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

February 08, 2017  Life Sciences / Healthcare

[UPDATED March 15, 2017]

Healthcare legislation in the US is on shaky ground now that House Republicans have officially released their replacement plan for the Affordable Care Act (ACA). Their plan, entitled the American Health Care Act (AHCA), largely falls in line with similar plans proposed by the new Health and Human Services Secretary Tom Price and House Speaker Paul Ryan. As soon as the plan was released, however, opposition emerged. The AHCA is already under fire from medical interest groups such as the AARP, the American Medical Association (AMA), and the American Hospital Association (AHA). Key concerns center around an overall decline in the number of Americans insured by the new plan and premium increases for certain populations.

In a previous iteration of this post, we compared key elements of Price’s Empower Patients First Act and Ryan’s A Better Way proposal against the Affordable Care Act. 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 forward:

Pharmaceutical/Medical Device Companies: The Medical Device tax will be repealed.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Insurers:Taxes incurred as a result of the ACA will be repealed.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 allows insurers to increase premiums on older Americans without limits.

Ask Yourself: How will it impact our business if a competitor begins selling insurance across state lines?

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 The “Cadillac Tax” was not repealed, but it was delayed to 2025.

Ask Yourself: Has the “Cadillac Tax” been counteracted by another delay or do I still have to plan for it’s impact?

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

Ask Yourself: Does the penalty improve or lessen the membership projections for the Individual market?

Medicaid Recipients: Converts Medicaid from a matching program to a capped subsidy

Ask Yourself: Will this change in payment method widen or lessen the number of recipients?

Additional changes to healthcare legislation are expected to emerge in the coming months as the national dialogue over healthcare best practices rages on.  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 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 for 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 on income and 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, with an annual limit of $14,000. The bill also expands the types of coverage eligible for tax credits, which may translate into people using credits to pay for catastrophic or limited care plans (tax credits would not be available for individuals with $75,000 or more in annual income and married couples with annual income above $150,000).  
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 over the previous 12 months).
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. Under the AHCA, insurers would not be able to deny coverage based on pre-existing conditions, and they must charge the same premium as they charge those patients without pre-existing conditions. What’s more, like the ACA, the bill calls for no lifetime or annual limits on coverage. 
What does it mean?
The pre-existing conditions policy from the ACA remains intact.

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. States may use Innovation and Stability Program grants to fund “high-risk” individuals, to stabilize private insurance premiums, promote access to preventive services, provide cost sharing subsidies, and for other purposes.
What does it mean?
The plan proposes $100 billion over 9 years appropriated ($15 billion per year for 2018-2019, $10 billion per year for 2020-2026).
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 keeps the essential health benefits requirement under the ACA but it would allow insurers to charge their oldest enrollees as much as they want.
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. Under the AHCA some large employers would no longer be required to offer health insurance.
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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