When Sen. Bill Cassidy (R-LA) promoted his ACA “replacement” proposal, introduced this week with Sen. Susan Collins (R-ME), he said, “Republicans think that if you like your insurance, you should keep it.” Yet a review of the Cassidy-Collins legislative text shows that the bill falls short on that promise.
Under the proposal, the Patient Freedom Act of 2017, states must choose from one of three options: (1) to continue implementing the Affordable Care Act, or ACA, albeit with reduced funding for the financial assistance that makes coverage affordable for lower- and moderate-income individuals; (2) to opt for the legislation’s preferred State Alternative Option; or (3) to reject any federal funding, though the state would still have to follow some ACA provisions.
Below, the column describes how none of these options would provide benefits or financial protections comparable to those offered by the ACA.
States that chose to keep the ACA would have fewer resources to help their residents afford care
If a state elected to keep all of the ACA’s protections in place, its residents would still see changes to their insurance. A key part of the ACA is the law’s Advanced Premium Tax Credits and cost-sharing subsidies that have helped make coverage affordable for individuals with incomes up to 400 percent of the federal poverty level. Under the Cassidy-Collins legislation, this critical support would only be funded at 95 percent of the amount that is currently available under the ACA.
This alone would increase costs for individuals buying insurance in the exchanges, forcing many individuals to look for different plans. But there are additional concerns because it is not entirely clear how the capped amount, which is then reduced by 5 percent, would be calculated. President Donald Trump’s secretary of health and human services would be the one projecting and deciding what the ACA subsidy amounts would have been in a state. The administration’s early defense of “alternative facts” does not inspire confidence in its ability to credibly and transparently handle this role. It is far from certain that the Trump administration would adjust these calculations to accurately account for changes in medical trend; new, expensive treatments; or comprehensive benefits.
States that chose the State Alternative Plan would take away key consumer protections and make coverage less affordable
It seems that Sens. Cassidy and Collins very much want states to choose the second option. Not only is it the default option under the legislation for states that do not proactively choose another approach, but states choosing this option also receive an extra 2 percent in funding for population health initiatives. This may seem like a good deal to states, but it will have a detrimental impact on individuals’ health care coverage and financial security.
First, this option repeals most of the ACA’s insurance reforms and eliminates the law’s premium tax credits and cost-sharing subsidies; its actuarial value requirements, which require insurers to pay for a set percentage of the costs for covered services; and both the individual and employer mandates.
It also repeals most of the ACA’s essential health benefit requirements, with one exception. The legislation keeps the ACA’s requirement to cover mental health care and substance abuse disorders with limited cost sharing—but only if an individual is diagnosed with a “serious mental illness.” The legislation does not define this term, and it could be interpreted in a way that severely curtails the scope of this consumer protection. For instance, the Trump administration could decide that coverage is limited to only inpatient psychiatric care.
Second, the Cassidy-Collins legislation keeps a number of the most popular ACA consumer protections in place, likely in an attempt to make the proposal more politically attractive. These include:
- The ban on insurers imposing lifetime or annual limits on the benefits they pay out
- The requirement on insurers to cover dependents under age 26
- The ban on insurers excluding coverage of pre-existing conditions, unless the person with a pre-existing condition failed to maintain continuous coverage
- The ban against health status discrimination, unless the person with a pre-existing condition failed to maintain continuous coverage
- The requirement on insurers to cover mental health care
- The ban on discrimination on the basis of race, national origin, sex, age, or disability
One of the other popular provisions in the ACA is its requirement that insurers and employers cover preventive services with no cost sharing. Yet the Cassidy-Collins legislation keeps this requirement in place only if employers do not contribute to an individual’s new Roth health savings account, or HSA, described below. This section of the legislation is silent on how this requirement will be treated in nonemployer coverage.
If state policymakers chose this option, however, they would still be taking away a number of other key consumer protections from their state’s residents. Once again, insurers in these states:
- Would be able to rescind coverage
- Would no longer be required to limit their profits and administrative costs
- Would be able to charge older people as much as they want
- Would be able to once again charge higher premiums for women than for men
- Would not be required to cover essential benefits such as maternity care, prescription drugs, or dental and vision care for children
- Would not be required to pay out a minimum share of consumer costs—which would increase deductibles
- Would not be required to limit the total out-of-pocket costs that consumers must pay
- Could deny coverage or charge higher premiums due to pre-existing conditions if consumers have a gap in coverage of longer than two months
- Could impose late enrollment penalties, in addition to higher premiums, after a gap in coverage
In place of the ACA’s tax credits and cost-sharing subsidies, states selecting the State Alternative Plan would funnel financial assistance to residents in the form of deposits into new Roth HSAs. Individuals could then use those funds to pay for both premiums and cost sharing. States have two options for how they may structure these deposits. First, the state can directly deposit these payments, which the secretary of health and human services will have previously transferred to the states. Second, the state can instead elect to have subsidies provided through a refundable tax credit. What is strange about this structure is that if a state chooses to have its residents receive assistance through refundable tax credits, the credits would be taxable.
Federal funding for the Roth HSA contributions—regardless of the manner of distribution—would equal 95 percent of the ACA’s existing funding in a state. However, there is a key difference in how these funds are allocated in states that select the Alternative Plan compared with states that opt to keep the ACA.
The ACA focuses financial assistance on individuals with lower and moderate incomes up to 400 percent of the federal poverty level. Under the Alternative Plan, the HSA contributions would be income-adjusted, but people with much higher incomes would become eligible for assistance—individuals with incomes up to $190,000, or almost 1,600 percent of the federal poverty level, and couples with incomes up to $250,000. The contributions would also vary based on age and geography but not on gender, even though insurers would be able to charge women more. Individuals who have employer-sponsored insurance may also qualify for these payments.
By expanding the number of people who may receive financial assistance for purchasing health care, the Alternative Plan takes money away from those most in need of this funding—those lower- and moderate-income people without access to employer-sponsored insurance. These individuals would not only have less financial assistance, but they would also find far less generous plans that do not have to cover maternity care, prescription drugs, or any mental illness not deemed “serious.”
Not only would the Alternative Plan dramatically increase costs and undermine coverage for people who currently receive assistance to purchase health insurance through the ACA’s marketplaces, but it could also do the same for Medicaid enrollees. If a state chose to expand Medicaid under the ACA, under the Alternative Plan, it could shift those new Medicaid enrollees into the individual market, where, in theory, they would receive HSA contributions to help them purchase insurance. Yet it is very unlikely that these limited HSA contributions would be enough to purchase a plan that is similar to Medicaid coverage under the ACA. Instead, these individuals would have to choose between more expensive yet skimpier coverage or becoming uninsured. And under the Alternative Plan, once consumers become uninsured, insurers can later discriminate against them for pre-existing conditions and health status.
States can choose to reject federal funding to help residents pay for health care
For states that think that the Alternative Plan does not go far enough, there is a third option: to reject federal funding entirely. The only ACA requirements that would remain in place in these states are those that are discussed above as part of the Alternative Plan. The only difference for residents in states that simply reject the ACA compared with those living in states that choose the Alternative Plan is that those wishing to purchase insurance in the largely unregulated individual market would be entirely on their own, without any federal financial assistance. Yet the individual insurance market in these states would likely be in even worse shape than before the ACA, with higher premiums and lower enrollment, since a few of the ACA’s consumer protections would be kept—but without the individual mandate or tax credits to help people afford coverage.
The Cassidy-Collins legislation would create massive inequities between the states, with people’s access to affordable health care and consumer protections varying wildly depending on geography. Ultimately, in most states, consumers and patients would lose key benefits and financial protections.
In the meantime, the uncertainty about what states would do would affect people’s ability to stay on their marketplace plans in the short term. As states figured out what action to take, insurers would likely increase premiums or drop out of markets until there was more certainty about what different state markets would look like going forward. This legislation cannot be considered a serious alternative to the ACA when it would cause millions of people to lose their comprehensive health care coverage and expose them to far greater financial risk.
Topher Spiro is the Vice President for Health Policy at the Center for American Progress. Maura Calsyn is the Director of Health Policy at the Center. Thomas Huelskoetter is the Research Associate for Health Policy at the Center.