Welcome to 2016. With first votes being cast in the 2016 election cycle less than two weeks away and House Speaker Paul Ryan (R-WI) promising to unveil an ACA replacement plan to steer the 2016 party agenda, the policy debate on health reform is far from over. We here at CHIR are keeping an eye on reform proposals, and in this post, we examine various proposals to improve affordability of coverage under the ACA.
While the ACA has increased access to health insurance, improving perceived affordability remains a concern. According to the July-August 2015 Commonwealth Fund Health Care Affordability Index, 13 percent of privately insured adults were found to have unaffordable premiums, 10 percent unaffordable deductibles, and 11 percent unaffordable out-of-pocket costs. It comes as no surprise then that recent reports from the Urban Institute, the Century Foundation, and the American Enterprise Institute note cost as an area that can be improved. Many of the presidential candidates have also put forth proposals with this in mind.
Lowering Out-of-Pocket Costs for Consumers
Several proposals discuss ways to lower out-of-pocket costs for consumers. While maximum annual out-of-pocket (MOOP) spending is limited to $6,850 for self-only coverage and $13,700 for family coverage for 2016, this amount remains above what many can reasonably afford and does not include the cost of monthly premiums. The Urban Institute found that the median health care financial burden for someone at 300-400% of the Federal Poverty Level (FPL) was 13.3% of income, and for someone at 400-500% of FPL, the median burden was 18.1% of income. As CHIR has noted before, in an effort to lower these high out-of-pocket costs, this Urban proposal suggests pegging the ACA subsidies to the second-lowest-cost gold level plan rather than the second-lowest-cost silver plan, while raising the actuarial value (AV) of each level. A subsequent proposal from The Century Foundation (TCF) seconds this recommendation while also increasing the eligibility for Cost Sharing Reductions to those with household income above 250 percent of FPL, but below 400 percent of FPL, as originally intended by the ACA. While the ACA was supposed to reduce cost sharing limits by two thirds for those with Marketplace coverage below 200% FPL, by half for those between 200% and 300% FPL, and by one third for those between 300% and 400% FPL, the AV of plans was not allowed to increase above the cost-sharing reduction payment limits. In effect, this has meant that those above 250% FPL have not received any out-of-pocket reductions that the ACA originally intended.
Both Secretary Hillary Clinton and Governor Martin O’Malley have recognized the high out-of-pocket costs many consumers face. For insured people with out-of-pocket costs over 5 percent of their income, Clinton has called for a progressive tax credit of up to $2,500 for individuals or $5,000 for families to help cover these costs. O’Malley has stated he will encourage high deductible plans to cover critical services with no deductible. This idea was also included in the proposed Notice of Benefit and Payment Parameters rule for 2017, which would include some deductible-exempt services as part of standardized plans.
Adjusting Tax Credits
Many of the proposals would either adjust the current Advanced Premium Tax Credits (APTCs) or replace APTCs with other forms of assistance, although the effect on improving affordability with the replacements is less certain. Timothy Jost and Harold Pollack’s TCF proposal calls for increasing the amount of APTCs and also increasing eligibility of APTC for those making above 400 percent of the FPL based on income and the cost of coverage, as the Urban Institute also proposes. The TCF proposal also suggests a fixed-dollar, age-adjusted tax credit on top of the income-based APTCs. This fixed-dollar idea is similarly called for in the AEI proposal, albeit as a replacement, not in addition to, the ACA’s APTCs. AEI allows that the fixed-dollar credit could be adjusted according to income, although notes this would make them harder to administer. Advocates of this proposal discuss these fixed credits in the context of a highly competitive insurance market, but in the absence of that, it is unclear what the reality would look like. This fixed-dollar tax credit has been a popular proposal among Republican presidential candidates looking to repeal the ACA, with Senator Marco Rubio and Governor Jeb Bush both advocating for versions of them.
Expanding Use of HSAs
A recurring theme throughout many recent proposals is to encourage the use of health savings accounts (HSAs) to help reduce the out-of-pocket burden on consumers, given the tax advantages of HSAs. Both the TCF and AEI proposals call for direct federal contributions to HSAs. TCF’s would take the form of a refundable tax credit for those with moderate income (perhaps below 500% FPL), and AEI’s would be a one-time federal tax credit matching enrollee contributions (for every $2 contributed, the credit would provide $1) up to $1000. TCF proposes to realign HSA out-of-pocket limits for eligible high-deductible health plans with out-of-pockets limits under the ACA. AEI wants to eliminate the HSA minimum deductible requirement and increase the maximum allowable contribution for people with high-deductible plans. The AEI proposal also calls for the ability to roll over an HSA to a designated family member at death.
These ideas are echoed throughout the field of Republican proposals, with Rubio and Bush calling for expanded use of HSAs and Bush proposing to increase the maximum contribution. Ben Carson previously proposed that the federal government contribute $2000 per person into an HSA annually, although it remains to be seen if his HSA-like “Health Empowerment Accounts” contain this provision. He further advocates for the ability to share funds within a family and after a family member’s death.
With 22 percent of those surveyed in a November 2015 Gallup poll saying cost is the most urgent health problem facing the country, proposals impacting affordability – whether affecting premiums or plan out-of-pocket costs – seem likely to continue to be part of the national conversation.