Keeping an eye on the ACA: How proposed changes may affect healthcare in the US

February 08, 2017  Life Sciences And Healthcare

[UPDATED May 5, 2017]

After seven years and dozens or votes to either gut or replace it, Republicans in the House have voted to repeal the Affordable Care Act (ACA) or Obamacare as it is commonly known.  The American Health Care Act (AHCA) was able to gain the additional votes needed to pass when an $8 billion fix was added cover pre-existing conditions.  Some provisions have been repealed (mandates, taxes), others have been modified (Medicaid, pre-existing conditions, essential health benefits) and a few (dependent coverage until 26) were left unchanged. 

The below chart has been updated to reflect changes imposed by the AHCA and how these changes may affect Consumers, Insurers, Employers, Medicaid Recipients, and Pharmaceutical & Medical Device Companies along with some questions key stakeholders might consider as the debate moves to the Senate.

Pharmaceutical/Medical Device Companies: The Medical Device tax will be repealed. Reimportation of drugs is not included in the AHCA.

Ask Yourself: Reimportation of drugs is not part of the ACHA now, yet the president has pledged to lower the cost of drugs, what are his options and how would it impact our business? President Trump plans to cut approval times at the FDA, what will that mean for our development pipelines?

Insurers:Taxes incurred as a result of the ACA will be repealed. Selling insurance across state lines was not included. The AHCA uses tax credits instead of subsidies for people to buy insurance.

Ask Yourself: Will the loss of tax credits decrease membership in the individual market?

Employers: A tax on the most generous employer-provided health plans was not included in the plan. The “Cadillac Tax” was not repealed, but it was delayed to 2025. The employer mandate was repealed.

Ask Yourself: Now that the employer mandate has been repealed, will companies continue to offer benefits to attract the best workers?

Consumers: The penalty for not maintaining continuous insurance could be a 30% increase in premium.

Ask Yourself: Can I afford to pay the penalty if I let my coverage lapse?

Medicaid Recipients: The AHCA caps the amount of federal funding that states receive per Medicaid enrollee.

Ask Yourself: Will this change result in people receiving less care?

Early reports from the US Senate suggest additional changes to healthcare legislation will emerge in the form of a Senate-sponsored bill. It is unclear how long it will take to gather the necessary votes to pass such a bill in the Senate and then reconcile it with the House-sponsored version. At Cipher, we are committed to helping our clients in the life sciences industries navigate the immediate and future challenges associated with this tumultuous regulatory landscape. Stay tuned to the Cipher Blog for updates on the ACA, the AHCA, and other industry insights. Contact us today to find out how our competitive & market intelligence services such as Future Market Scenarios or Trend Monitoring can help you plan ahead for market uncertainty.

Consumers

Affordable Care Act (ACA) American Health Care Act (AHCA)
Tax Credits
The ACA established government-run insurance markets in every state with mandates on individuals and businesses and federal tax credits to subsidize the insurance of lower income Americans. The AHCA enacts a system of refundable tax credits based mainly on a person’s age.
What does it mean?
Tax credits would range from $2,000 for people below age 30 and $4,000 for people over age 60. The credits will have an income gap, those making more than $75,000 will see their tax credits start to phase out, and an enrollee making $215,000 would not be eligible. Families with incomes above $150,000 would see their credits decline, while those earning more than $290,000 would not qualify. The bill will eliminate the help that individuals earning less than $30,000 a year receive to cover their out-of-pocket costs.
Penalties
The ACA enacted an individual mandate where people are penalized for not having insurance. The AHCA would end the individual mandate, but it does introduce a penalty for not having continuous insurance. The bill requires insurers to charge a 30% increase in premiums for consumers who allow their health care coverage to lapse (continuous coverage is defined as a lapse of coverage of 63 days or more as long as the state also set up a program to help high-risk patients obtain insurance).
What does it mean?
Requiring continuous insurance is designed to discourage people from obtaining coverage during an illness and then dropping the policy after recovering. However, enacting a 30% re-entry penalty would mean many people would remain uninsured.
Pre-Existing Conditions
There is no penalty for pre-existing conditions under the ACA. The new bill would allow states to waive key ACA regulations that prevented insurance agencies from charging people with preexisting conditions higher premiums. A last minute change to the bill added $8 billion over five years to help people with pre-existing medical conditions maintain their coverage. 
What does it mean?
Pre-existing conditions policies would be left up to the states.

Insurers

Affordable Care Act (ACA) American Health Care Act (AHCA)
High-Risk Pools
“High-risk” populations were covered under the ACA, nearly eliminating the need for high-risk pools. The GOP has touted “high-risk” pools as a way to section off people with pre-existing conditions from the rest of the market, thereby lowering costs for healthy people.
What does it mean?
The original AHCA set aside $130 billion over 10 years for a state stability fund. Another $8 billion will be added to this fund over five years which is estimated to leave the program underfunded.
Selling Across State Lines
The ACA allowed for selling insurance across state lines. There is no provision for this practice in the new legislation.
What does it mean?

Some states already allow the sale of health insurance across state lines, but this practice has not yet been adopted by health insurers. 

 

Mandated Benefits Packages
The ACA offers a standard package of benefits and currently limits insurers from charging their oldest enrollee three times as much as their youngest clients. The AHCA allows the states to waive the benefit rules and set up their own standards. It will allow insurers to charge their oldest enrollees five times as much as younger ones, while states can waive that rule and establish an even higher ratio.
What does it mean?
This would allow insurers to offer cheaper, less comprehensive policies to younger people who are looking for a bargain.

Employers

Affordable Care Act (ACA) American Health Care Act (AHCA)
Tax Caps
Under the ACA, there is no cap on the employer tax exclusion. Republicans dropped a plan pushed by House Speaker Paul Ryan to impose a first-ever tax on the most generous employer-provided health plans.
What does it mean?
This move will satisfy conservative lawmakers, businesses, and unions.
Excise Tax
The ACA introduced the Excise or "Cadillac" Tax which is a 40% surcharge on the value of employer-based health premiums above specific thresholds. The “Cadillac” Tax remains under the AHCA, at least for the short term.  In 2020, the ACA was set to impose a 40% excise tax on employer plans that cost more than $10,200 for individuals and $27,500 for families.
What does it mean?
The House bill would delay this tax until 2025.
Employer-Sponsored Insurance (ESI)
The ACA's “employer mandate” is a requirement that all businesses with 50 or more full-time equivalent employees provide health insurance to at least 95% of their full-time employees and dependents up to age 26, or pay a fee. The GOPs bill would eliminate the mandate that employers with at least 50 employees offer health coverage to their workers.
What does it mean?
Under the AHCA, the tax penalty for large employers that do not provide health benefits is reduced to zero, retroactive to January 1, 2016. It’s unclear what ramifications this would have in the employer-based market or how many people could lose coverage.

Medicaid Recipients

Affordable Care Act (ACA) American Health Care Act (AHCA)
Expanded Coverage
The ACA expanded Medicaid coverage in 32 states. Under the AHCA, no new enrollment can occur under Medicaid expansion after Dec. 31, 2019. States that have yet to opt in to the expansion by that date also will not be able to do so afterward (the bill doesn’t eliminate the Medicaid expansion coverage for those who are enrolled prior to 2020). If there is a break in coverage for more than one month after Dec. 31, 2019, they won’t be able to re-enroll (unless a state wanted to cover the cost itself). Also, the AHCA would cap the amount of federal funding that states can receive per Medicaid enrollee, with varying amounts for each category of enrollee, such as children, and the blind and disabled. Currently, the federal government guarantees matching funds to states for qualifying Medicaid expenses, regardless of cost.
What does it mean?
This change freezes Medicaid enrollment which will gradually unravel the expansion and possibly leave millions without insurance.
Medicare Payments
The ACA made major reforms to Medicare payments. The new legislation is expected to leave these changes alone.
What does it mean?
No changes planned to Medicare at this time.

Pharmaceutical & Medical Device Companies

Affordable Care Act (ACA) American Health Care Act (AHCA)
Tax Increases
The ACA raised taxes on high incomes, prescription drugs, medical devices, and health insurance. Under the AHCA, a series of tax increases on higher-earning people, the insurance industry, and others used to finance the Obama overhaul’s coverage expansion would be repealed as of 2018.
What does it mean?
This would be a positive development for the groups impacted by these tax increases.
Importing Drugs
The ACA does not allow the importation of drugs from other countries, such as Canada. President Trump has stated he is working on a “new system where there will be competition in the drug industry.”
What does it mean?
The President has expressed interest in the reimportation of drugs as well as negotiating drug prices, something the government isn't allowed to do for Medicare and Medicaid. He also has called for faster regulatory review by the FDA.

As changes in the law are proposed, debated, and passed, we will see more detail – and probably some compromises. Stay tuned for more posts from Cipher on this hugely important development as it progresses.

Sources: 8 Big Changes Under Tom Price’s Obamacare Replacement Plan, NCSL's OUT-OF-STATE HEALTH INSURANCE - ALLOWING PURCHASES


Insights from Dawn Faint, Director of Life Sciences at Cipher - Dawn helps companies in the Life Sciences space map their competitive environment, develop intelligence strategies which identify risks, and position them for future growth. Prior to joining Cipher, Dawn worked for many years in the Healthcare space in leadership roles at Cigna, Schering-Plough, Pharmacia (now Pfizer) and Johnson & Johnson companies Ortho Biotech and Ortho-McNeil, and in the Management Consulting space for Right Management.

 

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