President Donald J. Trump has stated that he will introduce a plan to replace the Affordable Care Act (ACA) shortly after his Health and Human Services (HHS) Secretary nominee, Representative Tom Price (R-GA), is confirmed. If the new administration is indeed planning to introduce a replacement plan quickly, an obvious candidate would be the plan put forward by Price himself, which is already in legislative form.
Like most of the Republican health care plans being discussed publicly, the Empowering Patients First Act of 2015 ("Price plan") starts with repealing the Affordable Care Act. Assuming that a limited repeal of the ACA is accomplished through reconciliation, it is likely that this section of the Price plan would be set aside, but other portions of the Price plan could be considered as part of a replacement package, especially if the replacement plan is more limited and incremental than some of the Republican plans envision. Unlike other plans, the Price plan is not a comprehensive alternative vision for overall health care market reform, but instead, is largely limited to replacing the individual and small group reforms in Title I of the ACA and addressing certain other issues of particular concern to physicians.
What's In The Price Plan?
Coverage subsidies
Like the ACA, the Price plan provides for advanceable (payable to health plans), refundable tax credits for individual and small group health insurance coverage, but they are only adjusted for age — there are no income-related adjustments, even for a transition period, nor any Medicaid reforms such as block grants or per capita caps. Under the Price plan, any remaining tax credit amount in excess of premiums can be paid into a health savings account (HSA). The bill also allows an individual to elect a tax credit and choice of individual market plan in lieu of alternative government or group plan benefits (e.g., Medicare, Medicaid, Children's Health Insurance program (CHIP), VA, Tricare, Federal Employees Health Benefits Program (FEHBP), employer-sponsored coverage). [Sec. 101-102]
Regulation and consumer protections
The plan restores the authority to regulate health insurance to the states and permits interstate sales of insurance. [Sec. 301] Consumer protections in the individual market are limited to those already established for the group market; thus, these protections do not include a mandate of guaranteed issue or community rating beyond prohibitions first on preexisting condition exclusions for those with at least 18 months of continuous creditable coverage, and second on health underwriting (premiums cannot vary based on health status, claims experience, genetic information, disability, etc.) [Sec. 221]. The plan includes limits on abortion funding, as well as conscience clause protections [Sec. 132-133].
Risk-pooling
The plan provides for transitional (three-year) federal grants to states to establish high-risk or reinsurance pools, or other risk-adjustment mechanisms for subsidizing the purchase of private health insurance for high-risk individuals (in combination with some high-deductible health plans [HDHPs] and HSAs) [Sec. 201]. In the meantime, the Price plan expands the levels, eligibility, and inheritability of HSA contributions, [Sec. 111-129] and the opportunities for pooling of individual and small business risk through association health plans [Sec. 212] and independent health pools (IHPs) [Sec. 301]. Therefore, the four-year vision set forth by the Price plan would provide health insurance either directly through private insurers or indirectly through these pooled entities and through HDHPs and HSAs for everyone not covered under employer-sponsored (health) insurance (ESI) or a federal program.
Cost
The cost of this insurance would be supported by the federal taxpayer solely through the age-adjusted tax credits. In addition, the plan would cap the tax exclusion on ESI health coverage at lower levels than alternative replacement proposals and the ACA's "Cadillac" tax. Consequently, as some have speculated, the Price "replacement" could likely score considerably lower than other alternatives.
There are a number of other provisions in the Price plan that address plan sponsor interests in the employer group market. The proposal would allow employers to grant all employees a pre-tax benefit through a defined contribution in lieu of insurance, [Sec. 134] and to auto-enroll employees into plans, provided the employee may opt out of coverage [Sec. 135]; the plan also includes grants for small employers to offset the administrative burden of instituting auto-enrollment or a defined contribution [Sec. 136].
Price, an orthopedic surgeon, includes provisions of particular interest to physicians, most notably medical liability reforms such as publishing clinical guidelines that can serve as a safe harbor against liability, the creation of state administrative health care tribunals to determine liability, and authorizing payments of future damages over time [Sec. 401-406].
With its primary focus on the individual and small group market reforms, the Price plan would most directly impact the ACA Marketplace. Notably lacking Medicare and Medicaid reform provisions, Price's proposal is the most targeted Republican replacement plan. Thus, rather than a comprehensive approach, the Price plan could be viewed as one installment of the broader reform agenda, to be combined perhaps at some later date with the Medicaid, Medicare, and other reforms outlined in Paul Ryan's A Better Way.
Additionally, the Price plan is not inconsistent with administrative reforms that would support greater flexibility for states using waivers in Medicaid and the individual market, such as those designed by Seema Verma, the nominee for CMS Administrator. This incremental market-by-market approach could also be seen as consistent with Heritage Foundation recommendations to tackle health reform not through "one comprehensive legislative package (as Obamacare was)," but instead through "a set of reforms to be advanced prudently through the legislative process."
Price will not satisfy the critics
Critical public discussion of the Price plan focuses on the absence of premium and cost-sharing subsidies for lower-income consumers; the concern is that it (and other similarly structured replacement plans) will cover a significantly lower proportion of individual and small group market health care costs than the ACA, and thus result in unaffordable coverage for most of the population that has gained coverage through ACA plans. These conclusions may make sense in an all-other-things-being-equal analysis, but may be incomplete if the moving parts of other plan features are not taken into consideration.
The Price plan explicitly or implicitly incorporates other developments designed to drive down premiums and cost-sharing, such as high-risk pools, the formation of individual and association plan pooled products, and wider age-banding of premiums. It eliminates the ACA's essential benefits and fixed actuarial-level (metal-tier) standardization in favor of greater flexibility to offer plan design variations, such as value-based insurance design (VBID) options. In combination with the tax credits, these features could theoretically result in plan variations that offer individual consumers value that could approximate the value of ACA subsidies, but in a much more tailored way than the one-size-fits-all approach of the ACA requirements (note 1).
Accordingly, the Price plan envisions lower-cost products and affordable coverage delivered through market competition rather than government subsidies. In theory, such products could also be attractive to many uninsured consumers who were not eligible for the ACA subsidies and/or did not find the Marketplace plans to deliver adequate value or otherwise meet their needs.
Looking Ahead
It is likely that any repeal legislation will have to provide for a transitional phase-out of ACA individual market subsidies. It is also likely that a good deal of compromise will be needed to define an acceptable replacement plan for enrollees who will lose subsidized access to coverage as a result of the repeal. However, given the Price plan's targeted approach, it is quite possible that the starting point for the Republican replacement plan could look very similar to the individual market reforms proposed by Price.
Assuming confirmation as HHS Secretary, Price will be in a strong position to help set the replacement agenda. The legislative ideas contributed by Congressman Price in the 114th Congress (note 2) may have already set the table for the adoption of some of his market reforms into the broader Republican plan in the 115th Congress.
Authors' Note
This content represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP.
Note 1
Ensuring that these offerings on the whole are non-discriminatory will be a serious concern for regulators under the new state-based oversight framework, and success will require effective risk adjustment and high-risk pool or reinsurance policies.
Note 2
Congressman Price has introduced a version of the Empowering Patients First Act since the 111th Congress.
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