policy

March 14, 2017

The Honorable Paul Ryan
Speaker, U.S. House of Representatives

The Honorable Mitch McConnell
Majority Leader, United States Senate

The Honorable Nancy Pelosi
Minority Leader, U.S. House of Representatives

The Honorable Chuck Schumer
Democratic Leader, United States Senate

The Honorable Greg Walden
Chairman, House Energy & Commerce Committee

The Honorable Kevin Brady
Chairman, House Ways & Means Committee

The Honorable Frank Pallone
Ranking Member, House Energy & Commerce Committee

The Honorable Richard Neal
Ranking Member, House Ways & Means Committee

The Honorable Diane Black
Chairman, House Budget Committee

The Honorable Mike Enzi
Chairman, Senate Budget Committee

The Honorable John Yarmuth
Ranking Member, House Budget Committee

The Honorable Bernard Sanders
Ranking Member, Senate Budget Committee

The Honorable Orrin Hatch
Chairman, Senate Finance Committee

The Honorable Lamar Alexander
Chairman, Senate HELP Committee

The Honorable Ron Wyden
Ranking Member, Senate Finance Committee

The Honorable Patty Murray
Ranking Member, Senate HELP Committee

SENT VIA ELECTRONIC COMMUNICATION
Speaker Ryan, Leader McConnell, Leader Pelosi, Leader Schumer, Chairpersons and Ranking Members:

On behalf of the Association for Community Affiliated Plans (ACAP) and the 59 Safety Net Health Plans and 17 million Americans they serve, I write to express our strongest concerns about the American Health Care Act (AHCA) as introduced and amended in the House Energy and Commerce and Ways and Means Committees. We urge you to modify the language in this legislation before final passage to address these concerns.

We provide this input to you now because the short timeframe for review provided to stakeholders did not allow for timely consideration of this complex legislation prior to this week. We have stated in the past and continue to believe that stakeholder input will be essential to the proper functioning of the AHCA and we hope that Congress will provide for a more open and collaborative process on this legislation moving forward.

We have several concerns with the current bills, including:

• The erosion of the state option to expand the Medicaid program at enhanced match;
• Establishment of a per capita allotment program that conflicts with many of ACAP’s stated principles related to Medicaid reform;
• Affordability for Marketplace consumers; and
• A lack of clarity on items necessary to ensure business stability for issuers currently in the Marketplace.

Yesterday afternoon, the Congressional Budget Office (CBO) published estimates that under the AHCA 24 million people would lose insurance by 2026. After viewing the CBO’s Cost Estimate, our concerns regarding the AHCA – loss of coverage for low-income health care consumers, decreased affordability, cost shifts to states, and potentially unsound payments to Medicaid plans – are reinforced. ACAP believes that this legislation does not achieve what it is intended to – bring affordable, patient-centered reform to Medicaid and the health insurance Marketplaces.

Because ACAP represents managed care organizations that serve Americans in Medicaid, the Health Insurance Marketplaces, the Children’s Health Insurance Program, Medicare Advantage Dual Eligible Special Needs Plans (D-SNPs), the Basic Health Plan, and other federal coverage programs, the changes made by the AHCA could cause upheaval and uncertainty among these businesses. As such, we will focus our comments on Title I, Subtitles C and D of the House Energy and Commerce Committee Chairman’s Mark and Section 15 of the House Ways and Means Committee Chairman’s Mark.

We submit this letter in hopes of finding a productive dialogue with Congress, the governors, and other stakeholders to improve the bills.

 

TITLE I – ENERGY AND COMMERCE

As indicated, ACAP’s top Medicaid priorities are preserving the option for states to expand the Medicaid program, and ensuring that Medicaid reforms do not inhibit stability of coverage for Medicaid enrollees.

Subtitle B – Medicaid Program Enhancement

ACAP offers comments on the following sections of Subtitle B:

Section 112. Repeal of Medicaid Expansion.

Section 112 repeals the state option to extend coverage to adults with incomes up to 138 percent of federal poverty by December 31, 2019, and ends the enhanced match rate for newly eligible enrollees in existing expansion states after December 31, 2019. This is in direct conflict with ACAP’s support of allowing states to retain the option for expanding Medicaid to this population. The CBO Cost Estimate indicates that a substantial decline in Medicaid enrollment will begin in 2020, resulting in uninsurance for 14 million individuals who would otherwise have been enrolled in Medicaid. While ACAP recognizes that not all states would choose to expand the Medicaid program, we strongly believe that states should retain the choice to do so in the future. The approaches taken by Kentucky, Indiana, Arkansas, and other states show that states can expand Medicaid coverage in a manner tailored to meet the needs of their residents under current law.

• ACAP Request: ACAP asks Congress to modify Section 112 to allow all states to retain the option to expand Medicaid coverage with enhanced FMAP to all state residents with incomes up to 138 percent of the federal poverty level.

Section 116. Providing Incentives for Increased Frequency of Eligibility Redetermination.

Section 116 incentivizes states to re-determine eligibility for Medicaid expansion enrollees every six months. This language expressly increases the phenomenon known as “churn” among the Medicaid expansion population. “Churn” is particularly destructive to managed care plans because it undermines plans’ ability to provide continuous, quality coverage and critical care coordination to enrollees, particularly enrollees with complex chronic illnesses. Research shows that the average monthly medical expenditure for an adult enrolled in Medicaid for 12 months is approximately two-thirds the level of a person enrolled for just six months, and half the level of a person enrolled for just one month.  In addition, organizations such as the National Committee for Quality Assurance (NCQA) support minimizing churn precisely because it undermines their ability to evaluate quality outcomes among Medicaid health plan enrollees. The added costs associated with eligibility determinations for health plans, the undermining of continuity of care for plan enrollees, and the threats to quality measurement and improvement created by this provision require ACAP to oppose it.

• ACAP Request: At a minimum, strike Section 116 of the legislation. ACAP would also support replacing Section 116 with a state option to provide 12-month continuous eligibility to all Medicaid-eligible Americans.

ACAP is happy to recommend legislative language to address these concerns.
Subtitle C – Per Capita Allotment for Medical Assistance

In a multi-year process of dialogue and input from our members, ACAP developed a series of principles that our member plans believe should be applied to current and future constructs of the Medicaid program. We provided these principles to Congress (Appendix A) earlier this year to help members understand how ACAP would evaluate any Medicaid capped funding proposal that moves forward. It is within the context of our principles that we are providing comments on Subtitle C of this legislation and urging modifications to amend the legislation accordingly.

Subtitle C reforms federal Medicaid financing by creating a per capita allotment model (i.e., per enrollee limits on federal payments to states) starting in FY 2020. While ACAP is open to considering comprehensive Medicaid reforms, our Capped Allotment principles provide parameters within which to evaluate Subtitle C of this legislation. As such, these comments are structured to align with our principles rather than the specific structure of the legislation.

• Maintain the Medicaid Program’s Guarantee of Coverage: In ACAP’s opinion, Subtitle C maintains the guarantee of coverage for currently-covered Medicaid populations. As mentioned above, we strongly support preserving this guarantee and would be unable to support any proposal that explicitly repealed it. However, we are aware that this proposal represents potentially substantial cuts to federal Medicaid funding, and recognize that while the guarantee of coverage is not directly impacted by these changes, federal funding cuts will impose pressure on states as they strive to maintain all currently-covered populations. We are concerned about the potential implications of the funding formula for the future of the program.
• Ensure Transparent, Verifiable, and Actuarially Sound Rate-Setting by States: While nothing in this legislation addresses the current federal protections that managed care organizations be reimbursed in an actuarially-sound manner[1], ACAP reiterates our concerns that limits on federal payments to states that fail to cover the cost of Medicaid benefits provided to health plan enrollees will incentivize states to cut rates to health plans in a manner that undermines the actuarial integrity of plans. The CBO Cost Estimate states that total Medicaid outlays will be reduced by $880 billion dollars, partly because on a per-enrollee basis, Medicaid spending will grow faster than the growth rate specified in the legislation, the consumer price index for medical care services (CPI-M). The Estimate explains that states as a result of these cuts will be in the position of deciding whether to “reduce spending by cutting payments to health care providers and health plans, eliminating optional services, restricting eligibility for enrollment, or (to the extend feasible) arriving at more efficient methods for delivering services.” ACAP is concerned about all of these possibilities. However, as an association of Safety Net Health Plans, we are compelled to point out the direct impact on managed care organizations of the potential for cuts to health plan rates, which can jeopardize coverage, access to care, and stability of the Medicaid market, but also can occur as violations of current statutory requirements related to actuarially sound rate setting.  In 2010, a study by the Government Accountability Office (GAO)[2] found that “CMS has been inconsistent in reviewing states’ rate setting for compliance with the Medicaid managed care actuarial soundness requirements, which specify that rates must be developed in accordance with actuarial principles, appropriate for the population and services, and certified by actuaries.” Without adequate oversight of state rate-setting, health plans’ viability is in jeopardy under any Medicaid financing system, including the one proposed in Subtitle C.

ACAP Request: The language of Subtitle C should be amended to amend section 1115 of the SSA to provide that federal requirements for actuarial soundness found in section 1903(m)(2)(A)(iii) may not be waivable.

• Maintain the Federal/State Partnership in the Medicaid Program: ACAP’s review of this legislation suggests that states would still be required to provide state match to cover all Medicaid enrollees. While the mechanics of federal participation are clearly laid out in this legislation, substantial cuts in federal funding to states have the potential to erode the federal obligation to states, requiring states to choose between committing additional state resources for previously federally-funded activities and cutting covered benefits or populations.

ACAP Comment: ACAP urges Congress to consider the importance of the state/federal Medicaid partnership, and ensure that federal funding to states under a per capita allotment program be fair and sufficient.

• Provide States the Flexibility to Implement Delivery System and Other Reforms: Nothing in ACAP’s review of this legislation would indicate that Subtitle C would explicitly preclude states from implementing delivery system and other reforms within the newly configured Medicaid program. In fact, statements by Committee leadership suggest an intent to provide added flexibility to states for innovation within the Medicaid program. To the extent that those reforms promote the ability of managed care organizations and Safety Net Health Plans to improve the quality and continuity of care to enrollees, ACAP supports such efforts. However, to the extent that such reforms require upfront investments, ACAP is concerned that the $880 billion reduction in federal funding to states could thwart such efforts. ACAP addresses questions of federal funding later in this letter.

ACAP Comment: ACAP urges Congress to consider the importance of upfront financial investments by states and the Federal Government in delivery system reforms and other innovations. As such, ACAP recommend that funding under a per capita allotment program be fair and sufficient to compensate for investments in future efficiency and effectiveness.

• Protect State Budgets Against Economic Downturns: ACAP’s review of the legislation suggests that per capita allotments may provide additional funding for states as new enrollees require coverage when the economy falters. It is critical that Congress recognize that while the current system has shortcomings in terms of ensuring states are made whole during economic downturns, any per capita allotment should offer protection against state incentives to cut Medicaid benefits and eligibility at the time that state residents most need these benefits. As cited previously, the CBO Cost Estimate indicates that Medicaid spending will outpace the CPI-M, leaving states to disproportionately bear the costs of the growth of the program during times of economic distress. To the extent that the state will respond to budgetary pressure by cutting rates to health plans – a historically common response – this becomes a clear threat to ACAP’s member health plans.

ACAP Request: Congress should amend this legislation to clarify that a state must pay plans negotiated rates with contracting managed care organizations and that payments under such contracts must be made in a timely manner.

• Maintain Federal Financial Support for Currently-Covered Services: ACAP’s review of this legislation suggests that the legislation does not maintain federal financial support for currently covered-services. Section 112(c) sunsets section 1937(b)(5) of the Social Security Act as of December 31, 2019. Additionally, the current per-capita allotment calculation does not consider with sufficient breadth the diversity of service needs associated with each 1903A Enrollee Category, instead favoring an agglomeration of all individuals within a particular category. This is particularly important to Medicaid managed care organizations because it may fail to reimburse states (which will in turn be responsible for plan rate-setting) for the risk associated with each of the enrollee categories. Likewise, without an accurate assessment of the health care needs of each specific 1903A enrollee population, it is impossible to know whether the per-capita allotment will be sufficient to provide the essential level of services to the population – regardless of whether these services are identified as “mandatory” or “optional” in current law.

ACAP Request: ACAP Request: Congress should amend this section to:

1. Strike the use of the CPI-M, and instead develop a measurement specific to the Medicaid market basket, which addresses not only price, but utilization and other critical factors as well.
2. Require Medicaid and CHIP Payment and Access Commission (MACPAC) to provide an annual update to this measurement that will be mandatorily integrated into the program.

 

• Maintain the Medicaid Program’s Coverage of Supports and Services for the Elderly and People with Disabilities: ACAP’s review of Subtitle C currently does not raise serious concerns about the ability of the Medicaid program to maintain coverage of supports and services for the elderly and individuals with disabilities. However, $880 billion in federal funding cuts to state Medicaid programs could potentially put services for the elderly and disabled at risk. For health plans on the front lines of serving these populations, the threat of inadequate reimbursements to the states due to reductions in Federal Medicaid funding could trickle down to the health plans in the form of inadequate rates. This could force both states and plans to curtail or eliminate services that are essential to meeting the complex health care needs of these populations.

ACAP Request: ACAP urges Congress to ensure that federal Medicaid funding to states be adequate and fair to allow states and plans to maintain Medicaid’s coverage of supports and services for the elderly and people with disabilities.

• Ensure Medicaid Contributes to Lifting People Out of Poverty: ACAP’s review of Subtitle C suggests that the legislation does little to address this principle in the manner in which Safety Net Health Plans advocate – specifically, addressing the complex social determinants that impact an individual’s health. While ACAP recognizes that the limitations of the Budget reconciliation process preclude addressing these issues, we believe that it is proper to implement a comprehensive financial reimbursement system reform of Medicaid that addresses the global social determinants that impact health care. We look forward to working with you on this in the future.
• Ensure Per Capita Allotments or Block Grants are Built on Reliable, Dependable, and Publicly-Verifiable Data: ACAP recognizes that Subtitle C makes an effort to ensure that calculations of per-capita allotments are based on reliable data. However, we question whether states and the Federal Government have enrollment and payment data to produce accurate allotments. Past efforts to develop allotments for state health care programs demonstrate the significant challenges therein – CHIP allotments were in most cases either inadequate for state need – pushing states to cap enrollments or set up waiting lists – or overly generous, leaving many millions of dollars unspent. The data hurdles inherent in producing accurate per capita allotments for the much-larger Medicaid program could be substantial.

ACAP Request: ACAP asks Congress to direct GAO to issue a report on the adequacy of data gleaned from the CMS-64 for the purpose of developing accurate per capita allotments.

• Incorporate Reasonable Accounting for Inflation and Demographic Changes in Demand: ACAP appreciates that Subtitle C recognizes the importance of an inflation factor and incorporates changes in demographic demand for Medicaid benefits. However, inadequate calculations of the inflation factor may yield excessive cuts to this funding, thereby damaging plan and state efforts to provide high quality services to Medicaid consumers. The CPI-M medical trend rate proposed in the bill reflects only growth in prices, which does not capture the extent of growth in health care generally, and specifically in Medicaid. CBO shows that over the 2017-2026 period, Medicaid spending will grow at an average annual rate of 4.4 percent, while the CPI-M will grow at a rate of 3.7 percent. An appropriate trend rate would also incorporate growth in volume and intensity of services per person, as well as demographic effects.

ACAP Request: ACAP urges Congress to:

1. Strike the use of the CPI-M, and instead develop a measurement specific to the Medicaid market basket, which addresses not only price, but utilization and other critical factors as well.
2. Require MACPAC to provide an annual update to this measurement that will be mandatorily integrated into the program.

 

• Recognize Differences in the Cost of Providing Care Across States: ACAP believes that Subtitle C seeks to identify and address differences in the cost of providing care across states. We continue to have concerns that calculations related to inflation, demography, and 1903A enrollee categories are inadequate to fund the Medicaid program. We urge Congress to amend the language of the AHCA to address the concerns raised herein.

ACAP Request: ACAP requests Congress to direct GAO to issue a report on the adequacy of data from each state for the purpose of developing accurate per capita allotments.

• Reflect the Patient Mix in any Particular State’s Program: ACAP’s review of Subtitle C leads us to believe that the legislation endeavors to reflect the patient mix in each state’s Medicaid program by basing payments on the number of enrollees in each 1903A enrollment category in each state.

When compared with ACAP’s principles, Subtitle C raises significant concerns. As such, we ardently seek productive discussion for the purpose of amending provisions that may erode critical elements of the program.

Subtitle D – Patient Relief and Health Insurance Market Stability

Section 131 – Repeal of Cost-Sharing Subsidy

Section 131 would repeal the cost-sharing subsidy program in 2020. The program is designed to lower out-of-pocket costs for those who purchase Silver plans through a Marketplace.

ACAP Request: Continually fund cost sharing reductions as set out in 45 CFR §156.430, until 2020, particularly given the uncertainty in House v Price. If actuarial value metal levels are eliminated in 2020, another similar form of cost-sharing subsidies must be provided to the lowest-income enrollees.

Section 132 – Patient and State Stability Fund

Section 132 establishes the Patient and State Stability Fund, which is designed to lower patient costs and stabilize State markets. Under the use of such funds, a State may use the resources to provide financial assistance to high-risk individuals, provides incentives to appropriate entities to enter into arrangements with the state to help stabilize premiums, reduce the cost of providing health insurance coverage in the individual market and small group market, promote participation in the individual market and small group market, promote access to preventive services, provide payments, directly or indirectly, to health care providers, and provide assistance to reduce out-of-pocket costs.

ACAP Comment: While ACAP supports the goals and purposes set out under the Patient and State Stability Fund, we have significant operational concerns regarding how the fund would be implemented. The specifications for which funds can be used lack clarity and fail to set out a timeframe for how frequently or how far in advance a state may change its use of such funds. This poses significant operational concerns for issuers, who must determine rates far in advance of each plan year. To accurately price their product, insurers must have a clear idea of the resources available to help reduce patient costs. Ultimately, while the goal of the fund is to stabilize state markets, as it is currently structured it would likely have the opposite effect. We urge the Committee to instead fund each of the established purposes of the fund with a predictable and stable source of revenue. ACAP supports the dedicated funding stream within the Patient and State Stability Fund set aside for high risk individuals in 2018 and 2019. However, we urge Congress to dedicate additional funds over the long term, such as a dedicated reinsurance program, in order to truly stabilize the markets.

Section – 133 Continuous Health Insurance Coverage Incentive

Section 133 establishes a continuous coverage incentive, designed to limit adverse selection in health markets by establishing a 12-month lookback period for continuous coverage requirements, under which an enrollee that does not meet such requirements would be assessed a 30 percent surcharge in addition to their premium.

ACAP Comment: ACAP has long supported continuous coverage in all lines of business and encourages the Committee to continue exploring ways to assure continuous coverage. Appropriate incentives must encourage individuals and families to maintain coverage across their lifespan, thus assuring a balanced risk pool. However, we are concerned that the provision as currently structured will not have the intended results of ensuring continuity of coverage, high take-up of insurance, or a balanced risk pool. Robust participation by consumers is imperative to a properly-functioning individual market. ACAP is concerned that the 30 percent surcharge may not be enough to encourage healthy individuals to enroll in coverage, which CBO reiterates in noting on page 12 of its estimate that “the people deterred from purchasing coverage would tend to be healthier than those would not be deterred and would be willing to pay the surcharge.” Without sufficient incentives or penalties, premiums are likely to increase significantly to compensate for the loss of healthy enrollees in the risk pool.

ACAP further recommends that the Committees ask GAO or CBO to evaluate the differences in efficacy and risk pool impact between the individual mandate and other proposed continuous coverage provisions, including the one proposed herein.

Section – 134 Increasing Coverage Options

Section 134 repeals the actuarial value (AV) standards and metal level requirements of the health insurance Marketplace on December 31, 2019.

ACAP Comment: ACAP supports increased flexibility for plan design and actuarial value requirements. We are, however, wary that elimination of actuarial value requirements completely may lead to significant consumer confusion about the value of what they are buying, as well as a proliferation of catastrophic plans that do not provide truly meaningful coverage and access to care. ACAP looks forward to working with Congress in weighing these tradeoffs, and preventing unintended consequences. For example, CBO predicts that due to the change in AV requirements, individuals’ cost-sharing, including deductibles, would be higher than under the ACA, yet consumer affordability is already of concern.

Section 135 – Change in Permissible Age Variation in Health Insurance Premium Rates

Section 135 changes the age band rating from 3:1 to 5:1 and allows states the flexibility to set their own ratio for plan years beginning on or after January 1, 2018.

ACAP Comment: ACAP supports the proposed age rating band changes, as the current 3:1 ratio does not adequately reflect true differences in the cost of care across generations, and simply raises costs on younger enrollees. This will allow issuers to offer lower-priced options to young enrollees, thus improving the risk pool. This change must be coupled with tax credits based on age and income so the change in the rating bands does not adversely impact older, poorer adults.

 

Ways and Means

Section 15 – Refundable Tax Credit for Health Insurance.

Section 15 creates an advanceable, refundable tax credit for the purchase of state-approved, major medical health insurance and unsubsidized COBRA coverage beginning January 1, 2020.

ACAP Comment: ACAP believes that the refundable tax credits, as currently structured, would do little to ensure coverage is truly affordable, particularly for low-income enrollees. ACAP believes that tax credits should be adjusted for both age and income. While health care does generally cost less for younger enrollees, and reducing premiums for the “young invincibles” will likely help improve the risk pool, the proposed credits are unlikely to make coverage affordable for as many individuals as is the case currently. Low-income enrollees would be most harmed by the proposed tax credit structure—with tax credits for higher income enrollees actually being higher than they would be under current law according to CBO—and as such ACAP requests that the Committee do more to ensure low-income consumers can afford coverage. These changes are particularly needed if the age bands are increased. Additionally, moving from income to age would, per CBO’s analysis, also have geographic impacts, ultimately result in people living in high-cost areas being responsible for a greater share of their premium—further reiterating the importance of having tax credits based on both age and income. 

Additional Considerations

Risk Adjustment

Section 1343 of the ACA created a permanent risk adjustment program for all non-grandfathered plans inside in the individual and small group markets. The risk adjustment program was intended to mitigate risk from high-cost enrollees and create stability in the Marketplaces by spreading risk across issuers.

ACAP Request: Neither Committee Print addresses the current risk adjustment program—an area which ACAP considers a significant oversight. While the risk adjustment program has helped numerous plans cope with adverse selection, there are a number of statutory components of the program, as set out in the ACA, that make the program ineffective—if not detrimental—for many issuers.

ACAP urges the Committee to give states the authority to establish a market area or service area risk pool, rather than a statewide risk pool. In many states, there is significant variation in the average premium across different service areas, which ultimately skews the transfer formula quite drastically. States should have the option to set their own risk pool areas to account for the geographic and other variation often seen within states.

ACAP also urges the Committee to consider adjusting which plans must participate in the risk adjustment program, and ensure that all plans eligible for tax credits also participate in the risk adjustment program. Otherwise, issuers are likely to return to cherry-picking low-risk enrollees when possible into plans that fall outside of the risk adjustment program—leaving only the sickest enrollees in the risk pool and thus raising the rates of coverage available to many.

 

Conclusion

As always, ACAP is prepared to engage in thoughtful and meaningful dialogue with bipartisan members of the House and Senate to expand coverage for more Americans while reducing the cost of care. We would welcome the opportunity to discuss these issues further and look forward to working with you.

Sincerely,

/s/
Margaret A. Murray
Chief Executive Officer

 

 

[1] Section 1903(m)(2)(A)(iii) of the Social Security Act

[2] Medicaid Managed Care: CMS’s Oversight of States’ Rate Setting Needs Improvement, GAO-10-810, August 4, 2010