Because of all the rhetoric from Republican Presidential contenders about repealing Obamacare I’ve fielded many calls from people wondering if Covered California will survive a Republican President. The fear instilled by the shrill comments of conservative politicians that hate the Affordable Care Act (ACA) is that families who rely on the premium assistance provided by Obamacare through Covered California will suddenly end if a Republican is elected President. Regardless of how much conservative’s hate that middle class families are receiving tax credits to make their health insurance premiums affordable, California is well positioned to survive even if the ACA is repealed at the national level.
Covered California is independent
California was one of the few states that decided to take the Affordable Care Act grants to set up their own individual state Marketplace exchange (http://hbex.coveredca.com/about/). Whereas other states have their health plans that are eligible for the premium assistance offered through Obamacare available through Healthcare.gov or in partnership with the federal government, California is completely independent. If Healthcare.gov administer by the federal Centers for Medicare and Medicaid Services vanished tomorrow, Covered California would keep on rolling.
A Republican President can’t eliminate Covered California
One of the fundamental problems with health insurance across the United States is that each state regulates their own insurance industry. This means there can be contradicting rules and regulations making it nearly impossible to offer health insurance across state lines. However, this works in California’s benefit if Obamacare is repealed. California has already passed all the necessary legislation to enable Covered California to operate a health insurance exchange within the state.
Covered California is self-supporting
As of 2015 Covered California must be self-supporting as there will be no more federal grant money to operate the exchange. Covered California is funded by a $13.95 per person per month fee paid by the insurance companies for each person enrolled in an individual and family health plan through Covered California (The assessment fee was changed to 4% of the premium for the 2016-2017 budget). The fees are higher for employees in Covered California small group plans and the fees may increase in 2017. Covered California uses these revenue sources to plan their operational budgets for several years into the future. The net result is that Covered California has built a sustainable health insurance exchange that is not dependent on either state or federal tax money to operate.
Who will pay the premium assistance to families?
Even though Covered California would survive the repeal of Obamacare, there are still questions about the premium assistance. The primary function of Covered California is to determine the eligibility of individuals and families for the Advance Premium Tax Credits (APTC) to subsidize the health insurance premiums to make them affordable. The formula for determining how much subsidy a household is eligible for is included in the ACA. After a family is qualified for the tax credit assistance, Covered California forwards the monthly amount to the family’s chosen health plan and the family pays the remainder. The subsidy forwarded to the health plan comes from the federal government.
New California taxes
If Obamacare is repealed, then where will the subsidy money come from? If the demise of Obamacare was imminent, California would need to find another source of money for the premium assistance funds. This would most likely come in the form of new taxes. If Obamacare is repealed, the taxes that are part of the ACA to fund the current premium tax credits would also be repealed. California could just pass new taxes that closely mirror those that were repealed on the federal level.
Reconciling the Premium Tax Credits
Currently, household’s receiving, or who are eligible, for the subsidy reconcile any premium tax credit subsidy on their federal taxes with Form 8962. If they received too much APTC during the year they have to repay some if not all of the excess tax credit payments. If individuals and families opted not to have any of the estimated tax credit forwarded to their health plan during the year they then receive the Premium Tax Credit on their federal tax return. If Obamacare is repealed and the state of California took over funding the premium assistance, Californian’s could reconcile the premium tax credit on their state taxes instead of their federal tax return.
What about Medi-Cal expansion?
The bigger problem with an ACA repeal is the expanded Medi-Cal. California is already trying to grapple with how to pay their portion of the expanded Medi-Cal which covers residents between 100% and 138% of the federal poverty level. If Obamacare is repealed and California loses the federal assistance of 90% of the cost of the Medi-Cal expansion there will be some serious money shortages to fill the funding gap. But California could eliminate the expanded Medi-Cal and allow those people to enroll in a private plan with tax credits generated from new state taxes.
Covered California can survive a Republican President
If the Republicans were to win the Presidency and retain control of the House and Senate, you can almost be certain that Obamacare would either be drastically scaled back or entirely eliminated. The bright spot is that California is in an excellent position to continue offering premium assistance to individuals and families since we already have the bureaucracy and laws in place. The largest challenge would be finding the money to pay for the health insurance subsidies.
President-elect Trump has promised to repeal and replace the Affordable Care Act. With a GOP controlled congress, that promise looks like it will come to fruition. The main theme of a re-imagined ACA revolves around Health Savings Accounts (HSA). The theory being that if consumers can direct where and how their health care dollars are spent, they will select the least cost most effective service. This in turn would drive down prices as consumers, spending their own health care dollars deposited in a special health savings account, would bring greater competition to the health care industry.
Are HSAs the Answer?
The singular problem with HSAs being deployed to drive down pricing, and by extension health insurance rates, is that there is lack of good consumer information about the price of health care services. Basic economics states that for any market to operate efficiently there must be good information upon which consumers can make decisions. Until there are laws forcing price transparency from the providers (doctors, hospitals, labs, etc.) the health care market will continue to operate against the best interests of the consumer.
There is one start-up in California that is trying generate public interest and support for price transparency. The Health Care Transparency Project is proposing initiatives that would force doctors to provide an estimate of potential health care services. Essentially, just as when you take your car in to mechanic for repairs and they must provide you with a written estimate; so should doctors provide the patient with an estimated cost for the health care procedures and treatments.
- By launching educational and legislative efforts which force up front pricing transparency, we can bring competition back to health care.
- At a high level, these campaigns would push doctors and insurance companies to provide the following before any service is delivered:
- A clear explanation of the services (or potential services).
- A written estimate for those services
- What the doctor charges
- What the insurance company will reimburse or credit against a deductible or coinsurance
- The patient’s financial responsibility (if any) for the difference.
- An acknowledgement that any medical services delivered without a price quote will be provided to consumers free of charge.
- An acknowledgement that any requests for insurance reimbursement rates which are not met will be reimbursed at 100% of the consumer quoted rate, with consumers owing nothing.
- We expect to get an estimate before we take our cars in for repair—why shouldn’t we expect the same when we go to see the doctor?
California Must Act To Protect Health Insurance Affordability
It looks inevitable that President-elect Trump will sign legislation repealing the ACA. California must prepare to make our health insurance exchange independent just like Massachusetts before the ACA was approved. I call on our elected officials to begin preparations for the storm of repealing the ACA and the huge disaster it will bring to millions of Californians. California is by the latest estimates the 8th largest economy in the world. We can protect our individual and family health insurance exchange, Covered California, and the vitally important monthly subsidies they allocate to households across California with new revenue sources to replace those lost if the ACA is successfully repealed. But the time to act is now. The storm is brewing. We can see the forecast. Let’s protect our residents from catastrophe.
Covered California released the following statement to agents on November 9, 2016
Covered California remains focused on open enrollment. We want to make sure consumers know their options. Health coverage options are available to consumers with financial assistance to help pay for coverage. We will be communicating these important messages to consumers during open enrollment, which goes through
January 31, 2017.
In the weeks and months ahead, Covered California looks forward to sharing our lessons to inform policy changes nationally.
Please help us reassure our consumers:
- We are open for business and happy to help you enroll or renew.
- Your Covered California coverage is not in jeopardy. We encourage you to renew into your existing plan or shop for a new plan that best fits you and your family. Don’t risk a financial burden in 2017 by not enrolling.
- We understand there may be a lot of chatter in the media about the election, but here are three things you need to know:
- Your coverage will remain intact for 2017 and the foreseeable future.
- Your financial assistance (subsidies, APTC/CSR, small business tax credits) are protected under the law.
- The rates for 2017 will not change.
- We are focused on what’s important right now, enrolling and renewing consumers into their Covered California plan.
- Covered California does not rely on federal funding, it is a self-sustainable state-run exchange.
- We will keep you informed about any changes in the future.