Manatt on Health

In This Issue

BCRA Implications: Affordability of Coverage

By Chiquita Brooks-LaSure, Managing Director | Deborah Bachrach, Partner | Ariel Levin, Manager

In making the case for repealing and replacing the Affordable Care Act (ACA), the president and congressional leadership have cited “rising premiums,” “unaffordable deductibles” and “skyrocketing” out-of-pocket (OOP) costs associated with ACA plans. While the current Senate version of repeal and replace, the Better Care Reconciliation Act of 2017 (BCRA), is intended to address these issues, the BCRA could in fact result in higher out-of-pocket costs and less generous coverage relative to the coverage people receive today.

As currently drafted, the BCRA changes the share of expected healthcare costs covered by insurers (called actuarial value (AV)) that would be subsidized by premium tax credits. The BCRA pegs the value of the available tax credits to the premium of the median-cost benchmark plan with 58% AV in the taxpayer’s rating area, rather than to the premium of the second-lowest silver plan (70% AV) used to benchmark the value of credits today. In 2020, the BCRA also eliminates cost-sharing reductions, which provide co-pay and deductible assistance for the lowest-income consumers purchasing ACA coverage.

Finally, the BCRA phases out the enhanced federal Medicaid funding that allowed 31 states and the District of Columbia to expand Medicaid coverage to 14 million people with incomes below 138% of the Federal Poverty Level (FPL), and eliminates enhanced funding entirely in 2023 (and for most states, likely eliminates Medicaid expansion coverage along with it). Notably, the BCRA provides that individuals with incomes below 100% of the FPL may access subsidies to purchase marketplace coverage (filling a gap in the ACA which provided subsidies only to those with incomes above 100% of the FPL).

To analyze how the proposed changes would impact the overall affordability of healthcare coverage, including for people who are eligible for Medicaid today under the ACA expansion, we analyzed OOP costs and plan value under the BCRA for individuals of various ages and at various income levels:1

  • Figure 1 looks at the percentage of household income families with incomes below 150% of the FPL would have to pay for premiums and average deductibles, showing that for most people under 150% of the federal poverty level (FPL), the total OOP costs a family would have to pay for a benchmark plan before their insurance plan starts to pay for most covered services would be unaffordable. For example, the deductible and premiums for a family of two earning $12,933 a year (133% FPL) would be 60% of annual family income suggesting that few low-income families would be inclined to buy coverage under the BCRA. By way of comparison, individuals covered under states’ Medicaid expansion today pay no more than 5% of their family income in premiums and cost-sharing.
  • Figure 2 focuses on the change in premiums and value under the BCRA versus the ACA for a variety of incomes. The analysis shows that while premiums would decrease for some under the BCRA, the overall value of the plans purchased would be significantly reduced, and premiums would increase for other people. In particular, those between 50 and 64 would see an increase in premium costs for lower-value coverage.

Figure 1: Most low-income individuals are unlikely to be able to afford the benchmark plan’s out-of-pocket costs

Figure 2: The premium reductions for some under the BCRA are primarily due to lower valued plans; even lower valued plans will be significantly more expensive for older adults

1Plans with a 58% AV would have deductibles and cost sharing similar to the “Bronze plan” offering under current law.

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BCRA Implications: Federal Medicaid Funding for States

By Jocelyn Guyer, Managing Director | April Grady, Director

Both the House-passed American Health Care Act (AHCA) and the Better Care Reconciliation Act of 2017 (BCRA) released by Senate leadership in draft form on June 22 propose major changes to Medicaid’s financing structure. These include elimination of enhanced federal funding for Medicaid expansion adults, and caps on federal funding for nearly all Medicaid beneficiaries and services. The Congressional Budget Office (CBO) has estimated that the AHCA would reduce federal Medicaid expenditures by $834 billion between federal fiscal year (FY) 2017 and FY 2026, and that the BCRA draft would result in a $772 billion reduction in federal Medicaid spending. While important for evaluating the overall size of the Medicaid cuts and the likely impact on coverage and the federal budget, the CBO estimate is not designed to provide state-specific information. To provide states and other stakeholders with information on the potential impacts of the capped funding and expansion changes contemplated in the AHCA and the BCRA, Manatt’s Medicaid Financing Model estimates the state-by-state impact of these provisions, taking into account that states may respond to the proposed law in a number of different ways.

With regard to BCRA in particular, Manatt has produced state-level estimates that are available through the Robert Wood Johnson Foundation State Network website. Key findings include:

  • Under any scenario, the Senate bill imposes substantial cuts on states that grow markedly over time. All states would be subject to the bill’s per capita cap, which would limit the amount of federal funding available to states. Among the 31 states and D.C. that have expanded Medicaid, the federal losses would be greater, as the bill phases down and ultimately eliminates enhanced federal funding for this population.
  • Some states could lose more than a third of their federal Medicaid funding. On average, to maintain expansion coverage, states would be required to increase state spending by 10.7%, but some states would need to increase their own spending by 20% or more to maintain expansion. If states instead drop their expansion coverage, estimated cuts would reach 30% or more of all federal Medicaid spending in some states.
  • Depending on state responses to reduced federal funding, coverage impacts could be substantial. If states do not replace lost federal funds with state funds to maintain expansion, more than 11 million people could lose coverage starting in 2021, accounting for 21% of Medicaid beneficiaries in expansion states. In some states, more than 30% of all Medicaid beneficiaries could lose coverage.
  • The per capita cap is a fundamental change in Medicaid financing. BCRA would eliminate the federal government’s guarantee to share the cost of all qualifying Medicaid expenditures. Unless states offset all of the federal cuts with an increase in spending from their own resources, they will need to reduce reimbursement rates, cut benefits, increase cost sharing or use other strategies to keep their spending below the cap.
  • BCRA Medicaid cuts increase markedly in the later years of CBO’s 10-year budget scoring window. Federal funding reductions would grow over time under the BCRA as the per capita cap switches from using a medical inflation trend rate through FY 2024 to a general inflation rate as of FY 2025. Cuts would also grow as enhanced federal funding for expansion adult coverage phases down from 2021 to 2023 and is eliminated as of 2024.
  • States—rather than the federal government—bear the risk if future spending pressures lead growth to exceed the trend rates that determine the size of per capita cap cuts. To date, the risk of higher-than-expected spending has been split between states and the federal government. Under a per capita cap, however, states would bear the full risk for any spending in excess of the allowable trend rates (tied to medical inflation or general inflation), which are themselves volatile and difficult to predict.

Although not explicitly included in Manatt’s state-level modeling, another notable feature of the BCRA’s per capita cap is that it allows the federal government to raise caps for the lowest-spending states by lowering caps for the highest-spending states, with a requirement that the adjustment not result in a net increase in federal spending. This redistribution provision likely was added to the Senate bill to mitigate the concern among traditionally low-spending states that their spending levels are “baked” into the formula for future Medicaid spending under a per capita cap. However, Manatt’s preliminary analysis indicates that this new provision may not work as intended and, in fact, could harm some of the states it is designed to help, hurt states with higher healthcare costs or that serve a higher proportion of people with significant healthcare needs (e.g., a state with an older population), and create even more uncertainty for states.

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MACRA Proposed Rule Summary

By Edith Stowe, Senior Manager | Annemarie Wouters, Senior Advisor | Lammot DuPont, Senior Advisor

On June 20, 2017, the Centers for Medicare & Medicaid Services (CMS) issued a Notice of Proposed Rulemaking with updates to the implementation of the Medicare and CHIP Reauthorization Act of 2015 (MACRA) and the Quality Payment Program (QPP). MACRA requirements on Medicare Part B providers are already in effect this year (2017), with payment adjustments under the new system due to start in 2019.

While the proposed rule moderately increases the minimum scoring threshold for providers to avoid a negative payment adjustment, it continues CMS’s “go slow” trajectory for the QPP with slight course corrections that: (1) make it easier for smaller providers to receive an exemption from the program, (2) reduce the performance and reporting requirements within the Merit-Based Incentive Payment System (MIPS), and (3) seek additional opportunities for providers to be considered participants in Advanced Alternative Payment Models (A-APMs). Key changes proposed for 2018 include:

  • Raising the MIPS threshold score (i.e., the score below which a participant would receive a negative payment adjustment) to 15 out of a possible 100, up from a score of three for Program Year 2017;
  • Elevating the minimum Medicare volume threshold for participation in MIPS, relative to Program Year 2017 (to $90,000 in allowed charges, or 200 Part B beneficiaries), which would exempt more than 60% of otherwise-eligible clinicians from the program;
  • Implementing “virtual groups” to allow clinicians and practices to band together for MIPS reporting and receive a single score;
  • Introducing an alternative MIPS scoring methodology for facility-based clinicians that aligns with the Hospital Value-Based Purchasing program in Medicare Part A;
  • Delaying incorporation of the cost-scoring component of MIPS until Program Year 2019;
  • Delaying the requirement for use of 2015 Certified EHR Technology under MIPS; and
  • Proposing additional ways in which clinicians may qualify to receive the 5% bonus in the A-APMs track, which involve participation in a combination of Medicare Advanced APMs and Advanced APMs outside the Medicare fee for service program (e.g., within Medicare Advantage, Medicaid and/or commercial contracts), referred to as the “All-Payer Combination Option.”

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