Read Advisory Board's take on this story.
The House on Wednesday passed the GOP's tax bill, which will effectively repeal the Affordable Care Act's (ACA) individual mandate—a move the Congressional Budget Office (CBO) projects will lead to millions more uninsured Americans compared with current law.
The bill now heads to President Trump for his signature.
Bill details
The measure will permanently cut the corporate tax rate to 21% and temporarily reduce tax rates for most of the seven individual tax brackets, with the individual reductions set to expire after 2025. According to Vox, the measure "represents the most significant rewriting of the nation's tax code in a generation."
The measure includes major provisions that will affect the health care industry. Most notably, the bill will, effective Jan. 1, 2019, eliminate the penalty most U.S. residents who do not have health insurance must pay under the ACA's individual mandate. CBO has estimated that due to the provision, absent additional legislation, about 13 million fewer U.S. residents would have health coverage in 2027. Exchange premiums would rise by approximately 10%, CBO estimated, due largely to a less healthy risk pool.
The $1.5 trillion measure as written also could trigger automatic, offsetting spending cuts under the Statutory Pay-As-You-Go Act of 2010, commonly known as "pay-go." Specifically, it could lead to $136 billion in automatic spending cuts in fiscal year (FY) 2018, including $25 billion in cuts to Medicare spending, $900 million to the Prevention and Public Health Fund, and $715 million to the Federal Hospital Insurance Trust Fund.
However, some Senate GOP leaders expressed confidence that lawmakers would reach a separate deal to avoid the pay-go requirement, which would require 60 votes to pass the Senate (Stein/Paletta, Washington Post, 12/20; Kaplan/Rappaport, New York Times, 12/19; Scott [1], Vox, 12/19; Scott [2], Vox, 12/19; Parkinson et al., ABC News, 12/20; Faler, Politico, 12/20).
For a full breakdown of the tax reform bill's health care-related provisions, click here.
Advisory Board's take
Yulan Egan, Health Care Advisory Board
The repeal of the individual mandate will almost certainly have a negative effect on provider margins. While estimates of magnitude vary widely, the fact that repealing the mandate will increase the uninsured rate is undisputed. This would reverse some of the declines in uncompensated care that health systems experienced under coverage expansion. While the individual market represents only a small portion of the typical health system's patient base, provider organizations are already grappling with a range of margin pressures—increases in bad debt, declines in utilization growth, and downward pressure on reimbursement—that make weathering even small increases in uncompensated care extremely challenging.
It's also important for providers to recognize that the impact of this legislation is not limited to the individual market. In fact, CBO estimates that by 2025, less than 40% of the coverage losses from repealing the individual mandate will come from the nongroup market (on- and off-exchange): The agency estimates 5 million fewer people will have nongroup coverage, 5 million fewer people will have Medicaid coverage, and 3 million fewer people will have employer-sponsored coverage.
In addition, the sheer cost of the measure means that Congress will continue to face immense pressure to decrease spending in other areas, including health care. In the end, the downstream effect on the health care industry may be even more substantive than the impact of provisions actually included in the bill itself.
These potential effects of the legislation only heighten the importance of several strategic objectives for providers:
- Make patient financial navigation a growing priority. While the individual mandate will be repealed, the overall structure of the insurance exchanges and the individual market will remain intact. Providers can play an important role in increasing awareness and maximizing enrollment among eligible individuals.
- Establish a proactive strategy for managing underinsured and uninsured patients. As a growing number of patients are covered by Medicaid, high-deductible health plans, or lack insurance altogether, providers find themselves grappling with delays in necessary care and avoidable use of high-cost care sites like the ED. Developing a strategy to encourage appropriate utilization and manage population health is increasingly important—whether providers are formally taking on risk or not.
- Contain cost growth—a critical component to providers' future success. This bill is likely to create additional margin pressures for providers. Enterprise cost control must be at the top of any organization's priority list for the next five years.
To learn more about how to best achieve these strategic objectives, join us at the 2017-2018 Health Care Advisory Board National Meeting, coming to a city near you. Don't miss out—secure your spot today.
Rachel Sokol, Health Plan Advisory Council
Repealing the individual mandate won't affect exchange premiums for 2018, since open enrollment has concluded in most states and rates are otherwise set. Exchange premiums are likely to rise in 2019, as healthier plan members are anticipated to forgo insurance or purchase cheaper products off-exchange, leading to riskier exchange pools comprised of a higher proportion of less-healthy individuals. However, individuals who receive premium subsidies—the majority of exchange purchasers—won't be directly affected by premium increases; the government will just pay higher subsidies. Those with incomes above 400% of the federal poverty level who do not receive subsidies will bear the full brunt of premium increases. One caveat: Congress could pass legislation to provide funding for federal reinsurance and/or cost-sharing reduction payments, which could reduce premium increases to some degree.
What will this all mean for health plans? While some plans may choose to leave the exchanges for plan year 2019, the remaining plans will have the opportunity to command a market. It will be crucial for plans to identify high-cost members fast using any data available to influence a member's care in a single year.
To learn more, download our "10-minute HRA makeover," a guide for health plans to get better data from more members.