Author: ITUP

Covered California 2018 Rates Complicated By Federal Uncertainty and Rural Challenges

This week, Covered California, California’s Affordable Care Act (ACA) exchange, announced preliminary 2018 premium rates for exchange health plan offerings. Health plan proposed rates are still subject to regulatory review by the state Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI).

  • Covered California announced an average rate increase of 12.5 percent, weighted for the number of enrollees in each plan and region. The weighted average rate increase varies significantly by rating region from a high of 33.2 percent in the rural north region to a low of 4.3 percent in the San Mateo region. The proposed 2018 average increase is lower than last year and, according to Covered California, includes a one-time increase of 2.8 percent because health plans must pay the ACA health insurance tax which Congress delayed until the 2018 plan year.
  • All 11 health insurance companies will return to the market in 2018, and 96 percent of consumers will be able to choose from two companies. Eighty-two percent will be able to choose from three companies or more. Approximately, four percent of consumers (about 60,000 of the 1.4 million consumers) will have only one company providing individual market coverage in their area caused, in part, by Anthem leaving some markets that comprise about half of its enrollment.
  • According to Covered California, the competition among health plans allows consumers to avoid a significant increase by switching to the lowest-cost plan in the same metal tier, and see rate increases of closer to 3.3 percent. However, consumers in the rural north, where fewer health plan choices exist, will still face an average rate increase of 29.5 percent even if they switch to a lower priced plan.

Pre-ACA Regional Challenges Still impact Insurance Premiums

Covered California pointed out that provider concentration and regional factors continue to drive regional variation in premiums. Rural residents, in particular, have historically faced barriers to accessing both providers and insurance coverage. According to the Office of Statewide Health Planning and Development, half of the counties in Covered California’s rural north rating region (Region 1) have only one hospital and Alpine County has no hospital. Historically, significant portions of these counties have been designated federal health professional shortage areas or medically underserved areas due to chronic provider shortages. These challenges, and the resulting higher insurance rates in this region (and other rural regions to a lesser extent), pre-date the ACA.

Despite the continued challenges, the ACA makes a difference in helping rural consumers secure individual market coverage. First, Covered California uses its leverage as an active purchaser to negotiate with insurers on behalf of its enrollees ensuring that the overwhelming majority of enrollees have at least two health plan choices and rates are as competitive as possible. Second, the ACA’s premium tax credits adjust based on geography. Regardless of the rating region, premium payments for all subsidized consumers are limited to a specific percentage of income with the remainder covered by the ACA tax credit, adjusted as premiums increase. This critical affordability protection is utilized by 91 percent of the enrollees in the rural north region and 87 percent of all Covered California enrollees. On average, ACA tax credits cover 71 percent of the monthly premium of household policies.

In the rural north region, Covered California enrollees not eligible for premium assistance (those over 400 percent of the federal poverty level (FPL)) will face rate increases of 3 to 54 percent.

Federal Threats Result in Cost-Sharing Reduction Surcharge

One complicating factor for 2018 Covered California rates is the uncertain status of payments to health insurers that support reductions in out-of-pocket costs for low-income consumers. In addition to premium assistance in the form of tax credits, the ACA also provides cost sharing reduction (CSR) subsidies that lower deductibles, co-pays and coinsurance. Almost half of Covered California consumers benefit from CSR subsidies, which reduce out-of-pocket costs on average $1,000/year, according to Covered California.

ACA CSRs Under Threat. The Trump Administration has chosen to fund CSR payments to insurers month-by-month and repeatedly threatened to unilaterally stop this funding – creating significant uncertainty in the market.  (See “How CSR Subsidies Work.”) The ACA requirement for insurers to reduce consumer cost sharing for those eligible applies, whether or not insurers are reimbursed by the federal government. According to Covered California, insurers participating in the state’s exchange annually receive $750 million in CSR payments from the federal government. Knowing whether the Trump Administration will fund CSRs is critical as Covered California finalizes rate negotiations and executes final contracts.

Response to Federal Uncertainty. While Covered California leadership, insurers and other stakeholders would prefer that federal CSR payments continue, for the 2018 rate year Covered California developed a contingency plan.

Covered California required insurers to submit two different premium rates: one rate calculation that includes federal CSR funding and one assuming the payments discontinue. Covered California also required insurers to create a “non-mirrored silver plan” outside the exchange. (Under California law, if a Covered California issuer participates outside the exchange, the health plan must offer “mirrored” exchange products outside the exchange – products with the same benefits, premiums and provider networks. The “non-mirrored silver plan” parallels the silver plan benefit design, but without the costs of providing CSRs included in rate calculations.)

How CSR Subsidies Work. Federal funding for CSR subsidies is paid directly to Covered California insurers for their silver plan enrollees between 138-250 percent of the federal poverty level. A silver plan is a standardized insurance plan within Covered California that is benchmarked at the actuarial value of 70 percent. Generally, the actuarial value represents the percent of health services covered by the plan. For a silver plan, the insurer covers 70 percent of the costs of services and the remaining 30 percent is covered by the enrollee as their out-of-pocket cost responsibility. Federal funding for CSR subsidies provide revenue so insurers can increase the actuarial value of coverage for eligible enrollees, which lowers the subsidized enrollee’s out-of-pocket costs. Subsidized enrollees are responsible for 10-20 percent of the out-of-pocket costs versus 30 percent.

Loading the costs of subsidies solely on silver plans increased premiums on average by 23.5 percent for standard silver plans inside Covered California and its mirrored plans outside the exchange. Subsidized consumers are insulated from this increase because tax credits adjust to ensure consumer spending on premiums is capped at a specific percent of their income. Consumers not eligible for premium assistance would be subject to higher premiums.

In an effort to ensure all consumers have the ability to remain in a silver plan without experiencing extreme premium increases even with the loss of federal CSR funding, Covered California proposed the creation of “non-mirrored silver plans” outside the exchange. If federal CSR funding is lost or if uncertainty remains when rates must be finalized, Covered California will inform current silver plan enrollees above 400 percent FPL about the new off-exchange, non-mirrored silver plan option, as well as other in-exchange options that may better suit their needs, such as gold plans.

Ironically, if the Administration chooses not to make the federal payments, federal costs will actually go up. According to Kaiser Family Foundation, in 2018, the federal government will incure a net increase in costs of $2.3 billion if CSR funding is halted because ACA tax credits will adjust to cover the increased premiums that result.

Choices Remain in Most Areas, Even as Anthem Pulls Out of Many Regions

Covered California negotiated to maintain all 11 carriers offering coverage in the exchange and ensured choice of at least two health plans for 96 percent of existing enrollees. Anthem is pulling out of 16 of 19 Covered California regions. This departure is partially responsible for 4 percent of enrollees having only one health plan option. Anthem’s stated reason for leaving some markets was the uncertainty surrounding federal health reform and federal funding for CSRs. However, it will be important for Covered California to monitor the communities impacted by the Anthem withdrawal, and the impact on health plans and consumers in those areas, to identify potential strategies to increase carrier participation going forward.

ACA Stands (for Now): Takeaways from the Repeal and Replace Roller Coaster

In recent days, multiple Republican bills to repeal or rollback the Affordable Care Act (ACA) failed to get enough votes on the U.S. Senate floor. It was a close vote. Senators came within one vote of sending a repeal bill to a two-house conference committee where all the most damaging proposals of recent months would presumably be considered. The repeal process unleashed one proposal after another estimated to result in millions of Americans losing coverage, including sweeping program changes and funding cuts for Medicaid, reduced premium assistance for low-income consumers to purchase coverage and changes to health insurance rules threatening many of the key consumer protections of the ACA and California law.

For now, the ACA remains. Credit goes to all the community voices, advocates, and experts who kept the pressure on elected officials and continued to call out the very real threats the proposals represented.

The threat is not entirely removed of course. Opportunities for federal officials to reverse, rollback or weaken the ACA and Medicaid through budget action, legislation or regulatory challenges will certainly present themselves over the coming months and years. To preserve California successes, and build on them, California health care leaders must continue to evaluate, educate and communicate the advances the state made and the opportunities for improvement that remain.

Here for consideration are some takeaways from the admittedly chaotic “repeal and replace” process.

ACA Successes Tell the Story

During Congressional debate on repealing the ACA, advocates, providers, and consumers focused on the transformations in the lives of real Americans because of the ACA. Whether in legislative hearings, town halls, media interviews or in contacts with federal representatives, the compelling stories of individuals and families securing health coverage, many for the first time, captured the attention of the media and the public. Every day in communities Americans learned about family members, friends, co-workers and neighbors with pre-existing conditions or access to medical care and treatments that were saving and improving lives. Hearing stories about real people made the ACA more concrete and made it less acceptable to roll back the gains of the ACA. California weighed in in the voices of state leaders, advocates and consumers with a compelling story to tell about developing a successful ACA marketplace, state investment in early implementation, state-specific market improvements and robust outreach and enrollment efforts around the state that cut the uninsured rate in half.

ACA Implementation (and the Effort to Repeal It) is Shifting Public Attitudes

Public support for the ACA shifted substantially over the past year so that a majority of Americans support continuation of ACA policies. Prior to passage of the ACA, a relatively small percentage of individuals navigated the process to secure individual coverage. Lots of consumers had no exposure to the standard pre-ACA insurer practices of coverage denials based on health status, soaring premiums for those in less than perfect health who had no alternative but to pay the premiums or go uninsured, and the low-value, low-benefit policies that characterized individual coverage. Similarly, until the repeal effort focused attention on the Medicaid program, and the substantial number of Americans who had gained coverage in states that expanded Medicaid under ACA, many Americans viewed the program as having little direct impact in most of their lives. The debate highlighted the broad reach of Medicaid into the lives of low-income individuals and families in both red and blue states and communities.

While there are still serious disagreements across the political spectrum about health care and the role of government in health care, more and more Americans believe that it is inherently unfair (potentially un-American) to exclude from coverage individuals with pre-existing health conditions or to charge these individuals or older individuals astronomically more for premiums. Growing numbers of consumers also believe that however it might be accomplished it is a worthy societal goal to get everyone covered. These views are evolving and increasing public expectation and support for strategies to accomplish the goal of universal or near-universal coverage. Although there is a long way to go before there is a societal wide consensus on these issues a lot of progress was made during this process.

Facts Matter – Education and Information are Key

Since passage of the ACA, and throughout the repeal debate, ACA opponents repeated slogans and talking point criticisms of imploding markets and the negative impact of the ACA on most American families. Some legislators supporting repeal also failed to acknowledge the potential real-world impacts or directly contradicted the expected consequences of ACA repeal and Medicaid cuts. Researchers, experts, philanthropy, and health care leaders consistently developed and disseminated timely analysis about the potential impacts of proposals under consideration to counteract misinformation. The Congressional Budget Office (CBO) analyses provided expert, independent information assessing the repeal proposals. While CBO was often criticized and dismissed by ACA opponents, the presentation of factual, analytical information helped to shape the public conversation and turn the tide of public opinion against the repeal proposals.

Improving ACA Will Protect It

While many of the criticisms and claims about the problems with the ACA were overstated, exaggerated, or manufactured, the American public and ACA proponents recognize there is work remaining to improve the ACA and the health care system. Individuals and families continue to experience high out-of-pocket costs and challenges in securing timely access to health care services. Health care costs and premiums continue to rise placing strains on families, and challenging health care providers and policymakers to meet the needs of communities. Before the repeal effort began in earnest, California was focused on taking ACA implementation to the next level through investment in access, quality, care management and community health improvement. We must stay the course in pressing for system-wide change even as we carefully monitor the shifting landscape threatening the progress to date. Ultimately, addressing access and quality issues, and the underlying causes of rising health care costs, will be essential to protecting the gains of the ACA. Failure to address these issues over time could erode the newly gained public support for the ACA.


The Common Theme of Pending Senate Health Reform Bills? Dramatic Increases in the Number of Uninsured

As of this writing, multiple discussion drafts of potential legislation to repeal or rollback the federal Affordable Care Act (ACA) are pending in the U.S. Senate. All the bills result in dramatic increases in the number of uninsured over the next ten years; ranging from 22 million to 32 million depending on the proposal, according to analyses by the nonpartisan Congressional Budget Office (CBO).

Better Care Reconciliation Act (BCRA)
The BCRA, first introduced in June, among other things, eliminates financial penalties for individuals and employers that do not purchase coverage, reduces premium tax credits and eliminates cost-sharing reductions that help low and moderate income individuals purchase and access coverage, phases out the enhanced federal funding for the ACA expansion of Medicaid for low-income adults, and fundamentally alters the federal financial commitment to Medicaid by imposing a fixed formula, “per capita cap” model of reimbursing states for the program.

The July 13 version of the BCRA also included a new section typically referred to as the “Cruz amendment” because it was originally put forward by Senator Ted Cruz. The new section allows insurers to offer products that do not meet ACA standards, potentially with much lower benefits and fewer protections for individuals with pre-existing conditions. (See ITUP blog for details on the Cruz amendment.) Most experts believe that the Cruz amendment would result in segmenting the individual insurance market between younger, healthier individuals and those who are older or have health conditions that cause insurers to deny them coverage. Premiums would drop for those able to enroll in skimpier benefit plans and rise for those who need to remain in more comprehensive ACA-compliant benefit plans. (See ITUP BCRA summary here.)

CBO has not released an analysis of the impacts of the Cruz amendment, but found that other elements of the BCRA would leave 22 million Americans uninsured by 2026. (See latest CBO analysis of BCRA here.)

Obamacare Repeal Reconciliation Act (ORRA) of 2017
In recent days, Republican leadership released a new ACA repeal draft that includes no replacement elements, similar to a 2015 measure passed by Congress and vetoed by President Obama. ORRA repeals significant portions of the ACA in 2020, including the Medicaid adult expansion, ACA premium and cost sharing subsidies, and the penalties necessary to enforce the individual mandate. The approach in ORRA is sometimes referred to as “repeal and delay.” ORRA is predicated on the notion that Republicans would develop a replacement plan before the 2020 repeal date.

On July 19, the Congressional Budget Office (CBO) released its analysis of ORRA and found that in 2018, about 17 million more people would be uninsured under ORRA, reducing the percent of insured Americans from 90 percent under the ACA to 84 percent. By 2026, ORRA will strip coverage from 32 million individuals, leaving a historic high of 59 million Americans uninsured. In 2026, under ORRA, 21 percent of adults under age 65 will be uninsured.

Under ORRA, funding for the Medicaid adult expansion would be eliminated. The loss of federal Medicaid funds threatens coverage for 3.9 million California adults. In addition, 1.2 million of Covered California’s 1.4 million enrollees (87 percent) rely on ACA tax credits to help defray approximately 71 percent of overall premium costs. By eliminating these subsidies, as well as the cost sharing reductions that reduce out-of-pocket costs for 50 percent of Covered California enrollees, ORRA makes it likely that most, if not all, Covered California enrollees will lose coverage as well.

If fully implemented, ORRA could lead once again to more than 7 million uninsured in California.

Analyzing Impacts on Individual Coverage
In its most recent analysis of the BCRA, CBO includes extensive analysis on the potential impacts of reducing premium tax credits and changing the benchmark plan for premium tax credits from the current silver 70 percent actuarial value plan to a 58 percent actuarial value plan. CBO finds that premiums would initially increase (20 percent in 2018 and 10 percent in 2019) but then decrease as the level of benefits covered also decreases. In one example, CBO estimates that in 2026 a 40-year-old with income at 175 percent of the federal poverty level (FPL) would face a lower premium of $1,450 for the new benchmark plan than for an ACA silver level plan at $1,700, but that individual would pay much more in the form of cost sharing; 41 percent of the benefit costs versus 13 percent in a silver plan with cost-sharing reductions. Many individuals would overall pay more for the combination of premiums and cost-sharing than under the ACA.

CBO estimates that the deductibles under a 58 percent actuarial value plan would have to be approximately $13,000. In plans that offered some coverage before the deductible was satisfied, such as primary care visits or generic drug purchases, the deductible would have to be higher. This would mean that in 2026 deductibles alone would exceed the existing ACA limit on out-of-pocket costs (adjusted forward according to the current formula). Given such a high deductible, low income individuals would likely not purchase coverage. A $13,000 deductible would exceed the entire income of someone at 75 percent FPL, be equivalent to half of the income of someone at 175 percent FPL and equal one-quarter of the income of a person at 350 percent FPL.

Analyzing Market Impacts
Despite one stated aim of Republican efforts to repeal the ACA – addressing collapsing markets under the ACA — CBO has consistently found that the non-group (individual) insurance markets in most parts of the country are stable under the ACA.

To illustrate this point, according to Kaiser Family Foundation, only 38 U.S. counties out of 3,143 are at risk of having no insurer on the marketplace in 2018. Twenty-four thousand estimated enrollees out of 12 million (0.2 percent) are at risk of having no exchange insurer in 2018. In California, all California counties have at least two insurers and some counties have up to seven offerings through Covered California. California expects to have similar insurer participation in 2018.

By contrast, CBO projects that the loss of subsidies and other market changes in ORRA will destabilize the markets so that half the nation’s population will have no insurer participating in the individual market by 2020 and three-quarters of the nation will have no individual market insurer by 2026. CBO projects that by 2026, fewer than 2 million Americans will participate in the individual market nationwide, the approximate number insured in California’s individual market pre-ACA.

The CBO also estimates that under ORRA, because of reduced enrollment, higher average health care costs among remaining enrollees, and less participation by insurers, the average premium for silver plans in the individual market will increase by 25 percent in 2018 and be 50 percent higher in 2020 under ORRA. According to the CBO, premiums will continue increasing relative to premiums under the ACA and be 100 percent higher in 2026. For comparison purposes, average rate increases in California’s ACA marketplace, Covered California, for the past three years, has been 7 percent. Covered California rates increased, based on a weighted average, 13.2 percent in 2017.

What Comes Next
It remains unclear whether and in exactly what form the Senate will vote on ACA repeal legislation, although the leadership has promised a vote the last week of July. The Senate Parliamentarian also released the anticipated ruling concluding that many of the provisions of the BCRA violate the so-called “Byrd rule” limiting provisions that can be included in reconciliation bills.

What is clear is that the known proposals being considered by the Senate would drastically increase the number of uninsured, effectively erasing many of the coverage gains in California and around the country.

Revised Senate Health Reform Continues to Threaten Coverage for Millions

On July 13, 2017 Senate Republican leaders released a revised discussion draft of the Better Care Reconciliation Act (BCRA). The changes made in this version of the Senate proposal do not substantively change the basic features of the original BCRA proposal. The Congressional Budget Office (CBO) concluded the original BCRA ultimately strips coverage from more than 22 million Americans. An updated CBO score is expected early next week.

The discussion draft leaves in place the dramatic restructuring of the federal Medicaid program. The reduced federal commitment to Medicaid accounted for a significant portion of the CBO’s estimate of newly uninsured under BCRA.

In addition, the new discussion draft also includes language that could destabilize the individual insurance market. The new Title III in the draft allows insurers that offer specific products inside of the exchange marketplaces to offer products outside of the exchange that are not subject to Affordable Care Act (ACA) standards and consumer protections. This provision will allow for low-benefit plans that appeal to and can selectively enroll younger and healthier individuals, while leaving older individuals and those with pre-existing health conditions who need comprehensive coverage siloed in products that will become increasingly costly as the risk pool deteriorates. This proposal threatens to return the market to the pre-ACA discriminatory practices that left out those with less than perfect health status.

Here are preliminary highlights of the changes in the new discussion draft.

Preliminary Overview of the July 13 Revisions to the BCRA


  • Medicaid Per Capita Cap. Maintains the proposed per capita cap restructuring of federal Medicaid funding, shifting to a formula-based, fixed funding allocation for states. The revised BCRA discussion draft specifies that if a public health emergency is declared, Medicaid expenditures will not count toward the per capita cap or block grant allocations for the declared period of the emergency.
  • Medicaid Block Grants. Allows the Medicaid adult expansion population to be included under a block grant if states choose a block grant for adult enrollees over the per capita cap. In the prior version, block grants could only cover other Medicaid nonelderly, nondisabled, adult populations.
  • Medicaid Waivers. Establishes an $8 billion, four-year demonstration of state incentive payments for home and community-based services for the aged, blind, and disabled. States compete to secure funding and the 15 lowest population density states receive priority consideration. The revised BCRA maintains the elimination of the ACA enhanced Medicaid match for Home and Community-Based Attendant Services and Supports (a $19 billion cut over ten years), which California currently uses to partially finance the In-Home Supportive Services Program.
  • Retroactive Eligibility. Reinstates 90-day retroactive eligibility for seniors and persons with disabilities only. The BCRA otherwise limits eligibility to the month in which the applicant applied.
  • Enhanced Medicaid Funding for Native Americans. Extends eligibility for enhanced federal Medicaid matching funds for any provider that serves Medicaid-eligible Native Americans.
  • DSH Funding Calculation. Changes the DSH calculation for states that, unlike California, did not expand Medicaid coverage to childless adults.

Insurance Market

  • Non-ACA Compliant Offerings. After 2019, allows an insurer that offers specified products in the exchange to also offer products outside of the exchange that do not meet ACA standards. Specifically, insurers must offer in the exchange:
  1. At least one gold level and one silver level ACA compliant plan (as the ACA is amended by the BCRA), and
  2. One premium tax credit benchmark plan. Under the BCRA the benchmark plan for premium tax credits is a plan with actuarial value of 58 percent. Generally, the actuarial value represents the percent of health services covered by the policy and the consumer pays the remaining costs (e.g., 42 percent).

For the years an insurer meets these two requirements, BCRA allows the insurer to offer products outside the exchange that do not meet ACA market rules (non-compliant plans).

Non-compliant plans could avoid complying with any of the following ACA requirements:

✔️ essential health benefit requirements (with some exceptions)
✔️ rating restrictions including limitations on age rating
✔️ guaranteed issue requirements
✔️ open and special enrollment period
✔️ prohibition on pre-existing condition exclusions or other discrimination based on health status, medical condition, disability
✔️ prohibition on excessive waiting periods to secure coverage
✔️ requirements on coverage of preventive health services
✔️ requirements to ensure that consumers receive value for their premium payments (medical loss ratio standards)

The revised draft also states that insurers must comply with state requirements applicable to health insurance offered in the state.

The non-compliant plans are not eligible for premium tax credits and State 1332 Waivers cannot be used to redirect premium tax credits to non-compliant plans. Non-compliant plans are also ineligible for the ACA risk adjustment program. Health Savings Accounts (HSA) can be used to support premium payments if the non-compliant plan is otherwise HSA-eligible.

Non-compliant plans are not considered “credible coverage.” The BCRA imposes a six-month waiting period for individuals seeking coverage who failed to maintain continuous credible coverage, meaning they experienced a gap in coverage of more than 63 days in the preceding 12 months.

The draft appropriates an additional $2 billion in funding for states to offset the additional costs states may incur in regulating non-compliant plans.

  • Tax Credits. For the first time, allows premium tax credits to be used to purchase catastrophic plans, provided the individual meets other eligibility requirements for the tax credits. Catastrophic plans are high deductible health plans that cover at least three primary care visits per year before the deductible is met. Catastrophic plans are subject to the federal limit on out-of-pocket costs.
  • Catastrophic Plans. In 2019, allows any individual participating in the individual market to enroll in a catastrophic plan. Currently, enrollment in catastrophic plans is limited to individuals under 30 years of age and those with a hardship exemption from the requirement to maintain minimum essential coverage. (Hardships exemptions apply when financial situations and other circumstances keep an individual from securing comprehensive insurance coverage.)
  • Late Enrollment Penalty. Revises the BCRA “look back” period when an individual applies for special enrollment. Eligibility for special enrollment is triggered by certain life events, such as marriage, divorce, or loss of job-based coverage. To avoid the penalty of a six-month waiting period, an individual applying for special enrollment must have at least one day of credible coverage during a 60-day “look back” period immediately preceding the date of application. Applicants using open enrollment must demonstrate 12 months of credible coverage without a significant break immediately preceding the submission of their application.
  • Health Savings Accounts. Allows Health Savings Accounts to be used for health insurance premiums.
  • Adjusting the Benchmark. Authorizes the Secretary of the Treasury to increase the value of the BCRA benchmark plan (58 percent actuarial value) in any rating area where no plan at 58 percent actuarial value is offered.
  • Market Stabilization State Grants. Adds $70 billion to the BCRA’s $112 billion State Stability and Innovation Fund, which provides grants to states to address the health care needs of high-risk individuals, help stabilize premiums and reduce out-of-pocket costs in the individual market. Reserves one percent of funds annually for insurers in states where the cost of insurance premiums is at least 75 percent higher than the national average.

Other Provisions

  • Opioid Crisis. Provides $45 billion over the next decade to help states combat abuse of drugs, including opioids. The BCRA originally allocated $2 billion for state grants to support substance use disorder treatment and recovery support services for 2018.
  • ACA Taxes. Reinstates the 3.8 percent levy on investment income for high income earners, individuals with investment incomes over $200,000 and couples with investment incomes over $250,000. Reinstates the ACA 0.9 percent Hospital Insurance payroll tax on these high income earners.

Fact Sheet June 2017 — Year-by-Year Impacts of the Senate Better Care Reconciliation Act

According to the Congressional Budget Office (CBO), the Senate Better Care Reconciliation Act (BCRA) of 2017 strips insurance coverage from 22 million Americans by 2026, a similar result as the House-passed American Health Care Act (AHCA). This ITUP Fact Sheet shows the year-by-year policy changes that eventually lead to dramatic waive of uninsured Americans.

Download the Fact Sheet here.

State Medicaid Agency Finds Staggering Losses for California Under U.S. Senate Bill

On June 28, 2017, the California Department of Health Care Services (DHCS) released its analysis of the impacts for California’s Medicaid program, Medi-Cal, from the Senate Better Care Reconciliation Act (BCRA) now pending in the U.S. Senate. (See ITUP summary of the BCRA here.)

DHCS concludes that over the seven-year period 2020-2027, BCRA shifts $92.4 billion in costs from the federal government to California. To emphasize the gravity of this shift, the entire 2017-2018 state budget includes a total of $35 billion state general fund for all Health and Human Services Agency programs, including Medi-Cal.

This level of additional state costs will necessitate significant cuts in Medi-Cal, even if the state could identify additional revenues and savings to offset some portion of the federal reductions. The Republican proposed Medicaid cuts will require California to analyze and re-evaluate every element of Medi-Cal expenditures, not just the enrollment expansions made possible by the ACA. There is no doubt that California will be faced with potentially significant increases in the number of uninsured in the state.

The loss of federal funds for the state results from the BCRA phase-out of enhanced federal funding for the Medicaid adult expansion and the transition to a per capita cap funding model for Medicaid. The proposed per capita cap replaces the current federal Medicaid match of state expenditures (generally 50 percent for California) with a fixed, per person allocation formula and an annual adjustment factor.

DHCS projects a significant funding gap from the transition to the per capita cap and the switch from the Medical Consumer Price Index (CPI) to the general CPI starting in 2025, an indicator that will not keep pace with medical cost increases. DHCS estimates that, in 2027, the funding gap will be $11.3 billion because of the different adjustor. Cumulatively from 2020 – 2027, California will need to address a Medi-Cal funding gap of $37.3 billion created by implementation of the per capita.

According to CBO’s  long-term analysis released June 29, 2017, the funding gap from the per capita cap will eventually result in states receiving 26 percent less in federal Medicaid support when compared to the current law. CBO estimates that this funding gap grows to 35 percent by 2036.

California currently covers 3.8 million childless adults through the ACA Medicaid adult expansion. The BCRA elimination of enhanced federal funding for these recipients means that to maintain their coverage California would need to spend five times as much as under current law. In 2027, California would need to identify $12.6 billion additional state general fund to maintain coverage for these adults. Cumulatively from 2020 – 2027, DHCS found that the funding gap will be $51.9 billion general fund.

The magnitude of the state funding gap created by the BCRA threatens every part of the Medi-Cal program – provider payments, eligibility and benefits. Moreover, the Senate bill, and the House bill that preceded it, threaten California’s hard-fought progress in reducing the ranks of the uninsured and improving the health of Californians. See just released ITUP Fact Sheet on year-to-year BCRA impacts on the number of uninsured here.

U.S. Senate Discussion Draft Continues Path to Increasing the Uninsured

Cuts Medicaid Even Deeper than House-passed Bill

On June 22, 2017, Senate Republicans released a discussion draft of legislation they are considering that would undo key provisions of the federal Affordable Care Act (ACA) and make sweeping changes to the federal Medicaid program. The Senate proposed Better Care Reconciliation Act (BCRA) differs in several respects from the House-passed American Health Care Act (AHCA), including slowing the timeline for some changes to ACA, but also includes deeper cuts to Medicaid. (See ITUP analyses of the AHCA and the BCRA.)

The Congressional Budget Office (CBO) has yet to score the emerging Senate bill, but like the House bill, the Senate draft severely weakens the federal financial commitment to Medicaid and undermines key ACA insurance market rules and premium subsidies. It therefore seems very likely that the BCRA will also result in millions of Americans losing health coverage over time. CBO estimates that 23 million Americans would be uninsured under the version of AHCA passed by the House. The CBO score of the BCRA is expected early next week.

Deep Medicaid Cuts Should Trigger Greater Scrutiny

To date, the limited debate and truncated Congressional review of the full details of Republican ACA “repeal and replace” proposals has generally concealed from public view the historic and dramatic magnitude of the proposed changes to Medicaid. Both the AHCA and the BCRA cut federal Medicaid funding by nearly $1 trillion, shifting the costs to the states, and threatening to impact all Medicaid recipients, including children, seniors, persons with disabilities and the working poor.

Both AHCA and BCRA (Republican proposals) fundamentally alter the state-federal partnership in Medicaid from its inception fifty years ago. Instead of providing federal matching funds for state Medicaid expenditures consistent with federal program rules, the Republican proposals would set a capped, per beneficiary federal payment to states, based on each state’s “base year expenditures,” adjusted annually thereafter by an inflation adjuster.

To absorb the steep cuts in Medicaid, states will be forced to raise significant new revenues or reduce eligibility, benefits and/or provider payments. At the same time, the Republican proposals reduce federal funding for the ACA Medicaid expansion to low-income childless adults. The BCRA gradually reduces the higher federal matching rate under ACA for this population (95 percent in 2017 under ACA dropping to 90 percent permanently in 2020) so that by 2023, states will receive the traditional federal match, which in California is 50 percent.

As an illustration of the potential impact for California, the California Department of Health Care Services (DHCS) estimates that the shift in Medicaid costs from the federal government to the states under the House bill results in nearly $6 billion in additional costs to California starting in 2020 growing to $24.3 billion by 2027. Given the lower inflation adjuster in the BCRA, the cuts to Medi-Cal will be larger by 2027 under the Senate proposal. The level of additional state costs would likely necessitate significant cuts in Medi-Cal, even if the state could identify additional revenues to offset some portion of the federal reductions. The Republican proposed Medicaid cuts will require California to analyze and re-evaluate every element of Medi-Cal expenditures, not just the enrollment expansions made possible by the ACA. (See ITUP analysis of the ACA and Medi-Cal here.)

Key Differences: House and Senate Bills

  • Medicaid Per-Capita Cap. Senate includes the same per capita cap approach starting in 2020 as the House bill but excludes children with disabilities. Starting in 2025, the Senate adjusts the cap annually by the consumer-price index (CPI), and not the Medical CPI, which will slow the rate of increase in the program and result in deeper Medicaid cuts.
  • Medicaid Adult Expansion. The House bill ends the enhanced federal match for childless adults starting in 2020 (currently 95 percent) as individuals cycle out of the program. Senate gradually reduces the percentage match over time until 2023, when it reaches the level of traditional Medicaid match, 50 percent in California.
  • Premiums Subsidies for Low-Income Exchange Enrollees. Senate limits eligibility for premium tax credits to those under 350 percent of the Federal Poverty Level (FPL) instead of up to 400% FPL in the ACA. House adjusts premium subsidies by age only, making the tax credits more generous for younger enrollees than ACA, and premiums more expensive for those in high-cost areas. Senate allows for geographical and income adjustments to subsidy levels. In addition, like the House bill, the sliding scale capping the percent of income individuals must pay for premiums is less generous for those age 50 and older. Senate benchmarks subsidy levels to a lower benefit plan than ACA with an actuarial value of 58 percent.
  • State Waivers of ACA. House allows for state waivers of essential health benefits, as well as ACA community rating for those who do not maintain continuous coverage. Waiving community rating requirements allows insurers to charge sick people and those with pre-existing conditions higher premiums. Senate allows for state waivers for many significant ACA provisions but not for guaranteed issue or higher rates for applicants with health issues.
  • Individual mandate. House deletes penalties for not having coverage but imposes penalties of up to 30 percent when someone applies for coverage, if they have not maintained continuous coverage. Senate deletes individual and employer mandate penalty without any offsetting provisions.
  • Taxes. House repeals all ACA taxes but not all immediately. Senate repeals taxes, some retroactively, and some in 2018 and 2023. Senate further delays “Cadillac tax” on high-cost employer benefit plans until 2026.

See ITUP’s detailed summary of the Senate discussion draft here.

Covered California May 2017 Board Meeting

On May 18, 2017, the Covered California board convened its monthly meeting. The board agenda included the Executive Director Report, Covered California policy items, and regulations background materials.

Click here for the Covered California board agenda for May 18, 2017.

Click here for the meeting materials for May 18, 2017.

Click here to watch the board meeting for May 18, 2017.

Executive Director Report

Peter V. Lee, Executive Director of Covered California, delivered the Executive Director Report, which included a federal update, overview of the federal market stabilization regulations, and American Health Care Act (AHCA) updates.

Executive Director Lee introduced “Real Stories of California.” The project looks beyond the analytical data for exchange enrollees to reveal the real-life impact of Covered California coverage. Click here to see the eye-opening project.

Click here (slides 10,11) for Covered California’s briefs informing the national debate on health reform.

On April 18, 2017, the federal Department of Health and Human Services (DHHS) finalized market stabilization regulations. Covered California commented on the final provisions. DHHS will reduce the open enrollment period to 45 days (Nov 1 – Dec 15) in 2018. Director Lee made clear that for 2018, California will maintain its current extended open enrollment period, as outlined in state law. He commented that under existing regulatory authority, state-based marketplaces (SBMs), such as Covered California, may supplement the open enrollment period with a special enrollment period (SEP) to help address operational complications caused by a shorter open enrollment period. Director Lee shared Covered California’s plan to engage policymakers and other stakeholders to consider appropriate adjustments for open enrollment for the 2019 coverage year. He stated that there are good reasons for consumers and for risk mix purposes to have enrollees covered for an entire year. Currently under Covered California’s extended open enrollment period, individuals enrolling in January are not covered for the entire year.

The federal rules altered the special enrollment process by adding pre-enrollment verification. Covered California informed DHHS of existing SEP pre-enrollment verification efforts to leverage electronic verifications. While final regulations do not require SBMs to create pre-enrollment verification, SBMs are encouraged to adopt the federally facilitated marketplace (FFM) process, as outlined in the regulations.

Under the federal regulations, DHHS will allow health plans to have -4/+2 percent variation in actuarial value of metal tier plans, instead of the current -/+2 percent variation in federal rules. In addition, certain Bronze level plans will be permitted to have a variation of -4/+5. SBMs are not required to make this change.

Executive Director Lee reviewed the past, present, and future state of the AHCA. On May 4, 2017, the House of Representatives passed the AHCA (HR 1628) without a Congressional Budget Office (CBO) report. At the Board Meeting, Director Lee informed the Board that on May 24, CBO will publish a score for the House-passed version of the AHCA. The Senate will probably draft their own version of an Affordable Care Act (ACA) repeal bill. If the Senate bill varies from the House bill, a conference committee will iron out the differences between both versions of the bill. The reconciled bill would be reintroduced to both chambers for a final vote. If approved by both chambers, the bill would be sent to the President for approval.

Covered California Policy and Action Items

Fiscal Year (FY) 2017-18 Proposed Budget and Quality Health Plan (QHP) Assessment Fee

Jim Lombard, Chief Financial Officer in the Covered California Financial Management Division, led the discussion of the 2017-18 proposed budget and QHP Assessment Fee. Lombard updated the Board and public on fiscal year 2016-2017:

CC FY 2016-17 Slide

FY 2017-18 Proposal Overview

Click here for the Covered California FY 2017-18 Proposed Budget.

Covered California proposes a budget of $314 million in FY 2017-18. Covered California predicts a stable market with a good risk mix among the 1.4 million actively enrolled consumers. Covered California will sustain the market by investing in marketing, outreach, and customer service. The budget prepares for uncertainty by entering the fiscal year with over $298 million in reserves to react to any changes in health care laws or policies. The budget reflects a commitment to delivering value to consumers and driving for better care and lower costs.

FY 2017-18 Proposed Expenditures

CC FY 2017-18 Proposed Expenditures

FY 2017-18 Budget Conclusion

According to Lombard, the budget is balanced for FY 2017-18. The forecast predicts an assessment rate of 4 percent for the individual market with the option to decrease in the future. At the Covered California Board Meeting on June 15, the Board will be asked to approve assessments for the 2018 plan year. Covered California proposes assessments for individual and dental market health plans at 4 percent of premium, and 5.2 percent of premium for Covered California for Small Business (CCSB). In addition, the Board will take final action to approve the Covered California FY 2017-18 Budget at $314 million.

Regulation Amendments

Drew Kyler, Deputy Director for Outreach and Sales Division, requested Board approval to amend the following regulations:

  • Plan-Based Enroller Program Regulations – Approved
  • Certified Application Counselor Program Regulation – Approved
  • Enrollment Assistance Permanent Regulations Amendment – Approved
  • Medi-Cal Managed Care Enrollment Assistance Program – Approved

The regulations, amendments, and program changes are aimed at streamlining the entity application for alignment with the new program portal efficiencies.

Updated Board Calendar

June 15, 2017
July 20, 2017 (possibly no meeting this month)
August 17, 2017
September, 2017 (no meeting this month)
October 5, 2017
November 16, 2017
December 21, 2017 (possibly no meeting this month)

California Budget Conference Committee Considers Coverage Expansion for Young Adults

While federal policymakers consider legislation that would eliminate coverage for 23 million Americans, California considers expanding Medi-Cal to all low-income California residents up to age 26


Late last week, the two-house budget conference committee of the California Legislature began deliberations on the 2017-2018 state budget. The conference committee will take up multiple budget items affecting health care and coverage.

One significant issue before the conference committee continues the state’s move toward coverage for all and extends Medi-Cal coverage to low-income young adults up to age 26. Both houses passed a version of the budget that includes the coverage expansion, but at different funding levels, making it an item the conference committee can and will consider.

The 2017-2018 budget proposal follows California’s 2016 expansion of Medi-Cal to cover all low-income children, regardless of immigration status. The number of uninsured children in the state dropped from 437,000 in 2014 to fewer than 100,000 in 2017, according to the California Children’s Health Coverage Coalition. The proposed Medi-Cal expansion for young adults mirrors provisions in the federal Affordable Care Act (ACA) that allow young adults to stay on their parents’ coverage until age 26.

The 2016 presidential election shifted the national political landscape and led to current efforts by the Republican President and Republican majorities in both houses to repeal the ACA.  In a striking contrast, last year California voters considered 17 ballot initiatives, including Proposition 56, which raises new revenues for state health care programs. Proposition 56 passed with overwhelming support and imposes a $2 per pack excise tax on cigarettes and similar taxes on other tobacco products.

Governor Brown’s 2017-18 budget proposes allocating $1.3 billion Proposition (Prop) 56 revenue for expenditure growth in existing Medi-Cal programs for base managed care capitation payments, base dental expenditures, high-cost drugs, drug treatment and specialty mental health programs – growth that would normally be funded by state general fund revenues.

Both the Senate and the Assembly budget subcommittees rejected the Governor’s proposal and instead propose that a portion of Prop 56 funds be dedicated for Medi-Cal coverage of an estimated 80,000 currently uninsured, low-income young adults, regardless of immigration status. If adopted, California would achieve near universal coverage for residents under age 26, a significant achievement considering the current political climate for health care at the federal level.

The budget passed by the Assembly included $54 million to cover low-income young adults in 2017-2018, continuing annually thereafter, based on the estimate provided by stakeholder proponents. The Senate approved $63.1 million in FY 2018-19, and $85 million annually thereafter, to provide full-scope Medi-Cal coverage for all individuals up to age 26 beginning July 1, 2018. The Senate developed an independent estimate with technical assistance from the Administration. The Administration estimated costs to reach $300 million.

The Budget conference committee, the legislative forum charged with reconciling differences in the Senate and Assembly budget plans, will consider this issue as part of the budget deliberations.

Other health coverage items before the budget conference committee include:

  • Prop 56: Although both the Senate and Assembly allocate Prop 56 funds to increase Medi-Cal provider payments for dentists, family planning providers, some physicians and specialists, each house allocated different funding levels and articulated different requirements for the funds. For example, the Senate proposes a high-need specialty access pool for physician and specialist rate increases consistent with the results of the Access Assessment study (required by the Medi-Cal 2020 waiver), network adequacy standards or to more closely align Medi-Cal rates with the Medicare program. The Assembly dedicates Prop 56 funds for a physician incentive payment program.
  • Medi-Cal Optional Benefits: Both houses restore Medi-Cal optional benefits eliminated during the recession including optician/optical laboratory, audiology, incontinence creams and washes, podiatry, speech therapy and full restoration of dental benefits. However, the Senate relies on Prop 56 funds for the restoration and the Assembly allocates state general funds for this purpose. In addition, the Assembly included general funds for restoration of chiropractic services while the Senate did not.
  • Medi-Cal for Seniors and Persons with Disabilities. The Assembly budget plan, but not the Senate, includes $30 million general fund to increase the income eligibility for the Medi-Cal Aged and Disabled Federal Poverty Level (FPL) program from 123 percent FPL to 138 percent FPL. With ACA implementation, income eligibility for no share-of-cost (SOC) Medi-Cal increased for most Medi-Cal programs up to 138 percent FPL. The Assembly proposal expands access to no SOC Medi-Cal for beneficiaries in the Aged and Disabled FPL program up to 138 percent FPL.

Newly Qualified Immigrants (NQIs). Through budget negotiations, Senate, Assembly and the Administration agreed to include placeholder trailer bill language eliminating the statutory authority for the Newly Qualified Immigrant (NQI) Affordability and Benefit Program. NQIs are legal permanent residents, legally in the U.S. for less than 5 years, and therefore ineligible for federal Medicaid. In 2013, California passed legislation to transition NQIs over age 21 without children into Covered California. As envisioned, the “wrap” program would cover premium costs (minus the advance premium tax credit) as well as any cost-sharing charges for NQIs enrolled in Covered California. NQIs are currently eligible for full-scope, state-only funded Medi-Cal. The budget language authorizes the Department of Health Care Services (DHCS) to seek federal designation as minimum essential coverage (MEC) for the existing, state-funded Medi-Cal program for NQIs. Full-scope Medi-Cal meets the MEC requirements; and therefore, NQI Medi-Cal coverage should be eligible for federal MEC designation. DHCS has never applied to the federal government for an MEC designation for this coverage program.

The ACA individual mandate requires most tax filers to have MEC or face a tax penalty. Securing MEC designation for the Medi-Cal program for NQIs protects NQIs from this penalty.

The conference committee will meet in the coming days to develop a final compromise budget prior to the June 15 Constitutional deadline for the state to pass a budget.

CBO Confirms Devastating Consequences of the House-passed American Health Care Act

On May 24, 2017, the Congressional Budget Office (CBO) released an updated cost estimate for the American Health Care Act passed by the U.S. House of Representatives on May 4, 2017, adjusting their analysis for last minute amendments to H.R. 1628. (See ITUP summary of AHCA here.)

The March 23, 2017 CBO analysis of a previous version of H.R. 1628 estimated that more than 24 million Americans would become uninsured under the AHCA compared to current law under the Affordable Care Act (ACA). CBO estimates that the amended bill results in slightly more people with health insurance but would still leave more than 23 million Americans uninsured.

CBO estimates:

  • By 2018, 14 million more people would be uninsured because of AHCA and by 2026 a total of 51 million people under age 65 would be uninsured, compared to 28 million under the ACA.
  • According to CBO, the AHCA would disproportionately increase the number of uninsured among older people with lower incomes; people between 50 and 64 years of age with incomes below 200 percent of the federal poverty level (FPL).
  • AHCA as passed by the House would reduce federal deficits by $119 billion, down from $337 billion in the prior version. The savings come primarily from cuts to Medicaid and the replacement of ACA premium tax credits with less generous tax credits adjusted only for age. ACA tax credits are adjusted by age, geography and income to reflect different premiums by region and to provide more assistance to lower income individuals.
  • Health insurance premiums would be lower, but CBO attributed the lower premiums, in large part, to coverage with lower benefits, covering a smaller proportion of an individual’s health care costs.

CBO repeated its conclusion that under ACA health insurance markets remain relatively stable, although in some areas of the country there is more limited participation of insurers. After considering the impact of state waivers available in the AHCA, CBO concludes that markets would also be relatively stable in states that do not apply for waivers or in states that obtain waivers from the community rating provisions of the ACA (allowing insurers to charge individuals higher premiums based on health status).

However, markets in states that obtain waivers to both the community rating provisions, and the ACA requirement of essential health benefits, would start to become unstable in 2020. CBO estimates that about one-sixth of states would obtain the dual waivers.

According to CBO, waiver of community rating would result in a rise in premiums over time for those with preexisting or newly acquired medical conditions.  These individuals would ultimately be unable to purchase comprehensive coverage on the individual market, if they are able to purchase coverage at all. Additional funding in the AHCA to help reduce premiums would be insufficient, according to the CBO (MacArthur amendment). The ACA protections, such as the requirement to offer and renew coverage regardless of pre-existing conditions, retained in the AHCA, would be meaningless for these individuals because affordability of coverage would once again become the issue.

In states that secure waivers of the ACA essential health benefits (EHB) requirement, some people in individual coverage would experience substantial increases in what they spend for health care in the form of out-of-pocket costs.  CBO estimates that benefits likely to be excluded in states with the EHB waiver include maternity care, mental health and substance abuse benefits, rehabilitative and habilitative services, and pediatric dental. CBO also points out the ACA ban on annual and lifetime benefit limits would not apply to health benefits no longer defined by states as essential.

The latest CBO analysis confirms that the AHCA would lead to millions more uninsured compared to the ACA. Although much of the federal debate surrounding AHCA focused on insurance markets and coverage for individuals with pre-existing health conditions, much of the federal savings and the increase in the uninsured follows from the dramatic cuts to the Medicaid program ($880 billion) under the AHCA.  The President’s just released budget for 2018 continues and adds to the reductions in federal Medicaid spending.

For more about what’s at stake for California from the proposed Medicaid cuts, see the latest issue of ACA Watch, “The ACA and Medi-Cal: What’s at Stake?

Click here for the ITUP summary of the President’s proposed 2018 federal budget.