Tuesday, November 29, 2016

Tom Price's ACA replacement plan opens a sluice gate to privatizing Medicare

Tom Price, Trump's choice for HHS Secretary, is the author of the Empowering Patients First Act,  an ACA replacement plan that provides age-based subsidies for deregulated health insurance, unadjusted by income.

Those subsidies are skimpy, particularly for older buyers, as Price would loosen age banding, and for low income shoppers, as the subsidy level would leave coverage unaffordable.  Jed Graham of IBD runs the numbers for a 64 year-old couple earning 150 of the Federal Poverty Level (FPL) and finds that while an ACA plan might cost them 8-12% of their income (($2-3,000, out-of-pocket costs included) in a bad year, a plan purchased under Price's legislation would take 80% ($18,000).

The Price plan (let's call it EPFA)  is a bare-bones version of "premium support," in which the government gives beneficiaries a fixed sum and sends them to shop in a deregulated marketplace (the ACA sets up a more generous and regulated premium support program).  Since Price also aims to pass legislation this year to convert Medicare to a premium support system, his plan -- which allows people to opt out of Medicare and receive the plan's fixed tax credit --  can be viewed as an ultimate vision for Medicare, Republican style.

When opposing premium support for Medicare, Democrats often speak of the "Medicare guarantee." As I noted recently, in financial terms, that guarantee boils down at present to the government subsidizing about 85% of the cost of insurance that covers somewhere north of 80% of the average enrollee's medical expenses. For seniors, in other words, the federal government covers a bit more than two thirds of the average person's medical costs, both in traditional Medicare and Medicare Advantage plans ( a recent Wall Street Journal story estimated 70%).

For 8.8 million current subsidized enrollees in the ACA marketplace (as of June 30), subsidies cover an average of 73% of the premium for plans with a weighted average actuarial value of 81% (surprise!-- thanks to Cost Sharing Reduction (CSR) subsidies, the average AV of plans sold to subsidized buyers in the marketplace is really that high). On average, then, the ACA marketplace covers about 59% of subsidized enrollees' costs -- though that average is very uneven, ranging from over 90% for the lowest-income enrollees to close to zero for the barely subsidy-eligible (and zero for the subsidy-ineligible, who currently make up 16% of marketplace enrollment)*. For another 12 million people whom the ACA rendered eligible for Medicaid, federal and state government cover close to 100% of costs.

By way of contrast, here is the subsidy schedule in the EPFA, set against average benchmark (second cheapest) silver premiums in the ACA marketplace for the midpoint of each EPFA age group .Since Republicans claim that premiums would be lower in their deregulated market -- as they would, for skimpier coverage for younger enrollees at least -- I've also added a column for premiums at two thirds of ACA benchmark levels.

EPFA Premium Subsidies as Percentage of ACA Plan Premium & Cheaper Plan Premium

Age range
plan premium
% of avg
ACA plan
2/3 of
ACA plan
% of plan
costing 2/3
ACA avg
$ 900
18-35 (27)
36-50 (43)
51-64 (58)

The average ACA plan cited is a silver plan. That means its baseline actuarial value is 70%, bumped up by CSR to 94% for enrollees with incomes up to 150% FPL, to 87% for those in the 150-200% FPL range, and to 73% for the 200-250% FPL band. Plans in Price's world would have a much lower average AV, probably under 60%, as was the norm in the pre-ACA individual market.

Under the charitable assumptions that a typical EPFA subsidy would cover 59% of the premium for a plan with a 60% actuarial value, the premium subsidy would cover 35% of the average enrollee's medical costs -- regardless of whether her income were $17,000 or $17 million. Since EPFA repeals the ACA's essential health benefits and other coverage rules, moreover, it's probably extremely charitable to assume a 60% actuarial value under ACA standards.

The HSA road to Medicare privatization

To encourage the use of Health Savings Accounts (HSAs), tax-sheltered accounts usable only with a high deductible health plan that provides no coverage outside the deductible, Price's plan also provides a one-time $1000 tax credit to fund an HSA. That would substantially increase the subsidized percentage of costs for a person who bought insurance in the individual market for just one year. Since the HSA is wholly owned by the account holder and transferable to heirs, however, its value should logically be spread over a lifetime -- especially as Price plainly views the HSA as a major and near-universal vehicle for healthcare financing.

For Price, the HSA is far more than a lagniappe added to the primary individual market subsidy. In fact it's a sluice gate to privatizing Medicare. The EPFA "allows individuals to opt out of Medicare, Medicaid, TRICARE, and VA benefits and receive tax credit to purchase personal health plan instead."  A subtitle devoted to HSAs has 19 provisions designed to encourage the grossing up of an HSA to cover medical expenses in retirement  -- for example, the bill "allows for the transfer of the minimum distribution requirement from a retirement plan to an HSA and prohibits its inclusion in an individual’s gross, taxable income."  It also makes HSAs transferable to heirs, protects them from seizure in bankruptcy, increases allowable yearly contributions, and uses a variety of other means to enshrine HSAs at the center of U.S. healthcare financing.

Given the fusion that Price apparently envisions between premium support in the individual market and premium support in HSA-transformed Medicare, it seems warranted to suspect that he would ultimately reduce the federal share in Medicare enrollees' expenses from the current 70% to the roughly 35% his ACA replacement plan provides (at best) to the non-elderly. For the wealthy (who pay higher shares of their Medicare expenses), the tax advantages attaching to HSAs would make up a substantial part of the difference. The rest of us can look forward to spending a huge percentage of our income in old age on medical care.


*In fairness, the ACA's subsidized benefits should be weighed against the higher premiums it has induced for many of the 7-8 million people who buy unsubsidized ACA-compliant plans in the individual market, inside or outside the ACA marketplace. Those higher premiums are mainly a result of guaranteed issue, the prohibition on charging more to those who have pre-existing conditions. But  the premium hikes for healthy unsubsidized enrollees should in turn be set against conditions in the pre-ACA market, where a third of enrollees paid above base rates because of pre-existing conditions, some could only get coverage excluding their pre-existing conditions, about 13% of applicants were denied coverage, and many others were doubtless deterred from trying to obtain coverage.  A Brookings study published this summer found that average premiums (mean, as opposed to median) in the individual market are lower than they were projected to be by this year had there been no ACA.

Update, 12/1 - minor edits for clarity, mainly to specify when stats apply to subsidized ACA marketplace enrollees (84% of all enrollees). That also entailed a slight uptick in the average weighted  AV (81% for subsidized enrollees, rather than 80% for all enrollees) and so in the total subsidy (59% instead of 58%)

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