attention. This post examines that report and notes other developments related to the health reform discussion.
The headline from the Actuary’s report that is likely to receive the most attention is that the CMS Actuary sees the AHCA as increasing the uninsured by 4 million for 2018/2019 and by 13 million by 2026. By contrast, the CBO estimated that the AHCA would increase the uninsured by 14 million for 2018 and 23 million by 2026. The Actuary also, however, projects far smaller reductions in federal health care spending from the AHCA than did the CBO—a total of $328 billion over ten years, including $160 billion reductions in federal subsidies for purchasing individual market (compared to $290 billion by the CBO) and $383 billion in Medicaid reductions (compared to an $834 billion CBO estimate).
The Actuary’s report does not address the financial effects of the AHCA’s tax cuts, but given that it foresees much smaller cuts in expenditures, it is possible that if its projections are correct the AHCA could increase rather than cut the deficit.
The Actuary’s report estimates that the AHCA would reduce gross premiums in the individual market by 13 percent below current law estimates by 2026, but net premiums after reduced premium tax credits are considered would increase by 5 percent, and cost sharing (deductibles, coinsurance, copayments, and out-of-pocket limits) would increase by 61 percent. Finally, the Actuary estimates that the Medicare Part A Trust Fund would be depleted in 2026, two years earlier than under current law. The CBO did not address the status of the Trust fund.
Deconstructing The Coverage Numbers
The Actuary projects that the AHCA would cause the number of uninsured to increase by 4 to 6 million by 2018/2019 because the repeal of the individual mandate would cause consumers to drop individual and employer coverage and because more frequent Medicaid eligibility determinations, the repeal of retroactive eligibility determinations, and work requirements would reduce Medicaid enrollments. By 2026, 8 million fewer individuals would be enrolled in Medicaid, 3.3 million fewer in employer coverage, and 1.3 million in individual coverage.
The Actuary projects that 12 million Medicaid enrollees would lose Medicaid expansion coverage under the AHCA by 2026, but that half of these would be covered under Medicaid with lower federal matching rates. The 6 million expansion enrollees who would lose coverage, combined with 2 million who would lose coverage through the repeal of other ACA Medicaid provisions, would total 8 million losing Medicaid coverage. The total number of uninsured would climb to 43 million by 2026, compared to 31 million under current law.
The Actuary projects that no Medicaid recipients would lose coverage because of the AHCA’s per capita caps on Medicaid spending, which it projects would reduce federal Medicaid spending by $65 billion over 10 years. The Actuary assumes the states would cover the reduction in federal contributions by reducing provider payments, managing utilization and increasing program efficiency, and cutting optional services rather than enrollment or eligibility—an arguably heroic assumption. The Actuary projects that no state would choose a block grant instead, as federal contributions would be lower.
The Components Of The Actuary’s Spending Reduction Estimates
The $328 billion reduction in federal health care expenditures over ten years is the total of:
- A net reduction of $160 billion of financial assistance (premium tax credits and cost-sharing reductions) in the individual market after the AHCA’s premium tax credits are applied;
- The addition of $135 billion for the Patient and State Stability Fund (PSSF);
- The elimination of the Basic Health Program (BHP), saving $42 billion;
- A $121 billion increase in the cost of the Medicare program, including the net effect of elimination of various ACA taxes and provisions that increase or reduce Medicare expenditures or revenues;
- A $383 billion reduction in Medicaid expenditures, primarily attributable to the phasing out of enhanced funding for the ACA Medicaid expansions.
Out-of-pocket spending, on the other hand, would increase by $221 billion, although household spending is projected to increase by only $21 billion because of the reduction in taxes (including taxes on high-income individuals) and in employer coverage. State and local expenditures are projected to increase by 0.5 billion. Finally, the Actuary notes that after 2026, costs would increasingly shift to individuals and to state and local government as individual tax credits and Medicaid per capita caps fall behind inflation.
The AHCA’s Effect On The Markets
The Actuary projects that the individual market would remain viable and stable under both current law and the AHCA. It recognizes that the repeal of the individual mandate penalty and reductions in the value of the tax credit would undermine stability, but believes these would be offset by continuous coverage requirements, the availability of lower-cost non-ACA-compliant plans, and the PSSF. The Actuary concurs with the CBO, however, that if states implement waivers that severely limit the essential health benefits or allow insurers to offer underwritten coverage for healthy individuals, their markets would destabilize.
The repeal of the individual mandate would have the immediate effect of moving about 2 million consumers from individual coverage to uninsured status. As these individuals would be disproportionately young and healthy, this would increase gross premiums. Net premiums consumers actually paid would be reduced, however, by the state PSSF expenditures for reinsurance and by the ACA premium and income-based tax credits, which would continue through 2019.
By 2026, some of the losses in the individual market would be offset by people moving from employer coverage or Medicaid, leaving a net loss of 1 to 2 million. The Actuary assumes that only a quarter of the states would opt for EHB or community rating waivers (the CBO estimated half would) and that those states would use the $8 billion made available to them under the MacArthur amendment to lower premiums for high-risk enrollees. States would use half the remaining PSSF funds to assist lower-income and high-risk enrollees and the other half to reduce premiums generally.
The Actuary projects that by 2026, gross premiums would be reduced by 13 percent, primarily because of increased cost sharing. Net premiums after the application of tax credits, however, would increase by 5 percent. Cost-sharing, however, would increase by 61 percent to $143 per member per month. The average individual would pay 27 percent more, $162 monthly, in combined premiums and cost-sharing than under current law.
Coverage Effects By Income
The CBO projects that 2.9 million people with incomes under 100 percent of the federal poverty level would lose coverage because of the end of the Medicaid expansions and the Basic Health Program. About 3.6 million individuals with incomes between 100 and 150 percent of the poverty level would lose coverage due to the end of the Medicaid expansions, while 0.4 million in this income group would lose individual market coverage because of the end of the BHP, the change of the tax credits from income- to age-based, and the end of the cost-sharing reduction payments.
Individual market enrollment would decrease by 0.6 million for those between 250 and 400 percent of poverty, and increase by 0.2 million for those over 400 percent. While coverage would increase by 0.5 million (10 percent) for those 29 and under, it would decrease by 0.8 million (14 percent) for those 50 and older.
The State Of Play On Insurer Marketplace Participation For 2018
Separately, on June 13, 2017, CMS released a map showing the current state of play with respect to plan participation under the ACA. Qualified health plan applications are not due until June 21, 2017 and final contracts are not due until September, so the number of plans in any market may grow or shrink between now and the beginning of the 2018 open enrollment period. The map shows that 47 counties with 35,000 enrollees have no insurers signed up for 2018 and 1,200 counties with 2.4 million enrollees have only one insurer. (The map is already out of date as Centene has announced it will cover 25 otherwise bare counties in Missouri and expand into a number of other states that would otherwise only have one insurer.) The press release blames this situation on the ACA, but insurers have blamed it on the continued uncertainty about whether the Trump administration will enforce the individual mandate and pay the cost-sharing reduction payments due to insurers.
Agreed And Disputed Class Members Emerge In Health Republic Risk Corridor Case
A couple of dozen lawsuits by health insurers are currently proceeding against the United States in the federal court of claims. The insurers claim that the government illegally refused to pay them risk corridor payments due for 2014 and 2015 under the ACA.
One of the lawsuits, brought by Health Republic, is a class action. On June 12, 2017, Health Republic filed a list of insurers that have opted in as class members. The government did not object to 150 of the class members. It did object to 26 insurers who asked to opt in either on grounds that they did not participate in the risk corridor program during 2014 or 2015 or were not qualified for risk corridor payments.
CMS Chooses To Continue Two Pilots Providing Consumer Information Rather Than Moving To Full Implementation
On June 9, 2017, CMS released two guidances announcing that pilot programs begun for the 2017 open enrollment period will be continued for the 2018 OEP. The first of these is a pilot program testing a system to disclose on HealthCare.gov ratings on relative breadth of network for pediatricians, adult primary care practitioners, and hospitals. Health plans are rated based on network information they submit for their qualified health plans and their networks are ranked relative to other plans. This rating program was piloted in 2017 in Maine, Ohio, Tennessee, and Texas. Information will be available only in these states again for 2018.
The second guidance concerns the pilot testing of quality and satisfaction star ratings for qualified health plans. The ACA requires health plans to collect quality and consumer satisfaction data and to report it to HHS. For 2017, CMS developed and pilot tested a star rating system based on the quality and satisfaction reports; the rating system was pilot tested in Virginia and Wisconsin for the 2017 open enrollment period and was supposed to be expanded to all states for 2018. Instead it will remain limited to the two states.
The Trump administration has emphasized its commitment to “empowering consumers and promoting consumer choice.” By delaying full implementation of these programs for another year it has missed an opportunity to promote this goal.
Read more articles from Health Affairs, here.
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