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ACA Round-Up: Medicare Trustees Report Does Not Trigger IPAB, And More

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http://healthaffairs.org/blog/2017/07/14/aca-round-up-medicare-trustees-report-does-not-trigger-ipab-and-more/

Click to access TR2017.pdf

All eyes yesterday were focused on the Senate, which released significant new amendments to the Better Care Reconciliation Act. But the Senate was not the only game in town.

On July 13 the Medicare Trustees released their 2017 Medicare Trust Fund report. One of the most controversial creations of the ACA was the Independent Payment Advisory Board (IPAB). The ACA established specific target growth rates for Medicare and charged the IPAB with ensuring that Medicare expenditures stayed within these limits.

Each year the CMS Chief Actuary must make a determination as to whether the projected average Medicare growth rate for the 5-year period ending 2 years later will exceed the target growth rate. For each year since the provision went into effect in 2013, the CMS Chief Actuary has determined that the projected growth rates will not exceed these limits. It was thought that this year might be different, but for 2017 the Chief Actuary again concluded that the growth rate will not be exceeded, and said so in a letter to CMS.

The IPAB was supposed to be a 15-member board of experts that would, for years when Medicare growth rates were projected to exceed the threshold, make recommendations for cutting costs. These would be implemented unless Congress enacted an alternate approach that would achieve the same savings or waived the requirement to cut costs by a three-fifths majority. The IPAB has never been created, but under the ACA, in the absence of an IPAB its power to make program cuts devolves to the HHS Secretary.

The IPAB is deeply disliked in Congress and proposals to abolish it have wide support. But the IPAB statute seems to say that the IPAB can only be abolished by a joint resolution of Congress which must be introduced into Congress by February 1, 2017 and be enacted, following very specific procedures, by August 15, 2017.  In fact, one bill to abolish the IPAB was introduced into the Senate by February 1 with 36 Republican co-sponsors, and another with 12 Democratic co-sponsors, while a House bill was introduced on February 3 with 233 Democratic and Republican cosponsors. But August 15 is coming up quickly and Congress seems to have its hands full with other issues. Moreover, the CBO would likely view elimination of the IPAB as coming with a high price tag.

It may not matter much. The IPAB provision recognizes that Congress can always change its mind.  It could presumably change its rules to allow it to abolish the IPAB whenever it chose to do so. In fact, the rules that the House adopted for the 115th session provide that any IPAB submittals are not to be considered during the 2017-2018 session. But if Congress chose to proceed according to the ACA’s provisions, the IPAB would find few defenders.

Federal Exchange Eligibility Redeterminations And Re-Enrollment

CMS released on July 13 a guidance describing how it intends to handle eligibility redeterminations and re-enrollment for federal exchange enrollees for 2018. Basically, CMS intends to use the same procedures it used for redeterminations and reenrollment for 2017, which in turn were similar to those used for 2016.  The exchange will continue to auto-reenroll enrollees who fail to select a plan, and to terminate enrollees who have been auto-reenrolled more than once without contact with the exchange.

There is one change for 2018: CMS will discontinue advance premium tax credits (APTC) and cost-sharing reduction (CSR) payments not just for enrollees who received APTC or CSRs and did not file a tax return in a prior year in which they received ATPC or CSRs, as CMS did in 2016, but additionally for enrollees who failed to file form 8962 to reconcile the APTC they received and the premium tax credits to which they were entitled, and failed to contact the exchange and obtain an updated eligibility determination for 2018. Filing a tax return and reconciling APTC with premium tax credits is an eligibility requirement for receiving APTC and CSRs in subsequent years, but federal regulations prohibit termination of coverage for this reason unless direct notice is sent to the enrollee that coverage will be terminated for failure to file. Until now, CMS has not been able to provide the required notice for those who fail to reconcile.

GAO Finds Tax Credit Verification Procedures Wanting

Finally, on July 13, 2017, the Government Accountability Office released a report on Improvements Needed in CMS and IRS Controls over Health Insurance Premium Tax Credits. The report is long and detailed and reviews comprehensively the controls that CMS and the IRS have in place—or, more often, do not have in place—for ensuring that improper premium tax credits are not made.

The GAO scored both agencies for failing to provide accurate assessments of improper payments. It also criticized each agency for failing to have procedures in place for verifying most eligibility requirements for premium tax credits and for identifying and correcting errors in premium tax credit reporting and collecting overpayments. The agencies responded that they are working on improving verification and processing procedures, but that that they have limited resources and verification is not always possible.

In the end, a tax-based system for paying for health insurance that depends on accurate reporting and verification of citizenship or lawful alien status, incarceration status, income, residence, health insurance premiums, household composition, availability of alternative forms of coverage, and tax filing status of applicants and enrollees—and requires coordination of two independent federal agencies—is very difficult to administer. If the Senate’s BCRA is adopted, administration of the program will only become more complicated, as all of these factors remain relevant and to them will be added age and the possibility of new forms of coverage that do not qualify for premium tax credits, but can be paid for using tax-subsidized health savings accounts. The GAO has its future work cut out for it in any event.

End-Of-Life Policy Solutions: A Cautionary Note

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http://healthaffairs.org/blog/2017/07/10/end-of-life-policy-solutions-a-cautionary-note/

In a new special issue of Health Affairs focused on health care around the end of life, we see that health care costs rise as patients approach death and/or after they are diagnosed with a life-limiting disease. This relationship holds across many diseases, ages, and types of health care systems and countries. Whether describing the cost-savings associated with palliative and hospice care, training primary care physicians to have conversations about prognosis and care planning, or the need to better understand patients’ preferences for treatment or comfort, most the papers in the issue take an optimistic stance regarding the impact of informed patient choice and transparency. That is, if only the barriers to real communication could be brought down or the proper incentives established, inappropriate care at the end of life would decline dramatically. As I’ll explain, while some optimism may be warranted, there are many forces pulling in the opposite direction.

What all these strategies for better end-of-life conversations have in common is the assumption that if people talked realistically about their prospects and preferences, or if physicians could take the time necessary to explain things clearly, patients and families would come to accept their prognosis and not seek costly treatments; they would avoid intensive care units (ICUs) and accept palliative and hospice care earlier in the end-of-life process. There are significant barriers, however, to shared decision making in the face of unfamiliarity and ambiguity. Simply understanding prognostic predictions requires sophisticated numeracy, which most of us don’t possess. Physicians’ approach to practice and communication style are other important variables that go into the mix.

Over the last few decades, improving advance care planning has been the mechanism widely promoted to ensure that patients receive the type of end-of-life care they want. Whole communities have been the targets of “The Conversation Project,” a program that encourages families to establish an actionable plan for end-of-life care. Since physicians are so often in the position of explaining to their patients what a diagnosis means and what treatment options are available, numerous programs have been directed at improving their communication skills on these delicate topics, all with the goal of reducing the rate of inappropriate end-of-life care. Increased access to palliative care, concurrent with disease modifying treatment, has also been advocated to allow for patients’ gradual transition from costly, aggressive treatments with limited chances of arresting disease progression.

However, it is likely that all physicians have had more than one patient caught in a paradox of understanding their prognosis while not being able to internalize its meaning for their own lives. They continue to live with some degree of denial and make choices as if each new sign of worsening disease is a minor setback or side effect from which they will recover. While this is probably more prevalent among younger patients, families of older patients sometimes play the role of “denier by proxy” — continuing to press for treatment long after health care professionals (and at times the patient) think warranted.

Since stated advance care preferences are acknowledged to be unstable over the course of an illness, physicians are likely to be wary of making assumptions about what patients want as they approach end-of-life health care decisions. Many physicians will remember a surprise remission or recovery and may be loath to propose options that preclude that same opportunity to another patient lest they feel responsible for a terminal phase that could have been delayed. Any indication of patients’ ambivalence might lead physicians to offer treatments that might not be offered were there no ambiguity. Physicians’ fears of foreclosing options may be as great as those of patients and families, so all conspire to do what the other wants.

This natural ambivalence is amplified by very real changes in the effectiveness of treatments for even advanced disease. Even though small and incremental, there are enough examples to shift the tone of the discussion, engendering doubt about patients’ resolution to forego further treatment. Personalized medicine, with molecular or genetic targeting, has achieved some tantalizing successes, raising hopes of patients and physicians alike while complicating discussions about palliative and hospice care.

Perhaps in consideration of this discussion, we should be more tolerant of the slow progress advance care planning has made and the difficulty of getting physicians to have in-depth and definitive conversations about care preferences. It may not just be the inadequacy of the financial incentives or the poor training physicians receive in holding such conversations. Nor is it necessarily the fractionated process of referring patients from one part of the health care system to the other that keeps patients from hospice. Ambivalence, hope, and denial may all serve to alter our willingness to make definitive decisions to stop treatment and to embrace palliative care. This combination can undermine patients’, families’ and physicians’ decisions to pursue palliation and comfort care. This makes it so much easier to fall into the inertia of ongoing treatment, hospitalization, and even ICU admission, particularly in light of the growing availability of such services.

If this is the case, our calculus about cost savings from advance care planning, physician training, and palliative care may not be as large as research suggests. Patients, families, and physicians volunteering to participate in research studies may not be representative of the entire population approaching end-of-life decision making. While research clearly points to a way to reducing inappropriate care at the end of life, in the US, at least, these initiatives are unlikely to put a halt to the relentless rise of disease-oriented treatment at the end of life in the foreseeable future. Financial incentives in our health care system conspire with the legitimate reluctance of patients, families, and physicians to give up hope for life extension.

On the other hand, there is reason to be somewhat optimistic since the changes discussed in this special issue of Health Affairs are prone to make a difference. However, the scope of the difference is likely to leave plenty of room for further interventions, although what types these will be remains to be seen.

In Senate Health Care Bill, A Few Hidden Surprises

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http://healthaffairs.org/blog/2017/07/13/in-senate-health-care-bill-a-few-hidden-surprises/

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A low-income person, eligible for Medicaid but not enrolled, is hit by a car or a bullet. Gravely injured, she arrives at the hospital unconscious. Thanks to expert, intensive care that lasts for days or weeks, she gradually recovers. Eventually, her health improves to the point where she can complete the paperwork needed to apply for Medicaid.

Such a hospital can be paid today, thanks to Medicaid’s “retroactive eligibility.” Even if the combination of medical problems and bureaucratic delays prevents an application from being filed and completed for several months, Medicaid will cover the care if the patient was eligible when services were provided.

The newest version of the Senate health bill—the Better Care and Reconciliation Act, or BCRA—would end this longstanding feature of the Medicaid program for beneficiaries who are neither elderly nor people with disabilities. If services are received in one calendar month and the application is completed the following month, the hospital would be denied all payment, even if the patient was eligible and the services were both essential and costly.

It does not matter if the state is led by a governor who understands the devastating impact of this change on hospital infrastructure, especially in rural areas where many hospitals are hanging on by a thread. Today, states have the flexibility to seek waivers that limit retroactive eligibility. Under the BCRA, that flexibility would disappear, as states are forced to end retroactive coverage, whether they like it or not.

Almost certainly, this provision would come as a surprise to most senators who are being asked to support the BCRA. It is only one of many unpleasant surprises lurking largely undiscovered throughout the bill. Following are other selected examples.

A Massive Expansion In Federal Power Over State Budgets

The BCRA grants the federal government startling new power over state Medicaid programs and state budgets. Federal dollars per person would be capped, based on state data about prior spending. But in setting the initial cap for each state, the secretary of Health and Human Services (HHS) could change the amount to rectify what the secretary views as problems in the “quality” of state data. In later years, many states could have their caps adjusted up or down by as much as 2 percent per year. That may sound like a small number, but when applied to billions of federal Medicaid dollars going to a state, it could make or break a state’s entire budget. Medicaid costs triggered by a public health emergency are exempt from the cap, but only if “the Secretary determines that such an exemption would be appropriate.” No statutory limits bound the Secretary’s use of this decision-making authority, which can have an extraordinary fiscal impact on states experiencing an epidemic or other public health crisis.

These provisions would give HHS remarkable new leverage over states, which current or future administrations could use to compel state policy changes in any desired direction. The aggressive use of available leverage has been an unfortunate feature of past administrations’ relationships to state Medicaid programs, but it could become substantially more pronounced with the increased federal authority granted by the Senate bill.

Adding To Uncertainties Surrounding State Expenditures

One recurring theme in Medicaid’s history involves state efforts to claim federal matching funds without spending the requisite state dollars. The Senate bill appears to increase this risk. Under Section 207 in the Senate bill, new opportunities emerge for states desperate to counteract the loss of billions of federal dollars. The bill authorizes unprecedented waivers involving federal funding for tax credits that help consumers buy private health insurance. So long as officials complete a form explaining how the waiver’s replacement of federal safeguards would provide an “alternative means” of increasing “access to comprehensive coverage, reducing average premiums, and increasing enrollment,” a state arguably could convert some or all of this federal money into so-called “pass-through” funds that can be used for purposes unrelated to health care. Unlike the Senate bill’s new public health emergency provisions, which require federal audits of state expenditures, states’ use of pass-through dollars has no statutory audit requirement. A state could convert subsidies meant for health insurance to other uses, or simply use the money to close a budget shortfall. As the Congressional Budget Office (CBO) explained about the virtually identical prior version of this section, the Senate health care bill would “substantially reduce the number of people insured” if states “reduced subsidies, received pass-through funds, and used those funds for purposes other than health insurance coverage.”

Medicaid Treatment For Mental Health And Substance Use Disorders

The bill repeals the current requirement that Medicaid programs must cover all “essential health benefits,” including treatment of mental health and substance use disorders. CBO found that, as the per capita limits in the Senate bill grow progressively tighter, federal Medicaid funding would eventually decline by more than a third, compared to current law. States facing such an enormous drop in federal support may see themselves as having no alternative but to cut services classified as optional, which the Senate bill redefines to include mental health and substance abuse treatment.

A Disordered Process

These problems could have been averted had the legislative process followed regular order, with hearings, legislative staff explaining the bill’s provisions, expert testimony, a public markup, and opportunities to address policy and drafting anomalies. Embedded in a measure with underlying policy goals that the authors of this blog post find fundamentally questionable, the picture that emerges is extraordinarily troubling—a legislative effort to divert more than a trillion dollars away from health care for people who are sicker, poorer, older, and indigent, while leaving states with such massive funding deficits and federal leverage that some states may attempt to stem their losses in ways that harm their vulnerable residents even more.

Even people sympathetic to the bill’s core aims, however, have good reason to oppose the Senate making such consequential decisions without taking the elementary legislative steps needed to detect and avoid terrible mistakes. Continuing to shun all the protections of regular order, the Senate appears poised to act on a bill that almost certainly includes additional unpleasant surprises going beyond those discussed here. With legislation that governs one-sixth of the US economy and that directly affects the health and economic security of millions of constituents, Senators are being asked to vote largely in the dark.

New Medicaid worry emerges for centrists

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New Medicaid worry emerges for centrists

New Medicaid worry emerges for centrists

Some states would likely end their Medicaid expansions earlier than 2024 if the Senate’s healthcare bill becomes law, according to several sources.

That dynamic could deepen concerns among several senators who are undecided about the healthcare bill because of its changes to Medicaid, the federal healthcare program for the poor and disabled.

Sen. Lisa Murkowski (R-Alaska) has been deep in talks with her state, which might have to end Medicaid expansion early if the Senate bill passes.

Murkowski is a key vote that Senate leaders cannot afford to lose. With Sens. Susan Collins (R-Maine) and Rand Paul (R-Ky.) already opposed to the legislation, one more defection — from Murkowski or anyone else — would stop the bill in its tracks.

The revised healthcare bill that Senate Republican leaders released Thursday contains much of the same Medicaid provisions, such as cuts to Medicaid; converts federal financing to funding per enrollee or a block grant; and phases out the additional federal money for the expansion over three years, beginning in 2021.

In a nod to centrists, the bill does not fully phase out extra federal funding for ObamaCare’s Medicaid expansion until 2024.

But for some states, maintaining expanded eligibility would simply become too costly if the bill became law. Other states have automatic “triggers” that, if left unchanged, would end the expansion.

On Medicaid expansion, “I think it’s highly likely that they will end it sooner than you might think because the money is just not going to be there to maintain it as it starts to drop,” Matt Salo, executive director of the National Association of Medicaid Directors, said. “You can call it a soft landing, but it’s going to mean people are losing coverage.”

Earlier in the legislative debate, moderate senators had pushed for a gradual phase out of extra federal funds for Medicaid expansion, unlike the House bill, which halted the dollars starting in 2020.

As a nod to these senators, GOP leadership released its ObamaCare repeal-and-replace bill in late June that included a three-year phase out. Yet that is shorter than the seven-year glide path pushed by centrist Republicans, such as Sens. Rob Portman (R-Ohio) and Shelley Moore Capito (R-W.Va).

“I think a three-year glide path or a five-year glide path is not going to make a big difference in terms of whether states are able to keep the expansion going,” said Cindy Mann, who served as the federal director of Medicaid during the Affordable Care Act’s administration and is now a partner at Manatt Health.

In 2021, the 31 expansion states and Washington D.C. would, as a whole, be on the hook for a total of $6.6 billion in additional Medicaid funding. That figure would increase to nearly $43 billion more in total state spending, according to an analysis from the left-leaning Center on Budget and Policy Priorities (CBPP).

States would be faced with a tough decision on how to make up for the lost federal money. They’d have several choices, but dropping the expansion would be the most straightforward solution.

“Either you raise taxes, you cut other parts of the budget or you cut other parts of Medicaid or you drop the expansion,” Edwin Park, CBPP vice president for health policy, said. “Those are the choices, and they would have to figure that out. I think the most likely scenario would be that states start dropping the expansion.”

Some states may begin dropping the expansion in 2021 — and possibly even before the funds are reduced — Park said, “because they can’t absorb even the higher increase in spending that will be required, and certainly over time more and more states would start to drop the expansion.”

Throughout the healthcare debate, the changes to Medicaid have bedeviled leadership.

Senators from expansion states don’t want thousands of their residents to lose healthcare coverage. Some of their governors have been urging bipartisan reform rather than passing the GOP bill without a single Democratic vote, which Republicans can do under the fast-track budget maneuver they’re using to repeal and replace ObamaCare.

Less money for Medicaid expansion is a concern to states, some of which enacted guardrails to protect themselves from decreases in dollars they get from the federal government to implement the expansion.

At least nine states have provisions in their Medicaid expansions that would end it automatically or soon after if enhanced federal funds dip below a certain level. Those states are Arizona, Arkansas, Illinois, Indiana, Michigan, Montana, New Hampshire, New Mexico, and Washington, according to CBPP.

Sen. John McCain (R-Ariz.) represents a state where, under the Senate bill, the end of ObamaCare’s Medicaid expansion would be triggered in 2022.

After a closed-door meeting where rank-and-file members were presented with the bill’s revisions, McCain was asked if he supported a motion to proceed to the bill.

“My governor said that we needed three amendments for him to approve of it, and those three amendments were not included,” he replied.

One such amendment would extend the timeline of phasing out Medicaid expansion money, so as to give “states like Arizona the necessary time to adjust their budgets so citizens don’t have the rug pulled out from under them,” McCain said in a statement released Thursday.

Senate Majority Leader Mitch McConnell late late Saturday delayed the healthcare vote while McCain recovers from surgery.

Alaska doesn’t have a trigger in its Medicaid law, but would be at risk of losing the Medicaid expansion before the phase-out even begins.

The reason comes down to how Medicaid was expanded in Alaska. Independent Gov. Bill Walker used an executive order to expand Medicaid and could do so because Alaska is required to cover all groups federal law mandates be covered — even though the Supreme Court ruled it was optional. But the Senate bill makes covering more lower-income people optional instead of mandatory in 2020.

“We think that puts Alaska’s expansion at risk in 2020 because our state legal authority to maintain those services would be in question,” Valerie Davidson, the Alaska Department of Health and Social Services commissioner, said, adding she believes the expansion would end in 2020.

The possible policy change is paramount for Davidson, as the state saw nearly 34,000 adults covered due to the Medicaid expansion. She’s been in “constant communication” with her two state’s senators — Murkowski and Dan Sullivan.

During the week before July 4th recess, Davidson was in Washington, D.C., where her team essentially “camped out in [Murkowski’s] office, except that she was very welcoming.”

The issue has been on Murkowski’s radar screen, the senator said, and that “we would basically kick it back to our legislature who could vote to discontinue the expansion so we would not be part of that glide path that many of us have been trying to put in place.”

“It’s yet one more thing in the bucket of things that makes Alaska somewhat distinguishable,” Murkowski said.

Even if Alaska opted to find a way to keep the expansion, Davidson said it isn’t realistic due to the state’s budget deficit.

“Our state right now is looking to cut programs and cut our general fund, not add to it,” Davidson said, “and so I think for anybody to make the assumption that, well, the state will just take on more of that responsibility is not very realistic.”

High-Risk Pools for People with Preexisting Conditions: A Refresher Course

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http://www.commonwealthfund.org/publications/blog/2017/mar/high-risk-pools-preexisting-conditions

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During the recent effort to repeal and replace the Affordable Care Act (ACA), some members of Congress and the Trump administration seemed to be experiencing a certain nostalgia for high-risk pools, which operated in 35 states before the ACA was enacted. At a CNN Town Hall Meeting in January, Speaker of the House Paul Ryan responded to a question about coverage for people with preexisting conditions by saying:

We believe that state high-risk pools are a smart way of guaranteeing coverage for people with preexisting conditions. We had a really good one in Wisconsin. Utah had a great one . . . . What I mean when I say this is, about 8 percent of all the people under 65 have that kind of preexisting condition . . . . So, by financing state high-risk pools to guarantee people get affordable coverage when they have a preexisting condition, what you’re doing is, you’re dramatically lowering the price of insurance for everybody else. So, if we say let’s just, as taxpayers—and I agree with this—finance the coverage for those 8 percent of Americans under 65 in a condition like yours, they don’t have to be covered or paid for by their small business or their insurer who is buying the rates for the rest of the people in their insured pool, and you’d dramatically lower the price for the other 92 percent of Americans.

As high-risk pools and other changes to the ACA continue to be debated, it is critical to deconstruct statements such as these and remind ourselves of how high-risk pools really worked and how unaffordable they were. It is important to remember that high rates of uninsurance and lack of affordability for all buyers in the individual market existed before the ACA, even in states with high-risk pools. In addition, policymakers seem to substantially underestimate the number of Americans with preexisting conditions who might be forced to purchase coverage through a high-risk pool if insurers are allowed to deny coverage in the marketplace.

Affordability and Costs of State High-Risk Pool Coverage Pre-ACA

High-risk pools were expensive because they concentrated people with health conditions into a single pool, with no healthy members to offset their costs. As a result, out-of-pocket costs for enrollees were very high and coverage was often quite limited, as administrators sought to limit losses and lower premiums by imposing high deductibles and cost-sharing, as well as annual and lifetime coverage caps. In state high-risk pools operating before the ACA:

  • Premiums ranged from 125 percent to 200 percent of average premiums in the individual market, yet covered only about 53 percent of claims and administrative costs nationally (Wisconsin allowed premiums up to 200 percent of average).
  • Fourteen states had plans with deductibles of $10,000 per year or higher, substantially greater than the current maximum $7,150 deductible for catastrophic plans in the marketplaces.
  • Thirty states imposed maximum lifetime limits; others had annual coverage limits as low as $75,000 per year (Utah had both a lifetime and an annual limit).
  • In 2010, the 35 state high-risk pools incurred about $2.4 billion in total costs—to cover just 221,879 people.

The U.S. Department of Health and Human Services (HHS) recently estimated that up to 17,875,000 people with preexisting conditions were uninsured in 2010. Had all of them been covered by high-risk pools, the cost would have been $194.8 billion in 2010 dollars, with premiums covering only $103.3 billion. Thus, states and the federal government would have needed to find $91.5 billion in additional funding to cover them all—much more than the up to $10 billion per year in federal assistance to states recently proposed by congressional Republicans.

Uninsured Rates When High-Risk Pools Were in Operation

In 2010, 32,939,000 people were uninsured in the 35 states that operated high-risk pools, and more than 47 million were uninsured nationally. In those states with high-risk pools, less than half of 1 percent of the total population was enrolled in them, and less than 1 percent of the uninsured population. That same year, The Commonwealth Fund found that 60 percent of people who shopped for health insurance in the individual market found it difficult or impossible to find a plan they could afford. This fact belies the claim that state high-risk pools made coverage for other people more affordable.

Percentage of Americans Under Age 65 with Preexisting Conditions

In the same Commonwealth Fund survey, more than one-third (35 percent) of those who sought insurance on the individual market reported being denied coverage or being charged a higher price because of a preexisting condition—certainly more than the 8 percent of people Speaker Ryan suggested would need to turn to high-risk pools for coverage. Indeed, based on federal survey data, HHS estimated that up to 51 percent of nonelderly Americans have preexisting conditions for which they could be denied coverage in the individual market.

Reality Check

The reality is that high-risk pool coverage was prohibitively expensive and there is little evidence to suggest that the existence of such pools made coverage less costly for others in the individual insurance market. Without substantially more federal funding than currently proposed, these facts are not likely to change. People with preexisting conditions may have “access” to coverage, but most will not be able to afford it and those who can will face limited benefits and extremely high deductibles and out-of-pocket payments.

Who Would Gain Under the Proposal to Expand Health Savings Accounts?

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http://www.commonwealthfund.org/publications/blog/2017/apr/gains-under-proposal-to-expand-health-savings-accounts

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The U.S. House of Representatives leadership’s bill to repeal and replace the Affordable Care Act (ACA) would have significantly expanded the use of health savings accounts (HSAs), which people can use to save tax-free money to pay for certain medical expenses. This effort isn’t new and it’s not likely to go away just because a vote on the House bill, the American Health Care Act (AHCA), has been tabled. Amendments to the tax code to encourage HSAs have been a staple of Republican health care proposals, and the HSA provisions in the House legislation were introduced as a standalone bill last year.

Why all the interest? HSA proponents suggest the accounts offer cost savings and give consumers freedom to spend their money how they see fit. An HSA must be paired with a high-deductible health plan (HDHP), and there is evidence that the combination of an HDHP and HSA does reduce health care spending—by leading consumers to skip care, both needed and unneeded. Yet there is little basis to conclude that HSAs expand access to care, or that the tax benefits these accounts promise reach most Americans. In practice, most financial advantages have accrued to the top 5 percent of earners, who can afford to contribute to the accounts during the year and reap larger gains at tax time.

HSAs: The Basics

HSAs were created in 2003 in legislation establishing a Medicare prescription drug benefit. They are tax-preferred savings accounts funded by consumers and sometimes their employers. Consumers can contribute to an HSA only if they are enrolled in an HDHP, which in 2017 is an individual or group health plan that has a deductible of at least $1,300 ($2,600 for a family plan). Unlike other savings vehicles established under federal law, HSAs provide what amounts to triple tax benefits: contributions are tax-deductible; account funds are invested and grow tax-free; and withdrawals are tax-exempt (if they are used for qualified medical expenses).

HSAs are far more attractive to higher-income individuals, who are more likely to have sufficient income to fund the accounts and gain a greater tax benefit than are lower-income individuals subject to lower tax rates. In 2013, tax filers with income above $200,000 were 10 times more likely to claim a tax deduction for HSA contributions than those with incomes below $50,000, and the tax-advantaged contributions these high earners made were, on average, more than twice as large. A study of HSA take-up in the group market from 2005 to 2012 found similar results and observed, perhaps unsurprisingly, that high-income households were substantially more likely to fund their HSAs fully (with their own dollars and contributions from employers) than were middle- and lower-income filers.

Enhanced HSAs on the Horizon?

The AHCA would have expanded use of HSAs by authorizing higher tax-free contributions (increasing the amount from $3,400 to $6,550 for an individual plan) and more tax-free uses for funds. The AHCA also would have cut in half the penalty for withdrawals for nonmedical expenses.

Other proposals would provide similar and sometimes greater benefits to account holders. Legislation previously authored by Health and Human Services Secretary Tom Price would increase HSA contribution limits while also making it easier to shelter those funds and other retirement savings from taxes when they are transferred to heirs. Senator Rand Paul’s (R–Ky.) ACA replacement bill would go still further, erasing the requirement that HSAs be linked to a high-deductible plan and eliminating contribution limits altogether.

There is little doubt these expansions would encourage HSA take-up. Likewise, the proposals would make HSAs even more attractive as savings and estate planning vehicles for high-income households—particularly those who earn too much to contribute to other tax-advantaged retirement accounts and those who have maxed out such contributions. At the same time, the financial services companies that manage these accounts would reap substantial benefits, too.

Looking Ahead

HSAs are already growing under current law: by 2017, nearly 21 million accounts held more than $41 billion in assets, while the cost of the program to taxpayers has steadily increased and will nearly double by 2020. The AHCA would have dramatically accelerated this trend, causing federal spending to shoot up nearly 50 percent over the first three years following enactment and by a total of more than $19 billion by 2026.

The Congressional Budget Office estimated that the AHCA would have reduced insurance coverage dramatically, especially among Americans with low incomes. Moreover, the people most likely to need assistance paying for coverage and out-of-pocket costs—those with incomes under 200 percent of poverty, or around $24,000 for a single person—are the least likely to benefit from the bill’s approach to making coverage more affordable: HSAs. Given an ACA replacement’s potential impact on federal spending and coverage, spending billions of dollars on a program that primarily helps those least likely to need assistance purchasing coverage and paying out-of-pocket costs warrants scrutiny.