Unless you have been completely out of pocket the past few days, you are aware that Republican Senators have put forth a revised health reform bill. It is substantially similar to their original offering that we outlined in our Alert on June 22. Of course the employer and individual mandates would be gone. There are some notable changes, however. We try as best we can not to editorialize too much, but some commentary is needed in this instance, we believe.
The first major revision is a proposed market stabilization fund; $70 billion a year for the years 2020 – 2026. We have said all along that step one in Congress should be to stabilize the individual policy market. You know full well that insurance carriers have evacuated this market in droves, and premium increases are quite consequential among those which remain. For example, Blue Cross is the only carrier in 96 of Georgia’s 159 counties. It has applied for a 40 percent rate increase for 2018 and advised the Georgia insurance commissioner that if not granted, it will leave the Georgia market.
The cause of this turmoil is the pre-existing conditions mandate under Obamacare. Insurance carriers are required to take all applicants on a guaranteed issue basis and charge everyone the same price. The overall risk pool has proved to be unprofitable. It was expected that the individual mandate would cause large blocks of health young adults to purchase insurance and offset the adverse claims experience inherent with guaranteed issue. That has not occurred.
Not to sound simplistic, but the fact of the matter is that claims are claims. And, there was nothing in the House bill or the original Senate bill that did anything at all to bring down the cost of individual health insurance premiums. We have long held that the only means to cure this problem would be the creation of a stop-loss fund to limit the claims exposure for certain pre-existing conditions. The State of Maine took exactly that action and is realizing success in reducing premiums. What they did was first add an 8% premium tax to all policies to underwrite the set-up of the stop-loss fund. Next, if an insurance carrier wishes a policy to be covered, it transfers 90 percent of premium to the fund; retaining 10 percent to adjudicate claims. The carrier is reimbursed for all claims on that contract from the stop-loss fund.
The new Senate provision lacks any detail but states that the $70 billion can be allocated to the states by the Secretary of HHS for the purpose of “reducing premiums.” Obviously rules must be drafted, but we are more than glad to see someone finally recognizing the need to stabilize the individual markets.
The next major change, in our professional opinion, is a bad idea. That is the addition of a section championed by Senator Cruz that allows for the marketing of stripped-down, less expensive policies. It does so by exempting these contracts from virtually all of the Obamacare market reform mandates…such as the prohibition on annual and lifetime benefit limits; first-dollar preventive care; caps on deductibles and out-of-pockets; maternity coverage; substance abuse and mental illness; etc. Of course premiums would be substantially lower.
The reason we are troubled by this provision is that it will result in young, single, healthy adults gravitating to these lower-cost, stripped-down plans; exacerbating the issue of a poor risk pool for those with normal claims; resulting in an increase in premiums for those who need full coverage. There is no math to determine if the proposed stop-loss fund would be sufficient to correct both the current instability and the increased loss ratios if this phenomenon occurs. We know – many of you will say that we need to return to the days when we could buy any plan we want versus one mandated by the government. We understand that sentiment. But to return to those days, we also must return to the days of underwriting of risks. Otherwise, we fear the market instability will worsen.
The next item of note is that the Senate revision would retain both the 0.9 percent additional Medicare payroll tax on higher-income individuals and the 3.8 percent Medicare surtax on passive investment returns for high-income persons. Both would be repealed under the House bill and original Senate bill.
Part and parcel to the debate, two items regularly misstated by opponents should be noted. First, opponents pontificate about people with pre-existing conditions being denied coverage. This is false. The Senate bill makes no changes PPACA §1201 prohibition on pre-existing conditions. Secondly, opponents decry the millions who will be removed from the Medicaid roles. While both bills slow down the growth of Medicaid, each grandfathers anyone currently covered under Medicaid.
The Outlook: Your guess is as good as ours. As of this writing, it does not appear there are quite enough Republican votes for passage. It may boil down to the vice president casting a tie-breaking vote. Should the revised Senate bill not be passed, hopefully Democrats and Republicans can actually sit down together and solve the issue of the deteriorated individual marketplace. We repeat our concern that this is the most important issue to deal with right now.
Not everyone is an expert on health care reform. But the folks at J. Smith Lanier, one of our endorsed services providers, are. For this reason they created a publication called the Health Care Reform Alert. J. Smith Lanier has been providing these to its clients since 2010 when the bill was passed and now offers it to the members of ABA. It is J. Smith Lanier’s intention in the alerts to take the many pages generated by the Centers for Medicare and Medicaid Services, U.S. Department of Labor or Treasury and filter them down into terms that all can understand. For more information on how J. Smith Lanier can help your bank, contact Tom Younger at (256) 890-9027.
