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November 7, 2018 | HR Compliance | Posted by Bob Greene, Senior HR Industry Analyst at Ascentis

The Affordable Care Act Part 1: What If the ACA Were a Quilt?

The nation faced one of the most important mid-term elections in history yesterday. What was the number one concern for most voters? Healthcare. Why? The outcome of this election will almost certainly affect what happens to the Affordable Care Act (ACA).

Wondering what all this means for you as an HR professional? Let’s start with a recap on the ACA.

The Background of the ACA

I sometimes think of the Affordable Care Act as a quilt. Strange? Maybe, but hear me out. The analogy is strangely fitting.

There once was a Quilt called the Affordable Care Act. It was completed in 2010. It was big and thick (over 18,000 pages –er—threads – of implementing regulations) and incorporated many patches (provisions). The Quilt was square, and one side of the Quilt was dedicated to insurers, another side was dedicated to healthcare providers, the third side was dedicated to employers, and the fourth side of the Quilt was dedicated to individual taxpayers. The Quilt’s originators recognized that without genuine buy-in from all four of these constituencies, this Quilt would never be completed.

There were aspects of the Quilt that each of these constituencies liked, some that they loved, and there were other aspects of the Quilt that each of the sides didn’t like. But love it or hate it, the Quilt held together.

The Quilt included many provisions that focused on expanding coverage. It took a look at common health insurance practices in place prior to the ACA and imposed “Minimum Essential Coverage” standards that specified 10 essential health benefits that every policy must cover. The Quilt prohibited healthcare policies from imposing annual or lifetime reimbursement limits. And most importantly (and most controversially?) it prevented insurers from limiting or ruling out coverage for pre-existing conditions.

When you outlaw excluding coverage for pre-existing conditions, effectively making health coverage “guaranteed issue,” the cost to the insurers increases significantly. For this reason, the Quilt included several provisions to “cushion the blow” for insurers: an employer-funded transitional reinsurance program, cost-sharing reductions in the individual Marketplace, and a risk adjustment repayment program.

The Quilt included provisions that focused on the “affordability” aspect of “affordable care.” For example, it imposed limits on the premiums employees could be required to pay per month for coverage. And, if you are a benefits administration professional reading this blog, you may only be familiar with that provision in terms of the ACA’s affordability provisions. But there were others, and they were somewhat revolutionary in the health insurance industry.

Initially, all four sides of the Quilt, it seemed, had a reason to hate the Quilt. Employers had to adjust to a series of complex new rules relating to everything from when they must make coverage offers to employees, to annual 1094/1095 compliance reporting. Health insurers could not have been thrilled about the Medical Loss Ratio rules, and the newly imposed limits on their retention. Some individuals focused on whether they could keep their doctors under the new law. And many healthcare providers, unhappy that the ACA severely limited their income potential or increased the time spent on insurance paperwork, went out of private practice or turned their private practices into "concierge medicine.”

After much political wrangling for over five years, the 2016 presidential election made a REALLY big deal about the Quilt! One candidate promised to burn the Quilt (or at least, repeal-and-replace it). He made it a cornerstone of his campaign, and when he was elected in November 2016, he set about keeping his promise.

What’s Been Happening Recently?

The Quilt was sent to the House of Representatives with instructions to burn it! The House had been trying (with more than 70 votes over several years) and were unsuccessful again in 2017. So, the House handed the Quilt to the Senate and said, “Here, burn this Quilt!” And the Senate got very, very close. But at the key moment, one Senator strode onto the floor of the Senate with a fire extinguisher (or more accurately, a simple thumbs-down) …. and the Quilt survived.

The House and Senate handed the Quilt back to the President and said, “Mr. President, We’re sorry! We can’t burn this Quilt.” The President thought about his next move and knowing that the Constitution didn’t allow him to burn the Quilt on his say-so alone, decided on a plan. If he couldn’t burn the Quilt, he would take it apart, thread by thread, and if he pulled on just the right threads, the Quilt might fall apart.

The first thread the Administration pulled was the Federal Cost Sharing Reductions Payment thread, and they pulled that thread on October 12, 2017. This pulled an estimated $7 billion of Accounts Receivable right off insurance companies’ ledgers. According to the Kaiser Family Foundation, ACA Silver Plan Premiums in the healthcare marketplace were expected to increase from 7% to 38% for 2018 purely based on this action alone. Now that 2018 is almost complete, reports the average impact of this action on silver plan premiums was to raise them a modest (in context) 10%.

The second thread the Administration pulled was the Individual Mandate thread (which required every American to either have health insurance or pay a penalty to defray the costs of unreimbursed care they might receive in emergency rooms, etc.), and they pulled that thread when the Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law on December 22, 2017. Effective January 1, 2019, any American could simply refuse to participate in the US health insurance market without penalty of any kind. When healthy Americans decide they don’t need insurance, and aren’t required to purchase it, this leads to a result called “adverse selection,” and increases the concentration of less-than-100%-healthy individuals in the insurance market. This increases the costs for remaining members dramatically, to the point where the health insurance market may not hold together at all.

The third thread the Administration pulled was the Associations Health Plans (“AHP”) thread, which was published in the Federal Register on June 25, 2018. This changed the definition of “employer” and allowed small employers to band together to purchase insurance across state lines. It also allowed them to exclude some benefits viewed under the ACA as “essential,” such as maternity care expenses. This action is estimated by health insurers to siphon off as many as 4.3 million (mostly healthier) insureds from individual, small group, and/or large group plans.

The fourth thread the Administration pulled was the Risk Adjustment Payments thread, and those payments were frozen on July 7, 2018. Like the Cost-Sharing Reduction Payments cancellation, this action pulled an estimated aggregate $10.4 billion in Accounts Receivable out of insurers’ pockets.

The fifth thread the Administration pulled was the Short-Term Limited Duration (STLD) Health Plans thread, and it (once again) significantly loosened ACA restrictions on certain classes of health insurance. The final rule on this change was issued in early August, and took effect on October 2, 2018. This rule reverted the short-term health plans durational limit back to 364 days and made them renewable for up to three years, potentially without underwriting re-evaluation. STLDs under the new rule are NOT considered individual plans as defined under the ACA, making them exempt from most ACA protections. A recent study by Kaiser Family Foundation found that the percentage of conditions NOT covered by STLDs was significant: mental health conditions (43% of plans did not cover), substance abuse (62%), prescription drugs (71%) and maternity care (100% of plans did not cover).

Like Association Health Plans, STLD plans will be most attractive to the very healthy, who will then, hope that they REMAIN very healthy over the course of their coverage period. But to some state regulators, these plans create too many risks for the insured, and some even term them “junk insurance.” In fact, more than half the states have laws that restrict the initial terms or total duration of STLD plans, and some states (California, for example, effective January 1, 2019) have outlawed them entirely.

An interesting change happened in the two years since the last presidential election while the federal government tried to burn (repeal-and-replace) the Quilt. A majority of Americans went from disliking the Quilt (45% favorable in November 2016) to liking it (54% favorable in February 2018). Of course, 54% isn’t a ringing endorsement of any policy, but interestingly, 75% of Americans now believe that pre-existing condition protections must stay part of any healthcare law.

What Now?

What does this have to do with yesterday’s election? A lot. Whether you love or hate the ACA, the experience of the last eight years has resulted in a huge increase in the American people’s understanding, and appreciation, of their healthcare coverage. Virtually every American now either has a pre-existing condition or knows someone close to them with one. As candidates came into this election – some of them talking about pulling more threads and some of them talking about reinforcing others – the outcomes of yesterday’s elections will have an impact one way or another on healthcare in America. And as a result, they’ll also have an impact on how HR professionals need to adjust and respond to what are sure to be continuing changes to healthcare laws in America. We’ll examine the election results and related implications in Part II of this blog post.

Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (later acquired by Deloitte Consulting.)