Congress Poised to Act on Insurance Reforms, with Major Repercussions for All States
As Congress barrels toward the end of the year, several bills are in play that will have major and almost immediate ramifications for health insurance markets. They include:
- Tax Cuts and Jobs Act (H.R. 1)
- The Alexander-Murray insurance market stabilization bill
- The Nelson-Collins reinsurance program bill
- Temporary elimination of the health insurance tax (H.R. 4620)
The future and content of these bills remain unclear amid competing political priorities and Washington’s attempt to pass both its tax overhaul package and a continuing resolution to maintain government operations by the end of the year. However, if passed, these bills will require states to take rapid action to implement their changes, including the establishment of new programs and setting guidance in advance of 2019 insurance rate filing deadlines (typically in the spring).
Below, the National Academy for State Health Policy (NASHP) reviews the changes that may unfold if the proposed bills are passed by the end of the year.
Repeal of the Individual Mandate
As of coverage year 2019, the Tax Cuts and Jobs Act will effectively repeal the individual mandate by reducing to zero the penalty incurred by individuals who do not enroll in a qualifying health insurance plan. The Congressional Budget Office (CBO) has estimated that repeal of the individual mandate would lead to 4 million fewer insured individuals in 2019 with 13 million fewer by 2027.
Effect on individual and Medicaid markets
The anticipated coverage losses will impact states in two significant ways; while the majority of losses will come from the individual market, states can also anticipate a drop in the number of Medicaid enrollees, primarily caused by a reversal of the mandate’s “woodwork effect” that brought eligible, but not enrolled, individuals into the program. Having fewer insured individuals will affect the ability of insurers to attract a healthy risk mix and, in turn, maintain stable markets. In some cases, this is likely to cause insurers to exit markets or, at minimum, to raise rates to compensate for losses. CBO estimates individual market premiums will increase by about 10 percent. While premium tax credits will shield qualifying consumers from some of these increases (including individuals earning between 100 to 400 percent of the federal poverty level), middle-income families are likely to be most adversely affected and will lack any other source of financial relief from escalating premiums.
In anticipation of these changes, some states are considering adopting their own individual mandates. The District of Columbia Health Benefit Exchange Authority Executive Board adopted a resolution to implement an individual responsibility requirement (mandate) beginning in 2019. Massachusetts would maintain the individual mandate it enacted in 2006.
Funding for the Cost-Sharing Reduction (CSR) Program
Several Republican leaders have expressed willingness to fund the CSR program as a means to address concerns of their colleagues — most notably Sen. Susan Collins (R-ME), a critical swing vote for the tax bill — who are concerned about the instability that may be triggered in some insurance markets due to repeal of the individual mandate. Congress is most likely to adopt the CSR payment model proposed under the Alexander-Murray insurance market stabilization bill which appropriates CSR payments for 2017 , 2018, and 2019. CBO estimates the CSR program would represent $10 billion in payments to issuers in 2018. However, this may be an overestimation given the measures that states and issuers have already taken to accommodate the cessation of the payments, which raises questions about the potential positive effects in 2018 if CSRs are funded.
States must take CSR action within 60 days
After the Administration announced it would stop issuing CSR payments, states and insurers took swift action to develop strategies to protect their markets and consumers from potential disruptions and premium increases. In all states except North Dakota, this resulted in the raising of premium rates to account for loss of CSR.
Alexander-Murray requires states to develop a strategy for how they would account for CSR availability in 2018 by either:
1) Allowing insurers to reject the payments, or
2) Developing a strategy defining how insurers would reimburse consumers and the federal government for excess funds received if insurers received CSR payments after they raised premiums in anticipation of losing CSR.
Under Alexander-Murray, states must develop and submit their strategies to the US Department of Health and Human Services (HHS) no later than 60 days upon enactment of the bill.
Funding for a Two-Year Reinsurance Program
In addition to CSR funding, funding for state reinsurance programs has been universally endorsed as a critical tool to stabilize insurance markets by state leaders, industry experts, and insurance analysts. These programs have track records of protecting insurers from losses when they incur higher-than-expected risk without passing those costs directly back to consumers.
A bill, proposed by Sens. Collins and Nelson would provide $4.5 billion in funding for states to establish an invisible high-risk pool or reinsurance program, although recent reports from Collins have indicated this figure would be increased to $10 billion ($5 billion per year in 2018 and 2019) before final passage.
Establishing a state-based reinsurance program
The Collins-Nelson bill provides few parameters, and therefore gives states greater flexibility to design and implement their insurance programs, if they choose to do so at all. Interested states would need to quickly conduct analyses, pass enabling legislation, if needed, and set up any infrastructure necessary to administer the program especially if they hope to take advantage of funding available in 2018. The bill gives HHS up to 90 days to review state applications, which will affect how quickly states are able to implement the programs. Also unclear is how funds would be distributed to states, calling into question how much money would be available per state.
Flexibility of Section 1332 Waivers
Also included in the Alexander Murray bill are several changes to the Affordable Care Act’s (ACA) Section 1332 waiver program that would be implemented if the bill is passed in its entirety. These include:
- Establishment of a “comparable affordability” standard for coverage;
- Enabling expedited processes for waiver approval;
- Extending waiver authority for six years;
- Enabling states to apply for waivers without state legislation;
- Redefining budget neutrality requirements to apply over the term of the waiver; and
- Allowing for consideration of direct budgetary impacts of the waiver on other federal programs (e.g., Medicaid).
These changes may open new flexibility to states interested in pursuing a 1332 waiver. For example, longer waiver terms and changes to budget calculations could enable states to develop waivers that focus on longer-term goals across their coverage programs, rather than budgeting on a year-by-year basis. Administrative changes, such as the removal of a state legislative requirement and development of an expedited approval process, may give states greater ability to develop “last-minute” waivers that respond to an emerging market need (e.g., an unexpected spike in insurance rates or bare counties). Changing the current “at least as affordable as” standard to a somewhat more accommodating “comparable affordability” standard could allow for greater latitude over how cost-sharing and benefit design could be modified from what is currently defined in the ACA.
Temporary Health Insurance Tax Repeal
H.R. 4620 provides a temporary delay of the health insurance tax, a fixed tax charged across all health insurers proportional to their market share. The tax was designed as a trade-off to generate greater government revenue from insurers, assuming insurers would see greater profits from coverage expansions spurred under the ACA. While issuers have increasingly reported higher profit margins since implementation of the ACA, some initial profit shortfalls and ongoing market instability have called into question the productivity of the tax, with some in the industry suggesting that the cost of the tax has been passed on to consumers in the form of higher premiums. An Oliver Wyman analysis estimated the tax would increase premiums in 2018 by 2.6 percent, on average, and between 2.5 to 2.7 percent in subsequent years.
Role for state oversight and rate review
H.R. 4620 would suspend the tax in 2019 and could allow for insurers to receive rebates for costs incurred by the tax in 2018. Because premiums have already been established for the 2018 coverage year, the bill introduces a mechanism for “relief” by which insurers who receive tax credit reimbursements must provide rebates to enrollees, no later than April 30, 2019, to account for any excess in premiums charged because of the tax. The bill allows insurers to structure their own rebate program, which would be validated by the Secretary of the Treasury. State insurance departments may wish to monitor closely the decisions made by their issuers and subsequent effect on premiums, as they enter negotiation of rates for 2019. Moreover, the bill is vague as to oversight of the rebate program, and states may consider establishing their own mechanisms to monitor consumer rebates and ensure protections in light of the program.