Uncertainty Clouds the Affordable Care Act: Cost-Sharing Subsidies, CHIP on the Block

Wayne Kuznar

December 2017, Vol 8, No 5 - AVBCC Special Feature


This special feature is supported by funding from Janssen Pharmaceutical Companies of Johnson & Johnson.

Ongoing uncertainty over cost-­sharing reduction payments and premium subsidies threatens the sustainability of the Affordable Care Act (ACA) and the implementation of various quality initiatives contained within it. Consequently, several health plans are reducing their footprint in the health insurance exchanges, further threatening the stability of the ACA.

At the 2017 Association for Value-Based Cancer Care Summit, Kip Piper, MA, FACHE, President, Health Results Group, Washington, DC, and Gary M. Owens, MD, President, Gary Owens Associates, Ocean View, DE, provided an overview of the current healthcare policy landscape, a situation that is fluid and is certain to remain so, because healthcare repeal and reform are ongoing topics of discussion in Washington.

Healthcare costs are higher than anticipated with the establishment of the ACA. When the bill was written, the assumption was that newly insured individuals would make less use of the emergency department as a regular form of care, leading to cost-savings. However, newly insured individuals under the ACA are overwhelmingly receiving federal premium subsidies, and are increasingly insulated from the true cost of care, said Dr Owens.

The Instability of Healthcare Continues

The ACA created a narrow window of innovation waivers for states. A waiver allows states to pursue innovative strategies for providing their residents with access to high-quality, affordable health insurance, while retaining the basic protections of the ACA. The requirements to obtain the waivers are such that few were granted, according to Dr Owens.

Medicare Part B payment reform includes 2 tracks: (1) advanced Alternative Payment Models and (2) the Merit-Based Incentive Payment System. “There are concerns about the readiness of physicians, especially amongst specialists,” said Dr Owens. “It is a big deal. There undoubtedly will be tweaks and some delays, some modifications…partly because that’s always the case,” he added.

An interest in market-based ideas led to the 21st Century Cures Act, which was enacted by Congress in December 2016. The act authorized $6.3 billion in funding to healthcare, largely for the National Institutes of Health, to institute a market-based approach (rather than a top-down government approach) for accelerating the discovery, development, and innovation of pharmaceuticals and medical devices delivery into clinical care.

Leadership uncertainty has also contributed to the current instability of healthcare, said Dr Owens, as can be seen at the Centers for Medicare & Medicaid Services (CMS). “Out of the 6500 people in CMS, there are really only 2 political appointees with any direct line of authority over Medicare issues,” Dr Owens said. The remainder were put in place during previous administrations and have little appetite for change. Medicaid has only 3 political appointees, reinforcing the lack of trust that the federal government had in the states’ ability to adequately finance Medicaid during President Obama’s tenure, said Dr Owens.

States May Drive Changes

The degree of instability of the ACA is a function of the effects of subsidizing and regulating the individual market, according to Mr Piper. “They wanted equity. They wanted to redistribute. They wanted fairness in the system….That meant higher risks,” said Mr Piper. These goals led to less predictability.

The most problematic portion of the ACA is the health insurance exchanges, said Mr Piper. Between $11 billion and $12 billion annually must be appropriated by Congress for subsidies. Without an appropriation, the funds collected for subsidies cannot be paid out. People whose incomes fall between 100% and 250% of the federal poverty level are eligible for subsidies for cost-sharing, copayments, deductibles, and coinsurance under the ACA. The premium subsidies are on a sliding scale that ranges from 100% to 400%.

State budgets will also feel the pinch, because they must cover 5% of the costs of Medicaid expansion in 2018, a percentage that will eventually increase to 10%. “Medicaid eats up not only the largest proportion of their budgets, but it eats up all the new money. Even in a good year, it eats up all the money in terms of leaving nothing for transportation, education, corrections, and so on,” said Mr Piper.

States must find new ways to manage their drug costs, either through waivers or through changes in regulations. States have little leverage to rein in drug pricing outside of the federally mandated discount that they receive.

“Massachusetts has an interesting waiver request that they’ve submitted to CMS asking for the Feds to waive the restrictions on Medicaid formularies,” Mr Piper said. At present, federal regulation requires that states must cover the use of any FDA-approved drug, which has led to the creation of lists of preferred or nonpreferred drugs, use of prior authorization, or step therapy requirements, but not restrictive formularies, said Mr Piper.

Massachusetts also wants to exclude the coverage of drugs based on less strict FDA standards, such as those for orphan drugs. CMS accepted comments on the Massachusetts request until October 20, 2017.

“States are going to be the place where you’ve got ideas coming up to the Feds, but will the Feds be receptive, and will they have the kind of structure and the bureaucracy in the process to be able to do that?” Mr Piper asked.

CHIP Financing Needs Extension

When the ACA was passed, one assumption was that the Children’s Health Insurance Program (CHIP) would expire, because children would be covered through Medicaid or through federal health insurance exchanges. CHIP is administered by states, according to federal requirements, and is funded jointly by states and the federal government. However, given the fragility of the exchanges, CHIP’s future is uncertain.

A lapse in federal funding now endangers CHIP, which covers approximately 9 million children nationally. A Senate finance plan would extend funding for CHIP for 5 years, and gradually diminish the 23% funding increase that the ACA provided for the next 2 years. With federal funding for CHIP expired, states can use unspent federal funds allocated earlier to keep CHIP going.

“There are about 4 states that are likely to run out of money at the end of this quarter, by December,” said Mr Piper. “The rest of the states have some CHIP money into…calendar year 2018,” he added.