Will President Trump neuter Covered California with new rules on health insurance tax credits?
In President Trump’s address to a joint session of congress on February 28th, he made a curious comment regarding the replacement of the Affordable Care Act. He said, “…and that we have a stable transition for Americans currently enrolled in the healthcare exchanges.” Does his comment imply that Marketplace Exchanges such as Healthcare.gov and Covered California will no longer be required? The use of the term ‘transition’ may indicate that the president no longer views the exchanges as playing a crucial role in the enrollment of individuals and families into health insurance plans.
What is the role of the Marketplace Exchanges?
Under the ACA the primary role of the Marketplace Exchanges such as Healthcare.gov and Covered California is to determine the eligibility of individuals and families for the Advance Premium Tax Credits (APTC) also known as the monthly subsidies. The ACA uses a complicated formula based on household size and estimated income to determine the monthly APTC amount. Once a household has been determined eligible for the subsidy and enrolls in a health plan, the Marketplace Exchange forwards the monthly subsidy amount to the chosen health insurance carrier.
The Marketplace Exchanges also screens for other conditions necessary to receive the monthly subsidy such as proper citizenship or lawful permanent resident status, and tax filing status. Another function of the Exchanges is to certify that the health plans being offered meet the definition of a Qualified Health Plan (QHP). QHPs must have all the ACA minimum essential benefits along the metal tier actuarial values of Bronze, Silver, Gold or Platinum.
Under the ACA an individual or family can only get the Premium Tax Credit by going through a Marketplace Exchange. Even if the consumer doesn’t want a monthly subsidy but decides he or she will reconcile the Premium Tax Credit when they file their federal taxes, the health plan must still be purchased through the Exchange. This means that Covered California has a monopoly on granting eligibility for the Premium Tax Credit.
Tax Credit Based On Age
There has been some talk that the new health insurance tax credit won’t be based on income, but age. If that becomes a reality, the old complicated formula of estimating the subsidy based on household size and income gets trashed. With a simplified version of calculating the Premium Tax Credit, Covered California loses a large portion of its foundation for existence. Virtually all the other conditions for the subsidy eligibility are already covered on federal tax forms such as income, social security numbers, and tax filing status.
Only U.S. citizens or those who are lawfully present are eligible for the tax credits. Covered California uses the federal hub to check on both of those conditions. Technically, there is little reason why the health insurance carriers can’t take over some of that screening process. They already capture the social security number of all members. Many health plans already interact with the federal government for Medicare Advantage plan enrollments for Medicare eligible beneficiaries. Coupled with existing laws governing the collection and handling of private medical information, the health insurance companies are only a couple steps away from doing the work currently handled by Covered California if the current rules basing the subsidy on income are eliminated.
Will Covered California Become Obsolete?
The missing piece of the puzzle is the handling of any monthly tax credit on behalf of the consumer from the federal government to the health plan. However, the Center for Medicare and Medicaid Services (CMS) has already mastered the monthly reimbursements for millions of Medicare Advantage enrollees to their chosen health plan. Whenever a Medicare beneficiary enrolls in a Medicare Advantage health or prescription drug plan, CMS pays a monthly fixed dollar amount to the insurance plan. The amount varies by county and type of plan, but monthly payments of $500 to $700 are routinely paid by CMS to many health insurance companies operating in all 50 states.
If the Trump plan eliminates the Premium Tax Credits based on projected income, and removes the restrictions on what is classified as a Qualified Health Plan for the subsidy, Covered California has little reason to exist. The other screening for eligibility for the monthly tax credits can be handled by the health insurance companies and CMS can make monthly age based tax credit payment directly to those health plans.
Covered California could still play a role as a market place for health insurance. They could still display all the available plans for consumers based on their zip code. Covered California is not funded by either the state or federal government. Their revenue is generated by a 4% commission the health plans pay them on the total premium amount for each consumer they enroll. They aren’t too different than an insurance agent, but they make a lot more money than agents do selling the same products.
Currently, the Covered California budget is based on commissions for approximately 1.3 million people. If the requirement to get the Premium Tax Credit based on enrollment through an Exchange is dropped, Covered California will lose enrollments. They will certainly lose enrollment to other health insurance plans with higher deductibles, but lower premiums, that they don’t currently offer.
Given the Republican philosophy that less government is better government, Covered California’s reason for existence may evaporate. But it all hinges on Trump’s term ‘transition’. Does he want to transition away from the Marketplace Exchanges, or is he merely suggesting transitioning away the Qualified Health Plans as a requirement for the tax credit?
President Trump’s Comments On Obamacare, February 28th, 2017
Tonight, I am also calling on this Congress to repeal and replace Obamacare with reforms that expand choice, increase access, lower costs, and at the same time, provide better Healthcare.
Mandating every American to buy government-approved health insurance was never the right solution for America. The way to make health insurance available to everyone is to lower the cost of health insurance, and that is what we will do.
Obamacare premiums nationwide have increased by double and triple digits. As an example, Arizona went up 116 percent last year alone. Governor Matt Bevin of Kentucky just said Obamacare is failing in his State — it is unsustainable and collapsing.
One third of counties have only one insurer on the exchanges — leaving many Americans with no choice at all.
Remember when you were told that you could keep your doctor, and keep your plan?
We now know that all of those promises have been broken.
Obamacare is collapsing — and we must act decisively to protect all Americans. Action is not a choice — it is a necessity.
So I am calling on all Democrats and Republicans in the Congress to work with us to save Americans from this imploding Obamacare disaster.
Here are the principles that should guide the Congress as we move to create a better healthcare system for all Americans:
First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the healthcare exchanges.
Secondly, we should help Americans purchase their own coverage, through the use of tax credits and expanded Health Savings Accounts — but it must be the plan they want, not the plan forced on them by the Government.
Thirdly, we should give our great State Governors the resources and flexibility they need with Medicaid to make sure no one is left out.
Fourthly, we should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance — and work to bring down the artificially high price of drugs and bring them down immediately.
Finally, the time has come to give Americans the freedom to purchase health insurance across State lines — creating a truly competitive national marketplace that will bring cost way down and provide far better care.
Covered California Studies If They Can Survive President Trump