Looking further into the AHCA: What stays; market reforms; premium credits and tax changes

As the Northeast is being hit with Stella, I thought it a good time to outline, in greater detail, the American Health Care Act, which is set to replace the Affordable Care Act (ACA).

Let's start with the things that are not being impacted by the bill:

1. Out of Pocket Maximums - the maximum you pay in copays; deductibles and coinsurance before your coverage bumps to 100% and you pay no more out of pocket (2017 Maximums: $7,150 for single/$14,300 for family) on plans that offer Essential Health Benefits (EHB)
2. Prohibition on lifetime maximums on plans that offer Essential Health Benefits (EHB)
3. Requirements to cover pre-existing conditions
4. Coverage for adult children up to age 26
5. Guaranteed availability and renewability of coverage

Repealing the Employer and Individual Mandates
The ACA currently requires an employer with more than 50 full-time eligible employees to pay or play (the employer mandate) and an individual mandate.  The mandates would still exist under the AHCA; the bill would just reduce the penalties to zero - retroactively back to January 1, 2017.  

The AHCA would impose a new surcharge in the market, effective for open enrollment for 2019 for individuals, called the "Continuous Coverage Incentive." In an attempt to limit adverse selection, this "incentive" would allow insurance carriers to add a 30 percent late-enrollment surcharge to the premiums of anyone who allowed their coverage to lapse for more than 63 days, in the past 12 months.  So, instead of barring someone who develops an illness during the year, who decided not to enroll during open enrollment, it would allow them into the pool, if they paid 30% more on their premium for that given policy year.  The surcharge would drop at their annual open enrollment.

This change could hurt the risk pool, by allowing individuals to leave the risk pool and only join when they have an illness and cause the cost of care to skyrocket faster than premium receipts, thereby causing premiums to soar the following year.  It could also cause insurance carriers to totally exit the individual market and consumers could end up with no choices in certain counties across the country.

Tax Credits instead of Subsidies
Currently, anyone who shops in the individual state exchange could be eligible for premium tax credits and cost-sharing reductions, based on their income. The AHCA would repeal these subsidies in 2020.

They would be replaced with transferable, monthly tax credits to all individuals who purchase insurance in the individual market and unsubsidized COBRA coverage. 

This new tax credit would be refundable or could be used in advance.  The credits would have an additional qualifier, outside of income, they would also be based on age.

In a nutshell, the credits would work as follows:

Income: if you file taxes as a single, the maximum income is $75,000 and jointly it is $150,000 - after these thresholds, the credits phase out.

Tax Credit Thresholds (per year) and capped at $14,000 per family:

• Under age 30: $2,000
• Between 30 and 39: $2,500
• Between 40 and 49: $3,000
• Between 50 and 59: $3,500
• Over age 60: $4,000

The AHCA would also repeal the ACA's small business tax credit program that is in place for smaller businesses to incent them to offer coverage, as the Employer Mandate was for large group employers only.

Premium Ratios to adversely affect older Americans
The bill also changes the ratio of premiums for older Americans.  Currently, rates, are either a 1:1 ratio (rates are the same regardless of age) or they have a ratio rating model.  That ratio rating maximum is capped at a 3:1 ratio, so, for example, Plan A costs - $300 for a 22-year-old, then that same plan cannot cost more than $900 for a 63-year-old.  Under the new bill, this ratio would rise to 5:1 so the premium would be $1,500 for that same 63-year-old.

Taxation (this is a long one folks)

Some of the good stuff - 

Cadillac Tax: the ACA had built in an excise tax of 40% on high-cost employer sponsored health coverage effective in 2025 (note, this was already pushed off from an original implementation of 2018 to 2020).  Data showed that 26% of all employers would have been affected by this tax and in 2015, there was a bipartisan support to repeal this.  It was never repealed and is still being kicked down the road, with hardly any support from either side of the isle.

Over the Counter Medications (OTC medications): the ACA limited tax-advantaged products, such as Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) from paying for medications that were not filled with a prescription.  This ban on OTC medications would be repealed as of 2018.

Spending Limits on FSAs: The ACA capped the amount of money an employee could put aside on a tax-free basis at $2,500.  The AHCA would repeal this as of 1/1/2018.

Health Savings Accounts Enhancements: Increase the maximum HSA contribution limit to the maximum out of pocket maximums; allow the account to cover charges that occur 60 days before the account being opened.

Some of the 'huh why would you do this' stuff - 

Additional Medicare Tax: The ACA, to increasing funding for Medicare, implemented an additional .9 percent tax in 2013, on individuals who's wages were more than $200,000 a year.  (this is adjusted based on filing jointly or married).  The AHCA would repeal this tax as of 2018. Let's just look at this for a moment.  

If I made $250,000 a year, I would be paying an additional $2,250 a year in Medicare tax.  If I were in this situation, I would be happy to pay an additional $187.50 a month to fund Medicare, which is currently insuring my mother.   The IRS website shows that in 2014, approximately 6.4% of filed returns were over $200,000 a year.

Some of the 'What the heck' stuff - 

Other tax repeals or changes: in 2018, the AHCA would repeal the tanning bed tax (10%); the medical device tax (2.3%); the tax on certain brand pharmaceutical manufacturers and it would LIFT the limit on the business deduction for insurance company salaries. Currently, that business deduction is capped at $500,000 in salary, and it would be removed.

As you can see, I have only touched on the market reform and taxation portions of the bill.  There is a huge piece of the bill, and that is the 'Modernizing Medicaid.'  It is essentially rolling back the Medicaid expansion provided through the ACA, and offered in 32 states, and replacing it with block grant funding. There is a good blog that outlines the details of this Keeping an Eye on Affordable Healthcare.  

As you can see, there are a huge amount of moving pieces and many stakeholders demanding their voices be heard.  The most important voice, I feel in this chorus, is you, the consumer.  We need to understand what the ACA offered and balanced that with a thoughtful program that will not throw millions off of their healthcare coverage, make care more affordable and balance that with the costs to deliver care.  And it starts with facts and education. 

Now, back to that blizzard - has anyone seen my car?  Hell, anyone knows where my street went?