In early March, legislation to repeal and replace the Affordable Care Act was approved and will be sent to the House for a vote. Its supporters hope the House vote will occur before the Spring break starting on April 7th. The Congressional Budget Office (CBO) has provided an analysis of the legislation and has estimated that 14 million people will lose insurance by 2018 and 24 million will lose insurance by 2026. The CBO report indicated that the legislation will reduce deficits by $337 billion over 10 years. The most significant reason is an $880 billion reduction to Medicare offset by a nearly $600 billion tax cut for those with incomes over $200,000 per year.
The bill attempts to include revisions to Medicaid as well as the Affordable Care Act. The provisions impacting Medicaid will have a significant impact on millions (70 million people are beneficiaries of Medicaid), especially since the Medicaid program is converted into set dollar block grants in 2020. This will shift the burden of the increased costs of Medicaid due to larger numbers of participants and/or greater health care costs to the states when the block grants are instituted.
Some basic differences between the Affordable Care Act and the new legislation are that the new legislation repeals the 3.8% net investment tax and repeals or delays other taxes which provided funding for the Affordable Care Act’s premium support payments. Those premium support payments will be eliminated and will be replaced with per-person tax credits that appear to apply to all taxpayers. Combined with the repeal of the net investment tax, the benefit to higher income taxpayers from the new legislation appears significant, because the cost of employer-provided health care is still tax free under the legislation.
The new legislation appears to continue to allow parents to keep their children on their health insurance policies until they are 26 years old. It also appears to prohibit denial of coverage for pre-existing conditions, and does not allow lifetime caps on payments. It does, however, allow insurance companies to charge up to 30% more for a renewal or addition of coverage if there is a lapse in coverage. The new legislation also allows a greater gap in premium cost between those in their 20s and those in their 50s or 60s revising the gap from a ratio of 3 to 1 to a ratio of 5 to 1. This would allow insurance companies to charge a 60 year old 5 times as much as a 20-30 year old. This could reduce the cost of a policy for a 20-30 year old and increase the cost for a 60 year old. The new legislation also repeals the insurance mandate so that the 20-30 year old will not need to obtain coverage at all. How this impacts the overall health care markets, including those whose employers provide coverage for them, is not possible to determine at this time although the CBO report indicates that non group insurance premiums on average will initially rise until 2020 and then decline. The decline, however, is based on the assumption that more younger and healthier individuals will purchase insurance after 2020. Premiums for older individuals are estimated to increase without abatement due to the change to the ratio noted above. We will follow up as additional information becomes available.
Written by: Joseph J. La Costa, Esq.