At the time of this publishing, all indications are that the Senate will hold a floor vote for one last health care reform proposal before the clock expires on Sept. 30, 2017, to use relaxed procedural rules for passage. One of the key elements of this Graham-Cassidy health care reform bill is that it gives flexibility to the states. Under the plan, states would be given a block grant based upon their population and would generally be permitted to spend the grant on health care as they see fit. In fact, it appears that to obtain waivers to implement “innovative” coverage options, a state must only certify that its new plan offers “adequate and affordable coverage.” However, adequate and affordable is not defined, and it is not clear that there is an enforcement mechanism once a waiver has been granted. This loose mandate provides a starting point under which states could experiment with different health care solutions or, in the event that the bill fails to gain the necessary support, the bill may serve as a catalyst for the discussion of alternative approaches that may be used as a basis for future health care reform efforts.
So far, only California and Vermont have shown signs of exploring a single payer option, but both states halted their efforts. Under a single payer plan, a state’s government would establish a state-run insurance company that would provide coverage to all residents of the state. One concern under the Affordable Care Act with this type of plan is that the federal government would not grant waivers to divert federal funds from existing programs. Under the expansive waiver rules of Graham-Cassidy, it would appear that there is no basis for the denial of these waivers. However, at least one Senator, John Kennedy (R-LA), plans to introduce an amendment to Graham-Cassidy that would bar states from using federal funds to establish a state level single payer plan. Nearly all private insurance (including employer-provided insurance) would be eliminated under the California plan. The system was to be financed with a combination of federal funds and substantial payroll tax increases.
In exchange, those enrolled in the California program would have received generous insurance coverage, including inpatient and outpatient care, dental and vision care, mental health and substance abuse treatment, and prescription drugs, according to a report by the LA Times. Patients under the California proposal would have been able to choose any provider and would have incurred zero cost in premiums and co-pays for most care. The California public option is notably different from European public option programs which don’t totally eliminate private insurance and can still require premiums and co-pays. The plan would have also folded the California’s Medicare and Medicaid programs into the single payer system.
Another consideration that has, thus far, halted single payer initiatives is the cost. Some analyses of the California proposal estimated that it would cost $330-$400 billion per year. On the other hand, with the elimination of co-pays and insurance premiums, these analyses also estimated that total health care spending would decline for most people in the state, especially for low income individuals.
High-risk pools are at the other end of the spectrum from single payer systems. Under a high-risk pool, individuals with certain preexisting or terminal conditions are allowed to enroll in a separate insurance pool that is (partially) subsidized by the state. Theoretically, under Graham-Cassidy a state could subsidize 0 to 100 percent of the cost of insurance of those enrolled in the pool. The basic idea of a high-risk pool is to remove those who have expensive medical issues from the state’s individual insurance market. Proponents of such proposals argue that removing high-risk individuals from the individual market reduces the cost of the remaining members of the market, because the high-risk individuals’ medical expenses are disproportionate when compared to the rest of the market.
This can be illustrated with a simple example. If 10 individuals participate in the individual insurance market and the average annual medical expenses for nine of those members is $1,000 per person, but the tenth person’s expenses are $11,000 per year, the average cost per person jumps to $2,000. Combined with the Affordable Care Act’s (ACA) prohibition on charging higher premiums for those with preexisting conditions, this results in premium increases for the nine members whose annual cost is lower and a subsidy for the one individual whose costs are higher. As stated earlier, under Graham-Cassidy it appears that a state would be permitted to subsidize up to 100 percent of the cost of insurance under a high-risk pool. The amount of the subsidy is obviously very important. Opponents of high-risk pools often note that there is typically not enough funding to assist all of the individuals who are eligible for the pool. And fully funding the pool may leave little to no funding for individual premium subsidies like the ACA tax credits or for state-run programs such as Medicaid.
A public option program differs from a single payer system less dramatically than high-risk pools do. A public option program provides a government insurance option that individuals can buy into, but it does not eliminate premiums or private insurance. The Nevada legislature approved a public option program under which individuals could purchase coverage under the state’s Medicaid system, though the legislation was eventually vetoed by the governor. A state could also presumably allow individuals either to buy into a Medicare type system or create their own under Graham-Cassidy as alternatives. Proponents of a public option point out that they are not as disruptive as a single payer system to the insurance market, they have cost savings provided by the lower Medicaid reimbursement rates paid to medical care providers, and they would potentially have lower premiums as a result of the lower reimbursement rates.
On the other hand, opponents of the public option cite risks that the cost to the state could expand rapidly, that providers would not participate in the program due to the lower reimbursement rates, and, as cited by the Nevada governor, uncertainty around federal assistance. This last one could be particularly relevant under Graham-Cassidy, which sunsets its block grants after 10 years. This would mean that without a federal extension of the grants, a state could be left covering all of the costs. And while this is applicable to all of the proposals, consumers would most directly feel the increased costs of the elimination of the federal grants, because they would be paying an “insurance” premium to participate in the program. This contrasts with the single payer system (where there is no premium) or the high-risk pools (where generally the grant would go to members of the high-risk pool—typically a small subset of the state’s population).
Small Employer Purchasing Pools
Under the current system, employers who provide employer-sponsored health insurance do so on their own, and the insurance cost is determined based upon each employer’s workforce. Small employer purchasing pools alternatively would allow multiple small employers to band together to negotiate lower rates. A state’s participation in the program could include pools run by private organizations, a government-run pool in which employers could enroll, or a state agency overseeing a private organization that administered the pool.
If Graham-Cassidy were to pass, a state could then use the federal block grant to fund the administrative costs of running a state-operated or overseen pool. Additionally, a state could use the grants to provide incentives to encourage participation in the pools. This could include premium assistance for the employers or payments to the private organization to reduce the employer’s share of those costs. Under an alternative bill, these pools may also gain traction as a starting point for bipartisan negotiations as the creation of such pools would not necessarily require cuts to other programs such as Medicaid or the ACA tax credits.
As a cornerstone of the proposed Graham-Cassidy bill, block grants to states shift the burden of establishing workable and affordable health care solutions away from the federal government and put it squarely back onto the states. Each state option for a solution has pros and cons, and the cost of some options points towards increased state taxes at a time when federal tax reform plans propose eliminating the deduction for state income taxes. This would be a “hidden” increase in the cost of health care to many middle income families. The Senate must rush this bill to vote if it is to have any chance of succeeding, because the budget reconciliation rules eliminate any chance of passage after September. However, if the Senate is not able to meet this deadline it is possible that one or more of these alternatives forms the backbone of the next health care reform effort. For information on the Graham-Cassidy healthcare bill, contact your local CBIZ MHM tax professional.
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