Federal and beneficiary spending on Medicare will skyrocket if ACA repealed

Repeal of the Affordable Care Act, as promised by the incoming Congressional leadership and President-elect Donald Trump’s (R) Administration, would not only increase Medicare spending but also lead to higher beneficiary costs, a less-solvent Part A trust fund, and the return of the Part D drug benefit “doughnut hole.” The Kaiser Family Foundation (KFF) published an issue brief on the Medicare implications of repeal of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), finding that the Medicare provisions of the ACA have strengthened Medicare’s financial status for the future, and repeal would weaken the program.

KFF noted that the Congressional Budget Office (CBO) estimated an increase in Medicare spending of $802 billion from 2016 to 2025 if the ACA were repealed in full (see Repealing the Affordable Care Act—an unaffordable idea?, Health Reform WK-EDGE, June 24, 2015). This increase would primarily be attributed to higher payments to health care providers and Medicare Advantage (MA) plans, which the ACA reduced based on the expectation that due to coverage increases, hospitals would have fewer uninsured patients.

Repeal of the ACA would increase Medicare Parts A and B spending by $350 billion over 10 years. It would also increase Part A deductibles and copayments and Part B premiums and deductibles. Similarly, the ACA removed a payment per enrollee discrepancy that paid MA plans 14 percent more than traditional Medicare; in 2016, MA plans only received 2 percent higher payments than traditional plans. A repeal would increase MA spending; however, it would also potentially reduce MA enrollees’ costs or allow them to receive additional benefits.

Under the ACA, certain Medicare benefits are available with no cost-sharing, including a yearly exam and some preventive screenings. The ACA also closed the coverage gap, or doughnut hole, in the Part D drug benefit. Without these changes, beneficiary costs would increase for preventive services and drugs.

The ACA played a role in extending the solvency of the Medicare Trust Fund by establishing new dedicated sources of revenue. As a result, four years’ time was added to the Medicare trustees’ projection of asset depletion in 2014 (see Life expectancy of Medicare trust funds extended to 2030, July 30, 2014). A repeal of these revenue provisions would give the Trust Fund a shorter lifespan.

The analysis also considered repeal of the ACA’s provisions for the following:

  • Freezing income thresholds for the Part B income-related premium;
  • Creating a formal method to expand payment and delivery system reforms through the Center for Medicare and Medicaid Innovation (CMMI);
  • Reducing preventable hospital readmissions and hospital-acquired conditions; and
  • Establishing new accountable care organization (ACO) programs.

Overall, KFF determined that ACA repeal without corresponding replacement legislation would weaken Medicare’s financial status for the future while costing beneficiaries and the federal government more.

Will the ACA be repealed under President-elect Trump?

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On January 20, 2017, Donald J. Trump (R) will be sworn in as the president of the United States; the Republican Party will retain its majority in both the House of Representatives and Senate, but will fall short of the 60-member Senate majority required to break a filibuster. President-elect Trump campaigned on the promise to repeal and replace the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), President Obama’s signature health care reform law.

Trump’s plan

In a position paper, Trump laid out his plan for health care, which will include:

  • complete repeal of the ACA;
  • permitting the sale of health insurance across state lines;
  • allowing individuals to fully deduct health insurance premium payments from tax returns;
  • enabling all Americans to make tax-free contributions to health savings accounts (HSAs);
  • requiring price transparency from all health care providers;
  • changing the Medicaid structure from a federal-state partnership to a block-grant system;
  • removing barriers to free-market entry for drug providers; and
  • reforming mental health programs and institutions.

The plan also calls for obtaining health care savings by enforcing immigration laws and increasing the employment rate to decrease enrollment in the Children’s Health Insurance Program (CHIP). Most of these proposals are similar to House Speaker Paul Ryan’s (R-Wis) plan for replacing the ACA (see Ryan proposes ‘A Better Way’ to repeal Obamacare, Health Reform WK-EDGE, June 29, 2016).

Without a supermajority in the Senate, the Trump Administration could potentially face a filibuster on its health care plans; that obstacle, however, may be overcome by use of the reconciliation process. Earlier this year, H.R. 3762—a bill repealing the ACA’s coverage subsidies, tax credits, Medicaid expansion provisions, individual and employer mandate penalties, and the medical device and health insurance taxes—made it to Obama’s desk before being vetoed (see Bill to repeal portions of the ACA heads to the President’s desk, Obama veto imminent, Health Reform WK-EDGE, January 13, 2016; Message in a veto: President says ACA stays put, Health Reform WK-EDGE, January 13, 2016).

Effects of Trump plan on uninsurance rate and federal spending

Under the ACA, the uninsurance rate in the U.S. has dropped to 8.6 percent, the lowest level on record (see White House celebrates ACA, Republicans refuse to join party, Health Reform WK-EDGE, October 26, 2016). The Congressional Budget Office (CBO) estimated that 22 million people would lose health insurance if H.R. 3762 became law (see Senate’s ACA repeal would reduce deficits by $474B, Health Reform WK-EDGE, December 16, 2015).

In a different report, the CBO found that repealing the ACA would first increase the federal deficit, but later begin to reduce the deficit while leaving individuals with higher premium costs (see Can health care spending be reduced while improving effectiveness?, Health Reform WK-EDGE, September 28, 2016). Similarly, Ryan’s “A Better Way” plan is estimated to reduce overall insurance coverage from ACA projections while decreasing the deficit (see ‘A Better Way’ would lead to quick gains but lower overall insurance coverage, Health Reform WK-EDGE, August 31, 2016).

The nonpartisan Committee for a Responsible Federal Budget analyzed Trump’s plan and determined that if it were implemented, the uninsurance rate would double; it also found that the Medicaid block-grant proposal lacked sufficient detail to estimate whether it would maintain current spending levels or save hundreds of billions of dollars.

Ongoing developments

In the coming weeks and months, Wolters Kluwer and Health Reform WK-EDGE will continue to provide in-depth analysis and coverage of ACA-related developments. Stay tuned for the practical tips and reliable guidance you’ve come to expect.

CBO predicts 2M fewer full-time workers in 2025 due to ACA

The Affordable Care Act (ACA) (P.L. 111-148) will make the labor supply, measured as the total compensation paid to workers, 0.86 percent smaller in 2025 than it would have been without that law, according to a Congressional Budget Office (CBO) report. This will result in about a two million reduction in full-time equivalent (FTE) workers from current levels.

During the 2016–2018 period, the CBO believes that the effects of the ACA on the supply of labor will be smaller, mostly because of delays in responses to changes in law. By 2019, however, the CBO predicts that the ACA will reduce the labor supply by 0.80 percent, increasing to 0.86 percent by 2025.

The CBO’s estimate of the ACA’s effect on the labor supply by 2025 is based on following factors:

  • Health insurance coverage expansions are together expected to reduce the labor supply by 0.65 percentage points. To reach the 0.65 percent reduction, the CBO estimate included the following valuations: (1) exchange subsidies, such as premium assistance credits and cost-sharing subsidies (-0.43 percent reduction); (2) rules governing health insurance, such as provisions prohibiting preexisting health conditions and restricting premiums on the basis of age (-0.17 percent reduction); and (3) an expansion of the Medicaid program (-0.05 percent reduction).
  • The Medicare Hospital Insurance (HI) surtax on high income workers is expected to reduce the labor supply by 0.12 percentage points. The HI surtax raises the Medicare payroll tax by 0.9 percentage points for workers who earn more than $200,000 per year (or $250,000 for those filing a joint return).
  • Other factors expected to collectively reduce the labor market by 0.10 percent include: (1) the penalty on larger employers (50 or more FTE employees) that do not offer insurance coverage (-0.06 percent); (2) the 40 percent excise tax on certain employment-based high-premium insurance plans (-0.03 percent); and (3) the penalty on certain individuals who do not obtain coverage (-0.01 percent). In 2016, for example, the individual penalty is $695 per person in a household or 2.5 percent of household income in excess of the general tax-filing threshold.

To determine the ACA’s effect on FTE employment, the CBO took its  0.86 percent reduction estimate, valued at $120 billion, and divided that number by $61,000, the estimated amount that workers affected by the ACA would earn if they worked full time for all of 2025. The result was an estimated reduction in FTE workers of about 2 million.

The CBO concedes that its estimates of the ACA’s effects on the labor supply are uncertain. This is because they are based in large part on projections of the ACA’s effects on health insurance coverage and on the federal budget, which are highly uncertain and could deviate from the agency’s estimates.

 

Kusserow on Compliance: GAO enrolled fictitious applicants through the Marketplace

The U.S. Government Accountability Office (GAO) is an independent “congressional watchdog” agency that investigates federal government expenditures. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) provides for the establishment of health insurance exchanges, or Marketplaces, where consumers can compare and select private health insurance plans. The ACA also expands the availability of subsidized health care coverage. The Congressional Budget Office (CBO) estimates the cost of subsidies and related spending under the ACA at $28 billion for fiscal year (FY) 2015. The ACA requires verification of applicant information to determine eligibility for enrollment or subsidies. Filing a federal income tax return is a key control element, designed to ensure that premium subsidies granted at time of application are appropriate based on reported applicant earnings during the coverage year.

The GAO was asked to examine controls for application and enrollment for coverage through the federal Marketplace and, thereafter, it conducted a review to assess the enrollment controls of the federal Marketplace. On July 16, 2015, the agency reported the results of undercover testing of the Marketplace application, enrollment, and eligibility verification controls using 18 fictitious identities. The GAO submitted or attempted to submit applications through the Marketplace in several states by telephone, online, and in person. There were 18 undercover tests performed in 2014, 12 of which focused on phone or online applications. The GAO found that the Marketplace approved subsidized coverage for 11 of the 12 fictitious GAO applicants who obtained a total of about $30,000 in annual advance premium tax credits, plus eligibility for lower costs due at time of service.

For seven of the 11 successful fictitious applicants, GAO intentionally failed to submit all required verification documentation, but the Marketplace did not cancel subsidized coverage for these applicants. The agency also found errors in information reported by the Marketplace for tax filing purposes for three of its 11 fictitious enrollees, such as incorrect coverage periods and subsidy amounts. The GAO shared details of its observations with CMS during the course of its testing, to seek agency responses to the issues raised. Other observations of the Marketplace included:

  • that all inconsistencies between applicant information submitted and information available from verification sources were not recorded;
  • unresolved inconsistencies based on fictitious documentation that GAO submitted;
  • failure to terminate coverage for several types of inconsistencies, including social security number data or incarceration status; and
  • automatically reenrolled coverage for all 11 fictitious enrollees for 2015.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.