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This page last updated on December 2, 2017.

In the earliest hours of Saturday morning, on a party-line vote, the Senate passed a tax bill that is likely to significantly impact the US healthcare system. The Senate tax bill includes, among many other things, a repeal of the Affordable Care Act (ACA) “individual mandate.” The ACA’s individual mandate plays a key role in stabilizing the individual insurance market by incentivizing healthy people to get coverage. Eliminating the mandate would prompt some healthy people to drop their insurance. Their exit from the insurance market would make the overall risk pool sicker and more expensive, leading to ever-higher premiums for those who remain in the market (including people with pre-existing conditions like hemophilia, who can’t afford to go without insurance), and the exit of still more healthy people: a vicious cycle. The tax bill’s repeal of the individual mandate essentially accomplishes what Congress tried to do earlier this year, when the Senate debated – but was unable to pass – its so-called “skinny repeal” bill.

 

What happens next? The Senate tax bill is different in many respects from the tax bill that passed the House in November, so Congress needs to take further action before the legislation goes into effect. One possibility is that the House will send the two different bills to a Conference Committee, where selected members of the House and Senate have to hammer out a compromise (“conference report”). The conference report would then be put to a final vote in both the House and the Senate, and if approved would go to President Trump for his signature.

 

A second possibility (more likely, according to some observers) is that the House will simply vote to approve the Senate bill “as is.” If the House takes this route, the individual mandate repeal would become law, but the House bill provision repealing the medical expense deduction (see our update of November 15, 2017, below) would not be enacted and, instead the medical expense deduction would become a little more generous. Also, by accepting the Senate bill, the House would be okaying a reduction but not an elimination of the Orphan Drug Tax Credit, a provision that supports the development of treatments for rare disorders.

 

There is still time to make your voice heard! Use our Take Action system to tell your Congressman and Senators how the tax bill’s health provisions would affect you.

 

We will continue to keep you updated . . .


Senate Tax Bill

The Senate Finance Committee unveiled a new version of its tax reform bill late Tuesday, November 14, 2017.

Why are we updating you about a tax bill? Unfortunately, the revised bill now includes a provision repealing the Affordable Care Act’s (ACA) individual mandate – reopening the health care battles from earlier this year.

Senate leadership included this provision because repeal of the ACA’s individual mandate is projected to save over $300 billion in federal spending over ten years; those savings are used to help offset the cost of the bill’s tax cuts. But repeal of the individual mandate would also increase the number of uninsured Americans, increase premiums for individual insurance coverage, and increase instability in the individual insurance market.

Here’s how that works. The individual mandate plays a key role in keeping the individual insurance market stable and coverage affordable. The mandate incentivizes healthy people to buy insurance, which improves the risk pool. Eliminating the mandate, on the other hand, creates a vicious cycle. Fewer healthy people would buy insurance, leaving the risk pool sicker and more expensive; insurers would raise premiums to cover the costs of the sicker risk pool; the higher premiums would drive still more healthy people from the market; and prices would increase even further as a result. This dynamic, the Congressional Budget Office (CBO) estimates, would produce a 10% hike in premiums for individual insurance plans and would result in coverage losses for 13 million people. (The projected $300+ billion savings would come from these coverage losses: the federal government would no longer have to pay premium subsidies to any of the 13 million people who drop coverage.)

You may recall that the question of mandate repeal came up earlier this year, during this summer’s debates over ACA repeal. At that time, the Senate’s “skinny repeal” proposal drew opposition from governors of both parties, health insurers, physicians, patient advocates, and health policy experts – and ultimately failed. Already, healthcare providers (doctors, hospitals) and insurers have gone on record opposing the individual mandate repeal in the context of the revised tax bill.

The pending tax legislation also contains a number of other provisions that could impact our community.

The House tax bill (but not the Senate version) proposes to eliminate the personal income tax deduction for medical expenses. This would disproportionately affect lower income people with expensive medical conditions (under existing law, individuals cannot deduct medical expenses unless those amount to 10% or more of their income).

Of further concern, the tax cuts proposed by both bills are so large that the reductions would, according to the CBO, trigger immediate cuts of $25 billion to Medicare.

We will continue to monitor and report on the fast-changing developments on the health-related aspects of the tax bill.


The Administration’s CSR decision: what does it mean for me?

Late last week, the Trump Administration announced that it has decided to stop paying cost sharing reductions (CSRs) owed to insurance companies under the ACA.

What are CSRs and why are they important? Under the ACA, some lower-income people who buy Silver-level plans on the Exchange are entitled to assistance with their out-of-pocket health spending (deductibles, co-pays, and co-insurance). Insurers have to give these discounts to eligible customers. The federal government is then supposed to reimburse the insurers for the amount of these discounts. Politico estimates that the value of the CSRs for 2017 will total $7 billion.

How is the Administration in position to cut off these payments? In 2014, Congressional Republicans sued the Obama Administration. The lawsuit claimed that the government didn’t have the authority to reimburse insurers for the CSR discounts because Congress had not specifically appropriated the money for those payments. A federal district court agreed with this claim, but stayed enforcement of its decision so the Administration could appeal. Following the election and the change of Administrations, the court extended the stay (and the Trump Administration continued making the payments, on a month-to-month basis) while the new Administration weighed how to proceed. Last week, the Administration announced that it now considers the CSR payments to be illegal “bailouts” to the insurance industry. In fact, the payments are not “bailouts” but “rather a statutory obligation of the federal government to pay insurers for services they have provided as required by law.”

What are the consequences of the Administration’s decision on CSRs? No one yet knows all the ramifications, but here are some key points:

  • If you have an Exchange plan for 2017 and currently receive assistance with your deductibles and copays, that assistance will continue. Insurers are required by federal law to continue giving these discounts.
  • Open Enrollment for 2018 ACA Exchange plan coverage will proceed as scheduled (in most states, from November 1 to December 15, 2017).
  • The Administration’s decision about CSRs will have complicated effects on the cost of coverage, so please consider your options carefully during the Open Enrollment period!
    • In most states, premiums for Exchange plans will rise sharply as insurers fold the cost of the unpaid CSRs into their prices, BUT
      • If you get a subsidy to help purchase insurance on the Exchange (“advance premium tax credits,” or APTC), the amount of your subsidy will also increase, protecting you from the rise in premiums.
      • If you are entitled to CSR assistance with your out-of-pocket spending, and you purchase a qualifying Silver plan, you will continue to receive that CSR assistance in 2018.
      • If you qualify for APTC subsidies but not for CSR assistance, you should broaden your comparison shopping during Open Enrollment: for example, in some states, Gold plans may be a cheaper option than Silver plans for 2018.
      • If you don’t qualify for APTC subsidies to help pay for your premiums, you should investigate your options on the off-Exchange market (in most states, the costs of the unfunded CSRs are loaded onto Exchange plans only).
  • Luckily, we seem to have avoided the worst-case scenario of insurers deciding to abandon the Exchanges altogether. (Insurers in more than half the states have “escape clauses” in their contracts with the exchanges; these clauses allow them to exit the marketplace in the event the government stops paying the CSRs. In most states, insurance regulators are working to make sure that this does not happen.)

Will Congress take action? Early reports suggest that Senators may be reaching a bipartisan deal to fix this problem by appropriating money for the CSRs. A final version of the legislation has not been released yet, but an outline was presented to GOP senators. The outline included: procedural changes to the way states apply for 1332 waivers, allow consumers over age 30 to buy catastrophic health insurance plans, and provide $106 million for outreach and enrollment efforts for the Marketplace. This plan does not change the comprehensiveness of insurance plans and the essential health benefits are kept in place. The Administration has signaled that the President would be open to signing such legislation, but without a final version or a set date for a vote on the Senate floor, nothing is certain.. We will continue to update you as we learn more about possible legislative responses to the CSR decision. Please stay tuned!

 

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