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Large self-insured employers lack power in hospital price negotiations

Dive Brief:

  • As some employers look to contract directly with hospitals in an effort to lower healthcare costs, researchers found that large self-insured employers likely do not have enough market power to extract lower prices, according to a study published in The American Journal of Managed Care.
  • The study examined the relationship between employer market power and hospital prices every year between 2010 and 2016 in the nation’s 10 most concentrated labor markets.
  • The study found that hospital market power far outweighs employer market power, suggesting employers will not be successful in lowering prices alone, but may want to consider forging purchase alliances with local government employee groups, the research paper said.

Dive Insight:

In recent years, some larger employers have cut out the middlemen to strike deals directly with hospitals.

For example, General Motors entered into an arrangement with Detroit’s Henry Ford Health System in 2018, joining other major employers such as Walmart, Walt Disney and Boeing.

Perhaps most notably, J.P. Morgan, Amazon and Berkshire Hathaway joined forces to bend the cost of care in the U.S. Despite all the fanfare, the venture, named Haven, later fell apart, illustrating how difficult it is to change the nation’s healthcare system.

By circumventing traditional health insurers, companies are hoping they themselves can negotiate better deals.

But this latest study throws cold water on that strategy, at least in part. “Our study suggests that almost all employers, operating alone, simply do not have the market power to impose a threat of effective negotiation,” the paper found.

One of the paper’s main aims is to measure market power of hospitals and employers, and the results are striking. The average hospital market power far exceeds that of the employer in the 10 metropolitan areas researchers examined.

The average hospital market power was more than 80 times greater than that of the employer, putting into context just how askew the power dynamics are.

These employers are not wrong for wanting to strike out on their own, the researchers point out.

Many self-insured employers bear the insurance risk while entering into administrative services only arrangements with insurers which provide just that, administrative type services.

But insurers in these arrangements may not have any incentive to lower prices. The paper pointed to another working research paper that found ASO plans pay more for the same service, at the same hospital compared to those in fully insured arrangements.

“The empirical evidence suggests that insurers, because they lack the incentive, may not be negotiating lower prices for their ASO enrollees,” according to the study.

Even though employers may not have enough market power on their own, researchers offered up a solution: team up with state or local government employee groups to increase market power to obtain lower hospital prices.

Expanding health coverage is good. But we also need to fix stingy plans.

https://www.washingtonpost.com/outlook/expanding-health-coverage-is-good-but-we-also-need-to-fix-stingy-plans/2021/03/05/5f92b206-7c7d-11eb-a976-c028a4215c78_story.html?

Underinsurance remains a significant barrier to health care, new survey  finds

President Biden promised on the campaign trail to expand the Affordable Care Act to cover more of the roughly 29 million nonelderly Americans (about 11 percent of that population) who remain uninsured. He also said he’d strengthen the law by, for instance, providing an accessible and affordable public option and increasing tax credits to make it easier for people who buy insurance on their own to afford monthly premiums. Once in office, Biden immediately moved to reopen the period when people could enroll in the ACA marketplaces.

Unfortunately, the administration is paying little heed to a problem that is in many ways just as insidious as lack of insurance: underinsurance. That’s when people get too little from the insurance plans that they do have.

After passage of the ACA, the number of Americans lacking any insurance fell by 20 million, dropping to 26.7 million in 2016 — a historic low as a percentage of population. The figure began to creep up again during the Trump administration, reaching 28.9 million in 2019. That’s the problem that the current administration wants to address, and it certainly needs attention.

But according to research by the Commonwealth Fund, a foundation focused on health care, 21.3 percent of Americans have insurance so skimpy that they count as underinsured: Their out-of-pocket health-care expenses, excluding premiums, amount to at least 5 to 10 percent of household income. The limits in coverage mean their plans might provide little financial protection in a health-care crisis.

High-deductible plans offered by employers are one part of the problem. Among people covered by the companies they work for, enrollment in high-deductible health plans rose  from 4 percent in 2006 to 30 percent in 2019, according to a report from the Kaiser Family Foundation. The average annual deductibles in such plans are $2,583 for an individual and $5,335 for families.

In theory, high-deductible plans, which make people spend lots of their own money before insurance kicks in, turn people into careful consumers. But research finds that people covered by such plans skip care, both unnecessary (elective cosmetic surgery, for instance) and necessary (cancer screenings and treatment, and prescriptions). Black Americans in these plans disproportionately avoid treatment, widening racial health inequities.

Health savings accounts are designed to blunt the harmful effects of high-deductible plans: Contributions by employers, and pretax contributions by individuals, help to cover costs until the deductible is reached. But not all high-deductible health plans offer such accounts, and many people in lower-wage jobs don’t have them. In the rare cases that they do, they often don’t have extra money to deposit in them.   

In a November 2020 article in the journal Health Affairs, scholars affiliated with Brown University and Boston University found that enrollment in high-deductible plans had increased across all racial, ethnic and income groups from 2007 to 2018; they also found that low-income, Black and Hispanic enrollees were significantly less likely than other groups to have a health savings account — and the disparities had grown over time.    

The short-term health-care plans — a.k.a. “junk” plans — that the Trump administration expanded also contribute to the problem of underinsurance. They often have low premiums but do not cover preexisting conditions or basic services like emergency health care.

Fortunately, proposals like Biden’s that make health care more accessible also tend to address the problem of underinsurance, at least in part. For example, to make individual-market insurance more affordable, Biden proposes expanding the tax credits established under the ACA. His plan calls for removing the cap on financial assistance, now set at 400 percent of the federal poverty level, in the insurance marketplaces and lowering the statutory limit on premiums to 8.5 percent of income (from nearly 10 percent).

The president also proposes to peg the size of the tax credits that subsidize premiums to the best plans on the marketplaces, the “gold” plans, rather than “silver” plans. This would increase the size of these credits, thereby making it easier for Americans to afford more-generous plans with lower deductibles.

The most ambitious Biden proposal is a public option, which would create a Medicare-like offering on marketplaces, available to anyone. Pairing this with allowing any American to opt out of their employer plan if they found a better deal on HealthCare.gov or their state marketplace — which they can’t now — would help some people escape high-deductible plans. The public option would also eliminate premiums and involve minimal to no cost-sharing for low-income enrollees — especially helpful for uninsured (and underinsured) people in states yet to expand Medicaid.

Given political realities, however, this policy may not see the light of day. So it would be best to target underinsurance directly. Most people with high-deductible plans get them through an employer. Yet unlike in the marketplace plans, the degree of cost sharing in these employer plans is the same for low-income as well as high-income employees. To deal with that problem, the government could offer incentives for employers to expand the scope of health services they cover — even in high-deductible plans. Already, many such plans exempt from the deductible some primary-care visits and generic-drug prescriptions. The list could grow to include follow-up visits and certain specialist care.

Instead of encouraging health savings accounts, the government could offer greater pretax incentives that encourage employers to absorb some of the costs that they have shifted onto their lower-income employees; that would help to prevent the insurance equity gap from widening further. The government could compensate employers that cover co-pays or other costs for their low-income employees. It could also subsidize employers that move away from high-deductible plans, at least for lower-income people. 

Health insurance is complicated: ­More-affordable premiums are good only if they don’t bring stingy coverage. Greater investment in well-trained (and racially diverse) “navigators” — the people who help Americans enroll in plans on the federal marketplace, for example — would make it less likely that consumers would choose high-deductible plans without grasping their downsides. But it’s also important that people have options beyond risky high-deductible coverage.

The ACA expanded coverage dramatically — but the government needs to make sure that coverage amounts to more than an unused insurance card.

Perils of High Deductible Health Insurance

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The High Price of Lowering Health Costs for 150 Million Americans

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https://one.npr.org/?sharedMediaId=968920752:968920754

The Problem

Employers — including companies, state governments and universities — purchase health care on behalf of roughly 150 million Americans. The cost of that care has continued to climb for both businesses and their workers.

For many years, employers saw wasteful care as the primary driver of their rising costs. They made benefits changes like adding wellness programs and raising deductibles to reduce unnecessary care, but costs continued to rise. Now, driven by a combination of new research and changing market forces — especially hospital consolidation — more employers see prices as their primary problem.

The Evidence

The prices employers pay hospitals have risen rapidly over the last decade. Those hospitals provide inpatient care and increasingly, as a result of consolidation, outpatient care too. Together, inpatient and outpatient care account for roughly two-thirds of employers’ total spending per employee.

By amassing and analyzing employers’ claims data in innovative ways, academics and researchers at organizations like the Health Care Cost Institute (HCCI) and RAND have helped illuminate for employers two key truths about the hospital-based health care they purchase:

1) PRICES VARY WIDELY FOR THE SAME SERVICES

Data show that providers charge private payers very different prices for the exact same services — even within the same geographic area.

For example, HCCI found the price of a C-section delivery in the San Francisco Bay Area varies between hospitals by as much as:$24,107

Research also shows that facilities with higher prices do not necessarily provide higher quality care. 

2) HOSPITALS CHARGE PRIVATE PAYERS MORE

Data show that hospitals charge employers and private insurers, on average, roughly twice what they charge Medicare for the exact same services. A recent RAND study analyzed more than 3,000 hospitals’ prices and found the most expensive facility in the country charged employers:4.1xMedicare

Hospitals claim this price difference is necessary because public payers like Medicare do not pay enough. However, there is a wide gap between the amount hospitals lose on Medicare (around -9% for inpatient care) and the amount more they charge employers compared to Medicare (200% or more).

Employer Efforts

A small but growing group of companies, public employers (like state governments and universities) and unions is using new data and tactics to tackle these high prices. (Learn more about who’s leading this work, how and why by listening to our full podcast episode in the player above.)

Note that the employers leading this charge tend to be large and self-funded, meaning they shoulder the risk for the insurance they provide employees, giving them extra flexibility and motivation to purchase health care differently. The approaches they are taking include:


Steering Employees

Some employers are implementing so-called tiered networks, where employees pay more if they want to continue seeing certain, more expensive providers. Others are trying to strongly steer employees to particular hospitals, sometimes know as centers of excellence, where employers have made special deals for particular services.

Purdue University, for example, covers travel and lodging and offers a $500 stipend to employees that get hip or knee replacements done at one Indiana hospital.

Negotiating New Deals

There is a movement among some employers to renegotiate hospital deals using Medicare rates as the baseline — since they are transparent and account for hospitals’ unique attributes like location and patient mix — as opposed to negotiating down from charges set by hospitals, which are seen by many as opaque and arbitrary. Other employers are pressuring their insurance carriers to renegotiate the contracts they have with hospitals.

In 2016, the Montana state employee health planled by Marilyn Bartlett, got all of the state’s hospitals to agree to a payment rate based on a multiple of Medicare. They saved more than $30 million in just three years. Bartlett is now advising other states trying to follow her playbook.

In 2020, several large Indiana employers urged insurance carrier Anthem to renegotiate their contract with Parkview Health, a hospital system RAND researchers identified as one of the most expensive in the country. After months of tense back-and-forth, the pair reached a five-year deal expected to save Anthem customers $700 million.

Legislating, Regulating, Litigating

Some employer coalitions are advocating for more intervention by policymakers to cap health care prices or at least make them more transparent. States like Colorado and Indiana have passed price transparency legislation, and new federal rules now require more hospital price transparency on a national level. Advocates expect strong industry opposition to stiffer measures, like price caps, which recently failed in the Montana legislature. 

Other advocates are calling for more scrutiny by state and federal officials of hospital mergers and other anticompetitive practices. Some employers and unions have even resorted to suing hospitals like Sutter Health in California.

Employer Challenges

Employers face a few key barriers to purchasing health care in different and more efficient ways:

Provider Power

Hospitals tend to have much more market power than individual employers, and that power has grown in recent years, enabling them to raise prices. Even very large employers have geographically dispersed workforces, making it hard to exert much leverage over any given hospital. Some employers have tried forming purchasing coalitions to pool their buying power, but they face tricky organizational dynamics and laws that prohibit collusion.

Sophistication

Employers can attempt to lower prices by renegotiating contracts with hospitals or tailoring provider networks, but the work is complicated and rife with tradeoffs. Few employers are sophisticated enough, for example, to assess a provider’s quality or to structure hospital payments in new ways. Employers looking for insurers to help them have limited options, as that industry has also become highly consolidated.

Employee Blowback

Employers say they primarily provide benefits to recruit and retain happy and healthy employees. Many are reluctant to risk upsetting employees by cutting out expensive providers or redesigning benefits in other ways.recent KFF survey found just 4% of employers had dropped a hospital in order to cut costs.

The Tradeoffs

Employers play a unique role in the United States health care system, and in the lives of the 150 million Americans who get insurance through work. For years, critics have questioned the wisdom of an employer-based health care system, and massive job losses created by the pandemic have reinforced those doubts for many.

Assuming employers do continue to purchase insurance on behalf of millions of Americans, though, focusing on lowering the prices they pay is one promising path to lowering total costs. However, as noted above, hospitals have expressed concern over the financial pressures they may face under these new deals. Complex benefit design strategies, like narrow or tiered networks, also run the risk of harming employees, who may make suboptimal choices or experience cost surprises. Finally, these strategies do not necessarily address other drivers of high costs including drug prices and wasteful care. 

The Rising Crisis of Underinsurance: How the Biden Administration May Shape Inequities in Patient Affordability

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The Affordable Care Act (ACA) made historic strides in expanding access to health insurance coverage by covering an additional 20 million Americans. President Joe Biden ran on a platform of building upon the ACA and filling in its gaps. With Democratic majority in the Senate, aspects of his health care plan could move from idea into reality.

The administration’s main focus is on uninsurance, which President Biden proposes to tackle in three main ways: providing an accessible and affordable public option, increasing tax credits to help lower monthly premiums, and indexing marketplace tax credits to gold rather than silver plans.

However, underinsurance remains a problem. Besides the nearly 29 million remaining uninsured Americans, over 40% of working age adults are underinsured, meaning their out-of-pocket cost-sharing, excluding premiums, are 5-10% of household income or more, depending on income level.

High cost-sharing obligations—especially high deductibles—means insurance might provide little financial protection against medical costs beneath the deductible. Bills for several thousand dollars could financially devastate a family, with the insurer owing nothing at all. Recent trends in health insurance enrollment suggest that uninsurance should not be the only issue to address.

A high demand for low premiums

Enrollment in high deductible health plans (HDHP) has been on a meteoric rise over the past 15 years, from approximately 4% of people with employer-sponsored insurance in 2006 to nearly 30% in 2019, leading to growing concern about underinsurance. “Qualified” HDHPs, which come with additional tax benefits, generally have lower monthly premiums, but high minimum deductibles. As of 2020, the Internal Revenue Service defines HDHPs as plans with minimum deductibles of at least $1,400 for an individual ($2,800 for families), although average annual deductibles are $2,583 for an individual ($5,335 for families).

HDHPs are associated with delays in both unnecessary and necessary care, including cancer screenings and treatment, or skipped prescription fills. There is evidence that Black patients disproportionately experience these effects, which may further widen racial health inequities.

common prescription has been to expand access to Health Savings Accounts (HSAs), with employer and individual contributions offsetting higher upfront cost-sharing. Employers often contribute on behalf of their employees to HSAs, but for individuals in lower wage jobs without such benefits or without extra income to contribute themselves, the account itself may sit empty, rendering it useless.

recent article in Health Affairs found that HDHP enrollment increased from 2007 to 2018 across all racial, ethnic, and income groups, but also revealed that low-income, Black, and Hispanic enrollees were significantly less likely to have an HSA, with disparities growing over time. For instance, by 2018, they found that among HDHP enrollees under 200% of the federal poverty level (FPL), only 21% had an HSA, while 52% of those over 400% FPL had an HSA. In short, the people who could most likely benefit from an HSA were also least likely to have one.

If trends in HDHP enrollment and HSA access continue, it could result in even more Americans who are covered on paper, yet potentially unable to afford care.

Addressing uninsurance could also begin to address underinsurance

President Biden’s health care proposal primarily addresses uninsurance by making it more affordable and accessible. This can also tangentially tackle underinsurance.

To make individual market insurance more affordable, Biden proposes expanding the tax credits established under the ACA. His plan calls for removing the 400% FPL cap on financial assistance in the marketplaces and lowering the limit on health insurance premiums to 8.5% of income. Americans would now be able to opt out of their employer plan if there is a better deal on HealthCare.gov or their state Marketplace. Previously, most individuals who had an offer of employer coverage were ineligible for premium subsidies—important for individuals whose only option might have been an employer-sponsored HDHP.

Biden also proposes to index the tax credits that subsidize premiums to gold plans, rather than silver plans as currently done. This would increase the size of these tax credits, making it easier for Americans to afford more generous plans with lower deductibles and out-of-pocket costs, substantially reducing underinsurance.

The most ambitious of Biden’s proposed health policies is a public option, which would create a Medicare-esque offering on marketplaces, available to anyone. As conceived in Biden’s proposal, such a plan would eliminate premiums and having minimal-to-no cost-sharing for low-income enrollees; especially meaningful for under- and uninsured people in states yet to expand Medicaid.

Moving forward: A need to directly address underinsurance

More extensive efforts are necessary to meaningfully address underinsurance and related inequities. For instance, the majority of persons with HDHPs receive coverage through an employer, where the employer shares in paying premiums, yet cost-sharing does not adjust with income as it can in the marketplace. Possible solutions range from employer incentives to expanding the scope of deductible-exempt services, which could also address some of the underlying disparities that affect access to and use of health care.

The burden of high cost-sharing often falls on those who cannot afford it, while benefiting employers, healthy employees, or those who can afford large deductibles. Instead of encouraging HSAs, offering greater pre-tax incentives that encourage employers to reabsorb some of the costs that they have shifted on their lower-income employees could prevent the income inequity gap from widening further.

Under the ACA, most health insurance plans are required to cover certain preventative services without patient cost-sharing. Many health plans also exempt other types of services from the deductible – from generic drugs to certain types of specialist visits – although these exemptions vary widely across plans. Expanding deductible-exempt services to include follow-up care or other high-value services could improve access to important services or even medication adherence without high patient cost burden. Better educating employees about what services are exempt would make sure that patients aren’t forgoing care that should be fully covered.

Health insurance is complicated. Choosing a plan is only the start. More affordable choices are helpful only if these choices are fully understood, e.g., the tradeoff between an HDHP’s lower monthly premium and the large upfront out-of-pocket cost when using care. Investing in well-trained, diverse navigators to help people understand how their options work with their budget and health care needs can make a big difference, given that low health insurance literacy is related to higher avoidance of care.

The ACA helped expand coverage, but now it’s time to make sure the coverage provided is more than an unused insurance card. The Biden administration has the opportunity and responsibility to make progress not only on reducing the uninsured rate, but also in reducing disparities in access and patient affordability.

Hospital, insurer and employer groups band together in bid to achieve universal coverage

https://www.healthcarefinancenews.com/news/hospital-insurer-and-employer-groups-band-together-bid-achieve-universal-coverage

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The groups said that Americans “deserve a stable healthcare market that provides access to high-quality care and affordable coverage for all.”

This week, a coalition of healthcare and employer groups called for achieving universal health coverage by expanding financial assistance to consumers, bolstering enrollment and outreach efforts, and taking additional steps to protect those who have lost or are at risk of losing employer-based coverage because of the economic downturn caused by the COVID-19 pandemic.

The Affordable Coverage Coalition encompasses groups representing the nation’s doctors, hospitals, employers and insurers. They include America’s Health Insurance PlansAmerican Hospital AssociationAmerican Medical AssociationAmerican Academy of Family Physicians, Blue Cross Blue Shield Association, Federation of American Hospitals and the American Benefits Council.

They have banded together to advocate for achieving universal coverage via expansion of the Affordable Care Act, which is supported by President Biden. Biden also intends to achieve universal coverage through a Medicare-like public option — a government-run health plan that would compete with private insurers.

WHAT’S THE IMPACT

Despite a lot of pre-election talk about universal healthcare coverage from elected officials and those vying for public office, achieving this has remained an elusive goal in the U.S. In a joint statement of principles, the groups said that Americans “deserve a stable healthcare market that provides access to high-quality care and affordable coverage for all.”

“Achieving universal coverage is particularly critical as we strive to contain the COVID-19 pandemic and work to address long-standing inequities in healthcare access and outcomes,” the groups wrote.

The organizations support a number of steps to make health coverage more accessible and affordable, including protecting Americans who have lost or are at risk of losing employer-provided health coverage from becoming uninsured.

They also want to make Affordable Care Act premium tax credits and cost-sharing reductions more generous, and expand eligibility for them, as well as establish an insurance affordability fund to support any unexpected high costs for caring for those with serious health conditions, or to otherwise lower premiums or cost-sharing for ACA marketplace enrollees.

Also on the group’s to-do list: Restoring federal funding for outreach and enrollment programs; automatically enrolling and renewing those eligible for Medicaid and premium-free ACA marketplace plans; and providing incentives for additional states to expand Medicaid in order to close the low-income coverage gap.

THE LARGER TREND

The concept of universal coverage is gaining traction among patients thanks in large part to the COVID-19 pandemic. In fact, A Morning Consult poll taken in the pandemic’s early days showed about 41% of Americans say they’re more likely to support universal healthcare proposals. Twenty-six percent of U.S. adults say they’re “much more likely” to support such policy initiatives, while 15% say they’re somewhat more likely.

As expected, Democrats were the most favorable to the idea, with 59% saying they were either much more likely or somewhat more likely to support a universal healthcare proposal. Just 21% of Republicans said the same. Independents were somewhere in the middle, with 34% warming up to the idea of blanket coverage.

More than 21% of Republicans said they were less likely to support universal care in the wake of the COVID-19 crisis. Seven percent of independents reported the same, while for Democrats the number was statistically insignificant.

During his campaign, President Joe Biden said he supported a public option for healthcare coverage. He also pledged to strengthen the Affordable Care Act. By executive order, Biden opened a new ACA enrollment period for those left uninsured. It begins February 15 and goes through May 15.

More evidence that cost-sharing doesn’t work

Image result for axios More evidence that cost-sharing doesn't work

A growing body of research keeps undermining a key tenet of health economics, Axios’ Sam Baker writes — the belief that requiring patients to pay more out of their own pockets will make them smarter consumers, forcing the health care system to deliver value.

Driving the news: Even a seemingly modest increase in out-of-pocket costs will cause many patients to stop taking drugs they need, according to a new working paper from Harvard economist Amitabh Chandra.

  • Raising Medicare recipients’ out-of-pocket costs by just $10 per prescription led to a 23% drop in overall drug consumption, and to a 33% increase in mortality. 
  • And seniors weren’t simply ditching “low-value” drugs. People at high risk for heart attacks or strokes cut back on statins and blood-pressure medications even more than lower-risk patients.

Between the lines: This research focuses on Medicare’s drug benefit, but higher cost-sharing is all the rage throughout the system, and there’s little evidence that it has generated “smarter shoppers.”

  • Patients with high-deductible plans — increasingly common in the employer market — don’t shop around for the best deal, which is all but impossible to do in many cases even if you wanted to try.

Go deeper: The “skin in the game” theory of health care hasn’t panned out

Lawsuit Challenges GA’s 1332 Waiver, ACA in the Biden Pandemic Plan

Lawsuit Challenges GA's 1332 Waiver, ACA in the Biden Pandemic Plan |  Health Affairs

On January 14, 2021, Planned Parenthood Southeast and the Feminist Women’s Health Center filed a lawsuit challenging the Trump administration’s approval of Georgia’s waiver under Section 1332 of the Affordable Care Act (ACA). The lawsuit was filed in federal district court in DC. This post summarizes that legal challenge as well as parts of President Biden’s recent proposed pandemic relief package that relate to the ACA and coverage. The $1.9 trillion American Rescue Plan includes several coverage-related proposals and would follow the pandemic relief passed by Congress in December 2020.

Advocates Challenge The Approval of Georgia’s 1332 Waiver

Regular readers know that the Trump administration—through the Centers for Medicare and Medicaid Services (CMS) and the Treasury Department—approved a broad waiver request from Georgia under Section 1332 of the ACA. The approved waiver authorizes the state to establish a reinsurance program for plan year 2022 and eliminate the use of HealthCare.gov beginning with plan year 2023. CMS and Treasury approved the waiver application on November 1, 2020. The history of Georgia’s waiver application and approval is summarized in prior posts as well as in the complaint filed in the lawsuit.

The reinsurance portion of the waiver is straightforward; of the 16 states with an approved Section 1332 waiver, all but one state has established a state-based reinsurance program. But the second part of the waiver application, known as the Georgia Access Model, is far more controversial. This is the broadest waiver yet to be approved under Section 1332 and relies on interpretations of Section 1332 made in much-criticized Trump-era guidance from 2018.

Critics have long argued that Georgia’s proposal fails to satisfy Section 1332’s procedural and substantive guardrails, meaning it could not be lawfully approved by the Trump administration. Given this controversy, legal challenges to the waiver approval were expected.

The Lawsuit

Planned Parenthood Southeast and the Feminist Women’s Health Center—represented by Democracy Forward—filed a lawsuit in federal district court in DC on January 14, 2021. The lawsuit alleges that the Trump administration’s 2018 guidance and approval of Georgia’s waiver are unlawful because these actions violate Section 1332 of the ACA and the Administrative Procedure Act (APA). The lawsuit also cites many of the Trump administration’s ongoing efforts to undermine the ACA as evidence that the 2018 guidance and waiver approval are part of a pattern of ACA sabotage.

In particular, the plaintiffs argue that the 2018 guidance and waiver approval are contrary to Section 1332, exceed the scope of the agencies’ authority (by allowing states to waive non-waivable provisions of the ACA), and are arbitrary and capricious. They also argue that the waiver approval failed to satisfy procedural requirements under the ACA and APA because Georgia and the Trump administration rushed through the process without adequate time for public comment and without adequate clarification of how the state intends to approach key issues.” Here, the lawsuit points to the fact that Georgia went through four iterations of its waiver application, that its application was incomplete, and that only eight comments (less than one half of one percent) of the 1,826 total comments submitted during the most recent federal public comment period were in support of the Georgia Access Model.

As such, the plaintiffs ask the court to vacate both the approved waiver and the 2018 guidance and declare that they are unlawful. They also ask that the federal government be enjoined from taking further action on Georgia’s waiver or considering other waivers under the 2018 guidance. The plaintiffs acknowledge that the reinsurance portion of the waiver is uncontroversial and that the focus of the lawsuit is on the Georgia Access Model; however, the plaintiffs challenge approval of the waiver as a whole and ask the court to set aside the waiver in whole or in part. The plaintiffs have not sued Georgia, although it is possible that Georgia may ask to intervene in the litigation to defend its interests.

Much of the lawsuit turns on how the Trump administration interpreted the statutory guardrails under Section 1332 and long-standing concerns about direct enrollment and enhanced direct enrollment. Federal officials can grant a Section 1332 waiver only if a state demonstrates that their proposal meets certain statutory “guardrails.” These guardrails ensure that a waiver proposal will 1) provide coverage that is at least as comprehensive as ACA coverage ( “comprehensiveness” guardrail); 2) provide coverage and cost-sharing protections that are at least as affordable as ACA requirements (“affordability” guardrail); 3) provide coverage to at least a comparable number of residents as under the ACA ( “coverage” guardrail); and 4) not increase the federal deficit. The Obama administration issued guidance in 2015 on its interpretation of these guardrails.

In 2018, the Trump administration replaced that guidance and adopted its own interpretation, which many argued was inconsistent with Section 1332. The 2018 guidance tried to pave the way for the Trump administration to approve waivers where only some coverage under the waiver (instead of all coverage) satisfied the comprehensiveness and affordability guardrails. Under this view, waivers could be approved even if only some coverage under the waiver was as comprehensive, as affordable, and as available as coverage provided under the ACA. The 2018 guidance would also allow waivers to expand access to plans that do not have to meet the ACA’s requirements. (Separately, the Trump administration issued a final rule to codify the 2018 guidance’s interpretations into regulations.)

The lawsuit argues that the Georgia Access Model violates all four statutory guardrails because it will “drastically underperform the ACA.” The waiver proposal could lead to net enrollment losses in Georgia, which violates the coverage guardrail. The waiver could lead some consumers to enroll in non-ACA plans (such as short-term plans) with benefit gaps, which violates the comprehensiveness guardrail. And consumers will have to pay higher premiums and out-of-pocket costs through higher broker commissions, reduced competition, and adverse selection against the ACA markets, which violates the affordability guardrail and potentially the deficit neutrality guardrail (since higher ACA premiums mean higher federal outlays in the form of premium tax credits).

As health care providers in Georgia, Planned Parenthood Southeast and the Feminist Women’s Health Center allege they will be harmed for several reasons. They argue that the Georgia Access Model will make it more difficult and expensive for their patients to obtain health insurance. Fewer patients with health insurance will result in higher levels of uncompensated care. More uncompensated care will strain the plaintiffs’ resources and limit other services, such as community outreach. The loss of coverage resulting from the waiver will leave their patients in worse health and develop more complex treatment needs, making it more expensive for plaintiffs to treat those patients as a result. And approval of the waiver will make it more complicated for the plaintiffs to assist their patients with enrollment.

What Happens Next

The lawsuit was assigned to Judge James E. Boasberg of the federal district court for DC. Health policy watchers know Judge Boasberg as the judge who repeatedly invalidated the Trump administration’s approval of state Section 1115 waivers with work and community engagement requirements. He is thus no stranger to assessing the legality of waiver approvals under the APA and other federal statutes.

The lawsuit will proceed, and the Biden administration will be responsible for filing a response in court. One potential option could be for the Biden administration to ask the court for a stay while it revisits the approved waiver and perhaps holds another round of public comment on the most recent version of the waiver (which, as the lawsuit points out, was never submitted for public comment). The Biden administration could consider any new comments in reevaluating approval of the Georgia Access Model.

If the federal government newly concludes that the proposal fails to satisfy the substantive guardrails, it could have grounds to amend, suspend, or terminate Georgia’s waiver, so long as certain procedures are followed. This is because the terms and conditions of the waiver agreement between the federal government and Georgia (as well as implementing regulations) always give the federal government “the right to suspend or terminate a waiver, in whole or in part, any time before the date of expiration, if the Secretaries determine that the state materially failed to comply with the terms” of the waiver.

Georgia’s waiver agreement includes some unique terms and conditions relative to waivers in other states. Those terms seem designed to limit the federal government’s ability to suspend or terminate Georgia’s waiver. But the federal government can do so as long as it complies with relevant procedures. This includes notifying Georgia of its determination, providing an effective date, and citing reasons for the amendment or termination (i.e., why the Georgia Access Model fails to satisfy Section 1332’s substantive guardrails). Georgia would have 90 days to respond, with the possibility of providing a corrective action plan to come into compliance with the waiver conditions. Georgia must also be given an opportunity to be heard and challenge the suspension or termination.

Alternatively, the Biden administration could regularly assess and monitor the state’s compliance with the terms and conditions and its progress, or lack thereof, in implementing the Georgia Access Model. Federal officials do this with all waivers. Under the waiver approval, Georgia must, for instance, satisfy requirements related to funding, reporting and evaluation, development of an outreach and communications plan, and operational standards for eligibility determinations. If Georgia fails to comply with these terms and conditions, that too would be grounds to initiate the process to amend or terminate parts or all of Georgia’s waiver.

Coverage Provisions In Biden’s American Rescue Plan

On January 14, a few days before taking office, President Biden issued a 19-page fact sheet outlining his proposed American Rescue Plan to contain the COVID-19 virus and stabilize the economy. The announcement praised the bipartisan package adopted in December 2020 as “a step in the right direction” but notes that Congress did not go far enough to fully address the pandemic and economic fallout. Following Inauguration Day, Biden is expected to lay out an additional economic recovery plan. 

Among many other initiatives, the comprehensive $1.9 trillion plan would provide funding for a national vaccination program, create a new public health jobs program, provide funding for schools to reopen safely, extend and expand emergency paid leave, extend and expand unemployment benefits, raise the minimum wage, and deliver $1,400 in support for people across the country. The Biden plan also calls for preserving and expanding health insurance, noting that 30 million people were uninsured even before the pandemic and that millions may have lost job-based coverage in 2020.

First, the American Rescue Plan calls for Congress to provide COBRA subsidies through the end of September. Presumably, these subsidies would be available from the beginning of 2021, rather than subsidizing premiums from 2020. COBRA subsidies during an economic emergency are not new. Congress subsidized COBRA premiums during the 2008 recession, with mixed results. Full COBRA subsidies were included in the original Heroes Act passed by the U.S. House of Representatives in May 2020, although not in the revised Heroes Act that was passed by the House in October 2020. But neither bill was ever taken up by the U.S. Senate. It is not clear from the fact sheet whether the Biden administration is aiming for full COBRA subsidies where the government would pay 100 percent of the premiums for COBRA coverage for laid-off workers and furloughed employees—or some other amount (e.g., 80 percent of premiums).

Second, the American Rescue Plan would accomplish one of candidate Biden’s key campaign promises by expanding and increasing the value of premium tax credits under the ACA. Democrats in Congress have repeatedly passed legislation that would accomplish what the American Rescue Plan fact sheet seems to call for. For instance, the Patient Protection and Affordable Care Enhancement Act—passed by the House in July 2020—would have expanded the availability of premium tax credits to those whose income is above 400 percent of the federal poverty level and made those credits more generous by reducing the level of income that an individual must contribute towards their health insurance premiums to 8.5 percent for those with the highest incomes. This subsidy expansion and enhancement would improve the affordability of coverage for millions of Americans who purchase coverage in the individual market.

Beyond COBRA and ACA subsidies, the American Rescue Plan calls for additional funding for veterans’ health care needs and for the Substance Abuse and Mental Health Services Administration and the Health Resources and Services Administration to expand access to behavioral health services. The proposal would also increase the federal Medicaid assistance percentage (FMAP) to 100 percent for the administration of COVID-19 vaccines to help ensure that all Medicaid enrollees will be vaccinated. The proposal does not appear to otherwise mention Medicaid, which is serving as a key safety net as incomes have dropped for millions of Americans, despite bipartisan support for an enhanced FMAP during the pandemic.

ACA plan enrollment for 2021 ticked up slightly

Healthcare.gov (ACA) 2021 Enrollment Information | Congressman Steve Cohen

Dive Brief:

  • Consumers choosing insurance via the federal Affordable Care Act exchanges reached 8.25 million over the 2021 open enrollment period, about the same number as the year before, CMS said Wednesday.
  • Because two fewer states are participating in the federal marketplace this year, adjusted year-over-year growth in plan selections was 7%, the agency said.
  • Of the total, 23% of consumers were new, down by 3.6%Renewing consumers who actively chose a new plan and those who were automatically re-enrolled both increased.

Dive Insight:

The figures are the last from the Trump administration, which has drastically reduced money toward navigators who help people use the Healthcare.gov website and find the best ACA plan for them. The administration has made no secret of its opposition to the law and after failing to overturn it in Congress has used executive actions to undermine it.

Still looming is the Trump administration’s lawsuit seeking to overturn the landmark law.

President-Elect Joe Biden and his pick for HHS chief, California Attorney General Xavier Becerra, however, are eager supporters and are likely to take a number of actions to restore and burnish it. That could be increasing tax credits and subsidies, increasing navigator funding and building on protections like essential health benefits.

The U.S. Supreme Court is expected to make its ruling on the ACA case later this spring or summer, but the Biden administration could essentially make it moot by walking back the zeroing out of the individual mandate penalty that is the linchpin of the lawsuit against it.

The relatively steady enrollment could be increased through those actions and the possibility of a special enrollment period to account for needs during the coronavirus pandemic. The COVID-19 crisis and the recession it has caused have kicked millions of people off their employer-sponsored insurance, and they could turn to the exchanges for coverage, especially with higher tax credits and subsidies.