Hull Speed, Codgers, and Pre-Existing Conditions: What Does the Senate Bill Do? | Insights

June 23, 2017 | Insights | Blog

R. Pepper Crutcher, Jr.

Many other things being equal, the longer the sail boat, the faster it can go before its bow wave defeats further speed increase. However, as any boat approaches its “hull speed,” an increasing amount of energy is required to add each new increment of speed. And so it is with health insurance.

When all parties in a debate cite the same figures, don’t bother arguing with the numbers. So let’s assume that about forty cents of each health care dollar goes to care for people with multiple, chronic conditions and that about 5% of the insured population accounts for about 50% of health care costs. If the insured population’s median age is rising then, other things being equal, those numbers will not improve in the near term.

In a fully free market, many mature Americans (like your humble correspondent) would be uninsurable. That being politically unpalatable, the federal government since HIPAA has made it increasingly difficult to exclude us from insurance pools. The ACA virtually outlawed it. But, like a boat approaching its hull speed, a scheme of health care financing that transfers dollars from the healthy to the unhealthy will need an increasing number of dollars for each added increment of coverage of the increasingly unhealthy. The ACA approach is minimum standard coverage for all at any cost. Any sincere attempt to stabilize insurance markets and lower premiums and deductibles for the 95% would have to exclude some of the 5% from those markets.

So what does the Senate bill do? Not much. The term “pre-existing” does not appear in the bill. No health status discrimination prohibition is repealed and a new one is added, to prevent Small Business Health Plans from paying eligible bad risks to enroll in individual coverage. Simply put, the Senate decided to punt. So did the House, but the House punted to the states, which were given a bigger role in striking this balance. Those express, direct provisions are missing from the Senate bill, so the question is what it allows implicitly and indirectly.

Section 106 appropriates $50B for 2018 through 2021 for CMS to use to, among other things, assist participating health insurers and states to “provide financial assistance to high-risk individuals … who do not have access to health insurance coverage offered through an employer, enroll in health insurance coverage under a plan offered in the individual market ….” There is an overlapping appropriation of $62B from 2019 through 2026 for “long term state stability and innovation allotments,” with no state match required until 2022.

Section 206 makes ACA § 1332 waivers (42 U.S.C. § 18052) more attractive to states. Each application must state how the state’s proposed plan would “take the place of the requirements described in paragraph (2) that are waived … and provide for alternative means of, and requirements for, increasing access to comprehensive coverage, reducing average premiums, and increasing enrollment ….” This seems to grant CMS discretion to approve waivers of any paragraph (2) requirement. That paragraph reads:

The requirements described in this paragraph with respect to health insurance coverage within the State for plan years beginning on or after January 1, 2014, are as follows:

(A) Part A of this subchapter.

(B) Part B of this subchapter.

(D) Sections 36B, 4980H, and 5000A of title 26.

Section 18071 describes the current ACA cost-sharing reduction program for individuals enrolled in ACA Exchange coverage. Code § 36B describes the premium tax credit program for those enrollees. Code § 4980H imposes the large employer mandate to offer affordable, minimum value, minimum essential coverage to at least 95% of full-time employees and their dependents. Code § 5000A imposes the individual mandate to enroll in minimum essential coverage. The Senate bill zeroes the individual and employer mandates and term limits the coverage subsidies. There would seem to be no incentive to seek a waiver from those.

ACA § 1332 is found in Chapter 157, Subchapter III of Title 42. Part A consists of sections 18021 through 18024. Part B holds sections 18031 through 18033. Here are the section headings.

18021. Qualified health plan defined
18022. Essential health benefits requirements
18023. Special rules
18024. Related definitions
18031. Affordable choices of health benefit plans
18032. Consumer choice
18033. Financial integrity

Section 18021 describes the sort of plans that may be sold on ACA Exchanges. Section 18023 relates to funding of coverage for abortions. Section 18024 defines large and small employers and group markets. Sections 18031 – 33 relate to state exchanges. The meat of this matter, apparently, is that CMS may permit states to define § 18022 “essential health benefits” so as to reduce the cost of insurance for those who prefer to buy relatively limited coverage.

Codgers like your correspondent are unlikely to buy that cheaper coverage but our young, healthy children and grandchildren may line up to buy it. That could reduce the wealth transfer effect of the ACA’s protection of those with pre-existing conditions, but only marginally and indirectly.

That seems to be about it. The Senate bill does not repeal ACA, ADA or HIPAA protections for those with pre-existing conditions. It adds spending to help insurers bear the cost of our bad risks and allows states to expand cheaper insurance options for those who don’t want to swim in the same risk pools with us.