With Donald Trump's election as president and Republican control of both houses of Congress, the way was supposed to be clear for the relatively quick passage of a plan to repeal and replace the Affordable Care Act, which is better known as Obamacare. But to quote President Trump, "Nobody knew that healthcare could be so complicated."
More than five months into the 45th presidents' term, Trump and his GOP colleagues are seemingly no closer to passing an Obamacare replacement than they were on day one. The American Health Care Act (AHCA), which some pundits have dubbed Trumpcare, initially failed to reach a vote in the House in March, but wound up passing by the narrowest of margins in early May after a handful of amendments were made to the original bill. The AHCA has since moved onto the Senate, but lawmakers from both parties suggest it's dead on arrival as currently written -- but that might change in the next couple of weeks.
The questions and concerns surrounding Trumpcare are a-plenty. For instance, what will happen to low-income individuals and families once their income-based subsidies are removed and Medicaid expansion terminated? How well will seniors cope with being charged more for health insurance under Trumpcare than Obamacare relative to young adults? And can those people with pre-existing conditions afford the prices insurers would be allowed to charge under Trumpcare? All of these questions have effectively stalled GOP healthcare legislation in Congress, making it look ever more likely that Obamacare will be the health law of the land come 2018.
Obamacare premiums could skyrocket in 2018
But just because Obamacare could be sticking around longer than expected doesn't mean premium inflation is going to get any friendlier for the consumer.
According to a new analysis released last week by Oliver Wyman Health, market uncertainty could drive premiums significantly higher in 2018. Two cited factors -- uncertainty surrounding the funding of cost-sharing reductions (CSR), and the relaxation of the individual mandate -- are expected to coerce insurers to dramatically lift premium prices in 2018.
As a whole, the analysis estimates that up to two-thirds of the percentage increase could be entirely based on these uncertainties, with likely average increases between 28% and 40%. This includes a 5%-8% increase in cost of care, a 3% hike for the federal health insurance tax, about a 9% increase for non-enforcement of the individual mandate, and perhaps an 11% to 20% hike for a lack of CSR funding.
Of those insurers that were surveyed, 43% commented that they planned to raise premiums by at least 20% in 2018, with another 36% planning an increase of between 10% and 20%. This leaves roughly 1 in 5 insurers with an expected rate hike next year of 9% or less. That's not very encouraging if you're a young adult or consumer who receives little or nothing in the way of Obamacare subsidies.
More than 2 in 5 insurers would abandon Obamacare without CSRs
Easily the biggest issue is, what's going to happen with CSRs?
Cost-sharing reductions are given to individuals and families earning between 100% and 250% of the federal poverty level to help lower their copays, coinsurance, and deductible costs associated with visiting the doctor. More than 7 million of this year's marketplace enrollees (58%) qualified for CSRs, and next year, CSR subsidies are expected to total about $10 billion.
Now here's the catch: CSR funds are to be apportioned by Congress. However, back in 2014, House Republicans filed a lawsuit against then-Health and Human Services head Sylvia Burwell citing that CSR funds were never properly apportioned by Congress. In 2016, the House GOP won its case, but the presiding judge stayed her order with the expectation of an appeal from the Obama administration. Though that appeal did come through, Obama is now out of the Oval Office, and so is his cabinet and Sylvia Burwell. Essentially, the appeal process now involves a Republican House suing a Republican cabinet. All President Trump would have to do is drop the appeal and CSR funding would not go out next year. That would be a crushing blow to low-income folks and insurers.
According to the Oliver Wyman Health survey, 42% of insurers questioned would leave Obamacare's marketplace exchanges if CSR funding were removed. And, if that funding were stripped after insurers submitted their rate requests for 2018, insurers would amend their rate requests to reflect a lack of CSR funding.
No individual mandate means less young adult enrollment
The other issue is the relaxation of the individual mandate penalties, which currently require that consumers purchase health insurance or pay a penalty. Last year, this penalty, known as the Shared Responsibility Payment (SRP), was the greater of $695 or 2.5% of modified adjusted gross income. An analysis by the Kaiser Family Foundation estimated the average household SRP at $969 in 2016.
Herein lies the issue with the SRP: even though a $969 average penalty might sound like enough of a hit to the wallet to encourage healthy young adults to enroll for health insurance, the average unsubsidized bronze plan (the cheapest metal tier) around the country is $3,700 annually in 2017. This means healthy people who don't go to the doctor could choose to remain uninsured and save about $2,700. This bifurcation between the SRP and actual premium pricing made it impossible for insurers to effectively compete for enough young, healthy enrollees.
Easements of Obamacare passed by President Trump's executive order will make it even tougher for SRPs to be collected by the IRS. The IRS has no choice but to accept federal income tax forms where line 61 isn't filled in (this is the line where consumers state what they've paid in SRP penalties), and it also has absolutely no recourse to garner wages or seize property to collect payment. Unless a consumer is owed a tax refund, the IRS has little ability to collect the SRP, which effectively neuters the individual mandate and ensures that fewer young adults are likely to enroll in 2018.
America may get its wish of keeping Obamacare just a bit longer, but the results of doing so could prove quite painful to consumers' pocketbooks.