Recent reports indicate that the emerging Senate version of the American Health Care Act (AHCA) may not include the House version’s provision permitting states to waive the Affordable Care Act’s (ACA) community rating provision, which prevents insurers from charging sick people higher premiums than healthy people.
Even without community rating waivers, the Senate bill would still critically weaken protections for people with pre-existing conditions. By allowing states to waive the ACA’s essential health benefits (EHB) requirements, it would enable insurers to effectively screen out sick people by excluding certain services.
As a result, people with pre-existing conditions in waiver states would face significantly higher costs and find it much harder to find insurance plans that actually covered treatment for even relatively common conditions such as mental health problems or diabetes. The Center for American Progress estimates that in the individual market, 5.3 million enrollees with pre-existing conditions would live in states that waive EHBs and thus see their protections eroded.
In addition, the problem would be particularly acute for older Americans, who would face much higher premiums under the AHCA, as well as for millions of low-income Medicaid enrollees, who would lose comprehensive coverage due to the AHCA’s $834 billion in cuts to that program.
Essential health benefits waivers would raise costs for people with pre-existing conditions
The ACA’s EHB standards ensure that insurance plans in the individual and small-group markets cover a comprehensive set of medical benefits, including mental health care, maternity care, hospitalizations, and prescription drugs. Prior to the ACA, significant percentages of plans in the individual market failed to cover many of these services.
The emerging Senate repeal bill would allow states to waive EHB requirements and replace them with a narrower set of benefits. In waiver states, many insurers would drop coverage for more expensive conditions that were no longer required.
The consequence of this would be significant cost increases for people who need these services. As the Congressional Budget Office (CBO) explains:
People living in states modifying the EHBs who used services or benefits no longer included in the EHBs would experience substantial increases in out-of-pocket spending on health care or would choose to forgo the services. Services or benefits likely to be excluded from the EHBs in some states include maternity care, mental health and substance abuse benefits, rehabilitative and habilitative services, and pediatric dental benefits. In particular, out-of-pocket spending on maternity care and mental health and substance abuse services could increase by thousands of dollars in a given year for the nongroup enrollees who would use those services.
Additionally, EHB waivers would substantially weaken the ACA’s ban on annual and lifetime dollar limits on coverage, since this ban only applies to essential health benefits. Thus, even people who found insurers willing to cover benefits that were no longer required would still be affected, since those insurers would be free to impose annual or lifetime limits on those benefits. Patients with expensive pre-existing conditions that required treatment would then be at risk of hitting these limits and being forced to pay out of pocket.
The effects of the EHB waivers would be widespread. Although the CBO did not attempt to guess which states would pursue waivers, its score of the final House bill projects that about half of the population would be in states that would choose to waive EHBs. Enrollment in the individual market currently consists of 12.2 million people on the marketplace and an estimated 6.9 million off of the marketplace, totaling about 19.1 million enrollees. Under the CBO’s projection, half of this, or about 9.6 million individual market enrollees, would live in waiver states. Since data show that 55 percent of individual market enrollees have pre-existing conditions, this would translate to about 5.3 million enrollees with pre-existing conditions living in waiver states.
EHB waivers would lead to a race to the bottom on benefits
In EHB waiver states, people with pre-existing conditions would see their protections drastically eroded. Insurers would still be formally banned from rejecting sick people and charging them different rates. However, the lack of comprehensive EHB requirements would open the door for insurers to discriminate systematically against sick people.
Enrollees with expensive pre-existing conditions would need more comprehensive benefits and be less likely to buy bare-bones plans, since the latter would force them to pay for many treatments out of pocket or purchase expensive coverage riders. As a result, insurers would know that offering essential benefits would attract sicker enrollees, while offering more bare-bones coverage would be more attractive to healthier enrollees.
Ultimately, this could lead to a downward spiral in plan benefits as insurers competed to attract healthy enrollees and discourage sick people from enrolling. Insurers would not be making decisions on which benefits to cover in a vacuum; they would nervously be expecting their competitors to reduce benefits, which would push sick enrollees toward any insurers still offering more comprehensive benefits. Insurers that did continue to offer comprehensive benefits would be forced to increase their premiums significantly.
Thus, insurers would likely engage in a race to the bottom to avoid attracting the sickest enrollees. This would also affect healthy people, who would see fewer plan options offering comprehensive benefits than prior to the ACA.
Age tax and repeal of Medicaid expansion would compound these effects
The House version of the AHCA would also have loosened the ACA’s age rating band to permit insurers to charge older enrollees five times more than younger enrollees. The emerging Senate plan would reportedly also allow states to waive the ACA’s current 3-to-1 age rating band. In other words, the AHCA would effectively impose an age tax on older Americans, who would need to pay much more to obtain coverage than they would under current law.
In states that opted for both of these waivers under the Senate bill, the effects of this age tax on premiums would compound the negative impact of the EHB waivers, since older enrollees are more likely to have pre-existing conditions.
There are an estimated 5.1 million enrollees ages 55 to 64 covered through the individual market, both on the ACA marketplace and outside it, and estimates show that 84 percent of enrollees in this age group have at least one pre-existing condition that would have resulted in them being denied coverage or being charged more prior to the ACA.* Nationally, CAP estimates that 4.3 million people ages 55 to 64 would be at risk from both the age tax and the loss of pre-existing conditions protections; under the CBO’s projection, about 2.2 million of these would live in waiver states.
Similarly, people with pre-existing conditions who were made newly eligible for Medicaid under the ACA’s Medicaid expansion would also be worse off under the Senate bill. The Senate repeal bill calls for Medicaid expansion funding to be phased out over time, forcing financially strapped states to cut back eligibility for the program. Millions of people with pre-existing conditions in the expansion population could find themselves uninsured and unable to obtain affordable insurance that covers their pre-existing conditions or covered by plans that leave them exposed to high out-of-pocket costs for needed services.
More than 11 million people are currently enrolled in Medicaid thanks to the ACA expansion, which extended Medicaid eligibility to people with incomes up to 138 percent of the federal poverty level, and survey data show that about 48 percent of people in that income range have pre-existing conditions. Thus, CAP estimates that nationwide, about 5.4 million newly eligible Medicaid expansion enrollees have pre-existing conditions; under the CBO’s projection, about 2.7 million of these would live in waiver states.
In addition, CAP has previously estimated that 900,000 elderly people who receive coverage through both Medicaid and Medicare would lose Medicaid due to the AHCA’s caps on federal funding for traditional Medicaid. Without Medicaid, these beneficiaries would receive fewer benefits and face higher cost sharing—making it harder to afford treatment for pre-existing conditions.
The House version of the AHCA would gut protections for people with pre-existing conditions in multiple, interconnected ways. Even without waivers for community rating, the emerging Senate repeal bill would still undermine protections and trigger a race to the bottom as insurers in EHB waiver states reduced their benefits in order to discourage sick people from enrolling. Millions of people with pre-existing conditions in these states would face higher costs and struggle to find affordable plans that cover the services and treatments they need.
Thomas Huelskoetter is the policy analyst for the Health Policy team at the Center for American Progress. Emily Gee is the health economist for the Health Policy team.
* Data from the Centers for Medicare & Medicaid Services show that 3.3 million people ages 55 to 64 enrolled in marketplace coverage for 2017 and accounted for 27 percent of total enrollment. We assume that 27 percent of people enrolled outside the marketplace are also in that age range. The U.S. Department of Health and Human Services estimated that 6.9 million people are enrolled in individual market coverage outside the marketplace.