Letter to Senator Hatch on the American Health Care Act

May 23, 2017
The Honorable Orrin Hatch
Chairman, Committee on Finance, United States Senate
219 Dirksen Senate Office Building
Washington, DC 20510




Dear Chairman Hatch:

On behalf of the Association for Community Affiliated Plans (ACAP) and the 60 Safety Net Health Plans and 17 million Americans they serve, thank you for the opportunity to provide input on budget reconciliation legislation that promises to significantly reform both Medicaid and the health insurance Marketplaces.  As an organization representing Safety Net Health Plans, ACAP serves nearly half of all people enrolled in Medicaid managed care plans nationwide and more than 6 percent of all Marketplace enrollees. We appreciate the Senate’s solicitation of the input of stakeholders that are vital to the delivery of health care benefits and services to millions of Americans.  The Senate’s work on these important programs will heavily impact both our member health plans and the many millions of health care consumers they cover.  We want to work with you, the Senate leadership, the Finance Committee, and the members of the Health Reform Working Group to improve the health care system for all Americans.

Thematically, our key concerns with legislation addressing the current health care system after enactment of the Affordable Care Act are:

  1. Preservation of the state option to expand the Medicaid program with enhanced federal match.
  2. Assuring that any Medicaid per capita allotment structure preserves critical federal Medicaid funding as well as important protections for plans, providers, and enrollees.
  3. Guaranteeing stability for the health insurance Marketplaces and affordability for consumers.

While we elaborate on our concerns later in this letter, we want to state clearly that ACAP opposes any legislation that repeals or erodes the Medicaid expansion. In addition, ACAP opposes any effort by the Senate to cut hundreds of billions of dollars in federal funding from Medicaid – a step which would cause tremendous harm to states, Medicaid health plans, providers, and, according to the Congressional Budget Office analysis of the American Health Care Act, cause 14 million enrollees to join the ranks of the uninsured. We have also suggested two changes to Medicaid which we believe will improve the efficiency of the program.

Likewise, when it comes to stability of the Marketplaces, ensuring continued funding of cost-sharing reductions is paramount.  We believe this ought to be addressed separately, and in the near-term, as compared to the other recommendations for stability and affordability outlined below.

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


Medicaid Expansion

ACAP Opposes Legislation that Would Repeal or Erode the Medicaid Expansion with Enhanced Federal Match

The Medicaid expansion under the Affordable Care Act has brought health insurance to millions of Americans who did not previously have it. Implemented at the option of the states, this expansion reflects health coverage models for state residents which those states found most appropriate. As a majority of Americans covered by the Medicaid expansion are employed, the expansion fills in a gap left by the employer-based health care system by ensuring that these people have coverage.

The House-passed American Health Care Act substantially erodes the state option to extend coverage to adults with incomes up to 138 percent of federal poverty by ending the enhanced match rate for newly eligible enrollees in existing expansion states and by requiring existing expansion enrollees to maintain continuous coverage for states to receive enhanced federal match. These policies are in direct conflict with ACAP’s support of allowing states to retain the option for expanding Medicaid to this population, and would result in a substantial decline in Medicaid enrollment, resulting in unnecessary uninsurance among millions of low-income individuals.

While ACAP recognizes that not all states would choose to expand the Medicaid program, we strongly believe that the Senate should allow states to 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 urges the Senate to reject the House’s American Health Care Act approach and preserve the state option to expand Medicaid coverage with enhanced FMAP to all state residents with incomes up to 138 percent of the federal poverty level. Should the Senate opt to erode this effort, ACAP will be forced to oppose this legislation.


ACAP Opposes Legislation that Increases Eligibility “Churn” to Erode Medicaid Expansion Coverage

ACAP has long been a proponent of solving the serious problem of eligibility “churn” in Medicaid by requiring 12-month continuous eligibility for all Medicaid enrollees. Unfortunately, the American Health Care Act has sought to increase eligibility redeterminations for enrollees from once to twice per year, employing churn to reduce the numbers of eligible individuals with Medicaid expansion coverage. In addition, existing legislation in both the House and Senate has sought to reduce federal match to states for the Medicaid expansion by requiring continuous eligibility of current Medicaid expansion enrollees – which under current law, is all but an impossibility for expansion enrollees.

Churn negatively impacts all Medicaid stakeholders. Providers are forced to use valuable hours helping eligible individuals re-enroll in Medicaid. Enrollees lose coverage for administrative reasons or for insignificant and temporary bumps in wages and either forego important treatment or receive uncompensated care. 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.

Conversely, continuous Medicaid would yield dividends to all stakeholders. 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: ACAP asks the Senate to reject using eligibility churn to reduce enrollment and federal Medicaid funding. ACAP supports 12-month continuous eligibility for all Medicaid-eligible Americans and is happy to recommend legislative language to address these concerns.


Medicaid Per Capita Allotments

The House-passed American Health Care Act established a system of per capita allotment Medicaid payments for states. 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 all current and future options for financing the Medicaid program, including capped allotment systems. We provided these principles to Congress (available here) earlier this year to offer Congress a perspective on how ACAP would evaluate any capped Medicaid funding reform proposal. Because of your past support for changing Medicaid into a per capita allotment system, we are providing comments on the concept of per capita allotment funding for the Medicaid program.

As our principles indicate, ACAP is open to considering comprehensive Medicaid reforms and believes that Medicaid health plans are the key both to Medicaid savings and improvements in value and quality. However, we feel strongly that any new financing structure must avoid cutting hundreds of billions of dollars in federal funding such as the reductions imposed by the House legislation.  Cuts of this magnitude, included in the House-passed version of the American Health Care Act, will do great harm to states, plans, providers, and enrollees.  We urge the Senate to take a different approach.

To reiterate, ACAP’s Medicaid reform principles include (but are not limited to) the following:

  • Maintain the Medicaid Program’s Guarantee of Coverage: It is critically important to ACAP member plans that any reformed Medicaid proposal preserve the individual entitlement. We are aware that per capita allotment and block grant proposals may accompany substantial cuts to federal Medicaid funding, and recognize that while guarantees of coverage may not be directly impacted by per capita allotments, such cuts would put tremendous pressure on states as they strive to maintain all currently-covered populations. That is why we support ensuring that Medicaid’s guarantee of coverage to eligible populations be maintained.
  • Ensure Transparent, Verifiable, and Actuarially Sound Rate-Setting by States: ACAP has long articulated 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 of the House American Health Care Act found that states facing substantial federal Medicaid funding cuts would 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 these possibilities, and urges the Senate to take care that plan rates are properly developed and certified as required by current law and regulation. Cuts to health plan rates can jeopardize coverage, access to care, and stability of the Medicaid market, but also can violate current statutory requirements related to actuarially sound rate setting.  In 2010, a study by the Government Accountability Office (GAO)[1] 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 per capita allotments.

ACAP Request: ACAP asks the Senate to include language in the legislation 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, and is happy to recommend legislative language to address these concerns.

  • Maintain the Federal/State Partnership in the Medicaid Program: ACAP believes that both states and the federal government should retain responsibility for Medicaid. We are concerned that the substantial cuts in federal funding related to a too-low trend rate, an inadequate base year, and other factors included in the House American Health Care Act would erode the federal obligation to states. Funding reductions of that magnitude would require states to choose between committing additional state resources for previously federally-funded activities and cutting covered benefits or populations. Should the Senate pursue a capped Medicaid funding structure, ACAP urges the Senate to consider methods of calculating and trending the allotments that would provide fair and adequate funding to states.

ACAP Request: ACAP urges the Senate to avoid making deep cuts to federal funding that would necessitate state reductions to eligibility and necessary benefits.  To ensure that the federal responsibility for Medicaid funding is preserved and that per capita allotment language does not unduly cut federal Medicaid funds, we ask the Senate to:

  1. Utilize a measurement specific to the Medicaid market basket, which addresses not only price, but utilization and other critical factors as well.
  2. Require the 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 believes that excessive cuts to federal Medicaid funding could potentially put services for the elderly and disabled, including inpatient and community-based long term services and supports (LTSS) 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 asks the Senate to set per capita allotment amounts for aged and disabled long term care services and supports users to appropriately cover the cost of inpatient and community-based LTSS for those groups. In general, ACAP asks the Senate 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.

  • Maintain Federal Financial Support for Currently-Covered Services: ACAP has concerns that per capita allotment calculations will not consider with sufficient breadth the diversity of service needs associated with each per capita allotment eligibility category, instead favoring an agglomeration of all individuals within a particular category. This is particularly important to Medicaid managed care organizations because the structure 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 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. Lastly, should the Senate legislation result in excessive federal Medicaid funding cuts, states will be pressured to reduce currently-covered benefits.

ACAP Request: Again, we ask the Senate to

  1. 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.
  3. Ensure that federal funding to states under a per capita allotment program be fair and adequate to cover currently-covered services for covered populations.


Improved Efficiency of the Medicaid Program

ACAP supports structural changes to the Medicaid program that would increase the efficiency of the program and slow the growth rates in Medicaid, including addressing prescription drug costs and the expanded option to enroll populations into managed care options:

Eliminate One-Size-Fits-All Medicaid Drug Formularies

Prescription drug management is an integral component of efforts to provide integrated, coordinated care to Medicaid enrollees.  Allowing plans to manage the mix of drugs helps to maximize clinical and cost effectiveness and avoid the use of high-cost products that have limited additional clinical value. Still, some states are moving to require plans to use their statewide fee-for-service formularies.  Often the result of political pressure, requiring plans to use a statewide formulary is not only counter to requirements in Medicare Advantage and other government-supported health programs, but it is more costly.

ACAP Request: ACAP urges the Senate to guarantee Medicaid health plans the ability to use proprietary formularies. This change will not diminish current requirements that all drugs approved by the FDA be available when medically necessary.

Expedite and Ease States’ Ability to Use Health Plans in Medicaid

Health plans are the most common form of care organization and delivery in Medicaid.  Today, at least 75 percent of all Medicaid enrollees are enrolled in some form of managed care plan.  Despite this, states must go through a cumbersome waiver process if they wish to contract with MCOs to manage the care and health of enrollees.  Using the state plan amendment (SPA) process, instead of the current waiver process, will maintain a strong level of federal oversight and input while giving states the flexibility to better serve their beneficiaries.

ACAP Request: We urge the Senate to amend the Medicaid statute to allow states to implement Medicaid managed care in their state using the less cumbersome and more efficient state plan amendment process.


Stability & Affordability in the Marketplaces

As we look to stabilizing the Marketplaces and ensuring affordability for consumers moving forward, it is conceivable that both short and long-term fixes may be necessary.  These could be split into two separate packages, if needed, to ensure immediate-term viability in the individual market while also improving stability in the long-term.

While the House bill established a Patient and State Stability Fund with the goal of lowering patient costs and stabilizing State markets, we believe the Senate ought to take a different approach.  We agree with the House’s goal, however, we have concerns with the lack of specificity in how the fund would be implemented, the inadequate funding levels as well as the potential operational challenges it would pose for issuers, who must determine rates far in advance of each plan year.  We urge the Senate to instead fund each of the established purposes of such fund with a predictable and stable source of revenue, as well as to take a number of additional actions, as outlined below.

Cost Sharing Reductions

The number one most pressing issue for both consumers and issuers is that of ensuring continued funding for cost sharing reductions (CSRs) for low-income consumers.  CSR funding acts simply as a pass-through from issuers to consumers, yet a loss of federal funding for it would wreak havoc throughout the individual market.

Without continued funding, it is safe to expect that many issuers will exit the individual market and that those that remain will raise rates significantly.  ACAP plans predict that they would need to raise rates at least an extra 20 – 25 percent—across all metal levels— above what they would otherwise raise rates.  Ultimately, both consumers and the Federal government will be on the hook for these increases.  Some estimates predict that the Federal government would ultimately pay $2.2 billion in advanced premium tax credits (APTC) than the cost of funding the CSRs.

We urge the Senate to immediately provide certainty to issuers that CSRs will be permanently funded moving forward.  We recommend that this be done in advance of additional efforts to repeal or replace the Affordable Care Act simply to provide needed certainty in the interim.

Tax Credits

ACAP has long believed that coverage must be accessible and affordable to consumers from all walks of life, while still ensuring plans’ financial solvency.  Accordingly, assistance ought to be provided to Americans with low incomes who will struggle with high premiums and out-of-pocket medical costs.  For this reason, ACAP believes that the refundable tax credits as set out in the House bill would do little to ensure coverage is truly affordable, particularly for low-income enrollees.  Tax credits should be adjusted for both age and income.

Age Band Rating Changes

ACAP requests a change in age rating bands from 3:1 to 5:1. The current ratio does not adequately reflect true differences in the cost of care across generations, and simply raises costs on younger enrollees.  Changing the rating bands will allow issuers to offer lower-priced options to young enrollees, thus improving the risk pool.  However, this change must be coupled with tax credits based on both age and income so that it does not adversely impact older, poorer adults.

High-Cost Enrollees

ACAP appreciates efforts made in the House bill to ameliorate the impact of high-cost enrollees, such as through increased funding for high risk pools and the Patient and State Stability Fund.  ACAP believes that either a long-term, permanent reinsurance program or invisible high risk pool, if adequately funded could serve to protect both issuers and consumers from price spirals resulting from extraordinarily high-cost and high-risk enrollees.

One percent of patients account for 21 percent of total health care spending costs, and issuers must factor the chances of enrolling a high-utilizer into their rates.  Permanently authorizing a revenue-neutral reinsurance program or establishing an invisible high risk pool would help lower prices for all consumers and ensure greater business stability.  However, analyses have shown that the level of funding set out in the House bill is inadequate to fully address the health care needs and costs associated with the millions of Americans with pre-existing conditions.  We urge the Senate to ensure truly adequate levels of funding for either a reinsurance program or invisible high risk pool as it works to stabilize the individual market.

Continuous Coverage & Individual Responsibility

Robust participation by consumers is imperative to a properly-functioning individual market; appropriate incentives—or penalties—must encourage individuals and families to maintain coverage across their lifespan, thus assuring a balanced risk pool.  Further, ACAP has long supported continuous coverage in all lines of business and encourages the Senate to continue exploring ways to assure continuous coverage in the individual market, whether it be through an individual mandate or other form of personal responsibility.

ACAP believes that an individual mandate is one of the best ways to ensure both continuous coverage and a balanced risk pool.  We are concerned, however, that the continuous coverage provision as structured in the House bill will not have the intended results of ensuring continuity of coverage, high take-up of insurance, or a balanced risk pool.  ACAP is concerned that a 30 percent surcharge lasting just one year may not be enough to encourage healthy individuals to enroll in coverage.  Without sufficient incentives or penalties, premiums are likely to increase significantly to compensate for the loss of healthy enrollees in the risk pool.

Additionally, while the House bill would permit limited waivers of community rating—allowing in some cases for plans to adjust premiums by health status, ACAP opposes such a move.  Given ACAP plans’ history and experience serving the Medicaid population, rather than the commercial market, a move to underwriting would likely result in many ACAP plans’ withdrawal from the individual market.  Individual underwriting is not something in which ACAP plans have experience, nor is it in-line with our mission as not-for-profit safety net health plans.


Risk Pool Stabilization

The Marketplaces also can be further stabilized by ensuring that more enrollees are part of the risk pool.  For example, non-compliant plans still under operation are exempted from the single QHP risk pool used to determine risk adjustment and which impacts rate setting.  These plans often enroll healthier members, thereby effectively removing many healthy consumers from the risk pool and driving up costs for those who are purchasing QHP coverage.  We urge the Senate to reconsider which plans must participate in the risk adjustment program, as well as how else it can improve the risk adjustment program.

For example, ACAP urges the Senate 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.



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.





Margaret A. Murray
Chief Executive Officer

cc:          Members, Senate Finance Committee
Members, Senate Health Reform Working Group



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