Rural Health Under Republicans' Post-Obamacare American Health Care Act

Last month, we posted a blog highlighting the special implications of Obamacare replacement or reform on rural healthcare. With Republicans in the U.S. House of Representatives revealing their first concrete proposal for overhauling the landmark Affordable Care Act last night, how have these possibilities evolved? 

The American Health Care Act, comprised so far of a pair of bills, advances a wide range of post-Obamacare policies, but does not repeal the entire law. Some components that are already receiving ample attention are the shift from income-based tax credits to age-based tax credits, repeal of the individual mandate, penalties for lapses in coverage, defunding of reproductive health services, and the realities confronting President Donald Trump’s statement that the new plan will mean insurance for everybody. 

Here, we focus on a select few provisions of the AHCA keenly impacting rural health providers and their patients:

- Medicaid Reform. Perhaps most important for rural health providers, the AHCA significantly reshapes the Medicaid landscape, albeit more gradually than some had anticipated. The bill calls for substantial reductions in federal matching funds to state Medicaid programs beginning on January 1, 2020, with the caveat that states would continue to receive enhanced Medicaid payments for people enrolled in Medicaid before that date. 

For new enrollees in 2020 and beyond, the federal government would only pay its pre-Obamacare share of Medicaid costs — a move that is sure to lead to cuts in expansion states’ Medicaid programs. States would have until Dec. 31, 2019, to decide whether to expand Medicaid (or implement a waiver program) and get their members enrolled. 

Studies have shown rural hospitals are more impacted by the Medicaid expansion or lack thereof than are city-based hospitals. 

Another major change to Medicaid proposed by the AHCA is a shift to per capita aggregate spending limits beginning in 2020. Notably, the initial per capita lump sum to states would be based on their respective Medicaid spending in FY 2016. Therefore, states that were to expand Medicaid or implement a waiver program between 2017 and 2019 would not receive a corresponding benefit in their per capita allotments.

- Safety Net Funding to Non-Expansion States. In states to have not and will not expand Medicaid, the AHCA would extend $10 billion in safety net funding for Medicaid providers over five years ($2 billion/year). As a rough comparison of budgetary scope, the Congressional Budget Office estimated that the next 10 years of Obamacare’s Medicaid expansion nationwide would have involved $993 billion in federal funding.

- DSH Cuts. Medicaid Disproportionate Share Hospital payments, protecting safety net hospitals that treat a high number of indigent patients, were scheduled to be cut beginning in FY 2018 under Obamacare. The AHCA would repeal Medicaid DSH cuts for non-expansion states in 2018 before they even take effect, and would repeal such cuts in expansion states beginning in 2020. 

- Community Health Center Funding. In recent years the federal government has increasingly supported Community Health Centers, also known as Federally Qualified Health Centers, which are not exclusive to rural areas but do exclusively serve medically underserved areas. The AHCA would offer a one-time increase in funding to Community Health Centers of $422 million. 

- 340b Program. One of the effects of a less-than-wholesale repeal of Obamacare is that some provisions may be simply left alone without much public attention. At least in the first iteration of the AHCA, this appears to be the case for the 340b Drug Pricing Program, which was expanded to include 1,100 rural hospitals under Obamacare. The rural hospital community would surely welcome a continuation of this change. 

- Individual Marketplace. As mentioned above, the AHCA proposes substantial changes to the individual insurance marketplace, including the shift from income-based tax credits to age-based tax credits with older consumers receiving more assistance. These changes would have many direct and indirect impacts on rural healthcare, largely by increasing patient co-insurance and reducing the number of privately insured patients. For example, because the AHCA premium tax credits are not tied to local premiums as under Obamacare, people in areas where premiums are higher (often rural areas) would receive a flat tax credit based on age but would be stuck with the remainder of the higher local premium.

Generally, rural areas have lower-income populations than do urban areas, so premium tax credits that are not adjusted for income level may lead to more uninsured patients in rural areas. This handy interactive map from the Kaiser Family Foundation (adjustable by age and income!) shows that 40-year-olds with an income of $30,000 will often face reduced tax credits under the AHCA in rural America, but will not be as affected in urban pockets. 

The AHCA aims to address some of these private marketplace deficits through lower premiums via health plan competition and increased use of health savings accounts. 

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Overall, the AHCA proposes a handful of measures acknowledging the difficulties of rural health providers, offering safety net funding to non-expansion states, halting impending DSH cuts, increasing funding to FQHCs and leaving the 340b program untouched.

However, the likely reduction in insured patients -- whether by decreased Medicaid funding or changes to the individual marketplace -- threatens to outweigh these potential benefits. The National Rural Health Association has already released a statement expressing concern about the bill. 

Disclaimer: The foregoing materials are provided for informational purposes only, and are not to be construed as legal advice. Please consult an attorney before applying this guidance to any particular facts or circumstances. 

Obamacare Update – Repeal, Repair, Is There a Difference?; Special Implications for Rural Health

Several key Republican lawmakers have reportedly shifted their rhetoric in recent weeks from repealing and replacing the Patient Protection and Affordable Care Act (“ACA”) to repairing it. But with many of the leading ‘repeal’ plans promising to reinstate certain elements of ACA immediately, the differences between these two paths may be academic. 

Throughout the last election cycle, Republicans promised newly insured individuals they would not lose insurance coverage if the ACA were repealed. Facing pushback from the public on certain popular provisions of the law, Senator Lamar Alexander (R – TN), chairman of the Senate health committee, announced the alternative plan could be more accurately described as a “repair” than a replacement. Adding to the mixed message, Speaker of the House, Rep. Paul Ryan, (R – WI) said ‘repairing’ the ACA actually meant repealing and replacing it. 

Semantics aside, it is becoming increasingly clear that the GOP replacement plan will share some characteristics with the ACA. Fundamentally, most prominent GOP alternatives mirror the ACA’s multi-payer system in which consumers are offered tax credits for purchasing private insurance on an individual marketplace, while public programs like Medicaid are bolstered through federal funds. Within this context, differences exist as to how the tax credits will be distributed, how the Medicaid funds will be applied, and how insurers will be restricted in shaping their plans. Also like the ACA, Speaker Ryan’s “Better Way” plan seeks to prohibit insurers from excluding members based on preexisting conditions, and to allow adults up to age 26 to remain on their parents’ plans.  Health and Human Services Secretary nominee Tom Price, who has proposed his own replacement plan, supports a limited form of preexisting condition exclusions and stated in his confirmation hearing that he would considering preserving the CMS Innovation Center that has housed many of the ACA’s value-based payment reforms. 

Possible Implications of a Complete Repeal for Rural Hospitals

An overhaul of the ACA comes at a critical time for healthcare in rural America. A December 2016 report from the CDC found a decline in life expectancy for Americans—particularly among Americans living in rural areas—for the first time in 20 years. The CDC attributed this finding to rural Americans having higher rates of chronic illness, obesity, alcoholism, mental illness, and suicide relative to their urban counterparts. The financial health of hospitals serving rural populations remains dire; an estimated 700 rural hospitals across the country are vulnerable to closure. 

Here are some elements of the ACA that have especially affected rural healthcare and whose repeal would have significant impacts on rural providers. 

Medicaid Expansion

Repealing the ACA’s Medicaid expansion would be a massive blow to rural health providers, but its impact would be greater, naturally, in states that opted to expand Medicaid in the first place. After the U.S. Supreme Court made expansion optional in 2012, thirty-two states including the District of Columbia expanded Medicaid coverage under the ACA. For providers in states that declined to expand Medicaid, a repeal of the expansion will be business as usual. 

In so-called “expansion states,” many hospitals will see an increase in uncompensated care if the ACA’s replacement withdraws federal support for expanded Medicaid programs. The American Hospital Association has estimated repealing the expansion of Medicaid would cost hospitals across the United States more than $160 billion due to reductions in Medicaid revenue received and an increase in unpaid medical bills. These financial losses would impact all hospitals, especially rural hospitals due to a greater percentage of their patient populations gaining coverage under the Medicaid expansion relative to urban and suburban hospitals. 

Medicare and Other Reimbursement Cuts

The ACA contained a variety of Medicare payment cuts that have adversely affected health providers. Repealing some of these cuts, such as the reduction in reimbursement from Medicare Advantage plans, would benefit health providers including those in rural areas. The same goes for repeals of payments that compensate hospitals treating a disproportionate share of uninsured patients (“DSH” payments); however, while cuts to Medicare DSH payments have hurt some rural hospitals, such hospitals would be much more heavily impacted by the ACA’s planned reductions in Medicaid DSH payments, which have been delayed and therefore not yet felt by rural hospitals. 

Of note, the across-the-board 2-percent sequestration cut to Medicare payments, first passed into law in 2011, was not a part of the ACA and would not be undone merely by way of an ACA repeal. 

Value-Based Care

The ACA contained several initiatives aimed at tying providers’ payments to the quality of their care (Accountable Care Organizations; Hospital Value-Based Purchasing Program; Hospital-Acquired Condition Reduction Program, and more) and further directed CMS to test and implement new approaches to compensating providers in hopes of containing costs. Currently, the CMS Innovation Center administers dozens of programs in this “value-based” mold, and private payers have followed suit.

Repealing the ACA without immediately reinstating the statutory basis for these value-based programs would cause significant confusion and disarray in the provider community. While many providers would likely breathe a sigh of relief without the threat of penalties for readmissions and other quality measures, these programs have been widely adopted and their repeal would disrupt delivery and workflow changes and technological investments that providers have made since the ACA’s passage. 

340b Program

The 340b Drug-Pricing Program was enacted by Congress in 1992 to provide low-cost drugs to designated “social safety net” medical facilities in economically distressed areas of the country. A provision of the ACA expanded the 340b Program, causing 1,100 rural hospitals to become eligible to purchase low-cost drugs from drug companies. The expanded 340b Program was a windfall for many rural hospitals, especially when the typical rural hospital operates on small margins. An outright ACA repeal would eliminate these valuable cost-savings.  

Individual Mandate

An increase in insured patients is a benefit to all providers, including rural hospitals. Therefore, the repeal of the ACA’s “individual mandate,” requiring all taxpayers to purchase health insurance or else pay a penalty, will not help rural healthcare to the extent that it raises the uninsured rate. 

However, as discussed above, rural hospitals treat a higher percentage of Medicaid patients relative to urban hospitals, and a lower relative percentage of commercial-pay patients. This will limit the impact of changes to the individual marketplace on rural providers. 

The frustratingly limited benefit of the individual mandate on rural health is especially pronounced in states that have declined to expand Medicaid.  That is because the ACA was never redesigned to account for the optional Medicaid expansion; therefore subsidies for buying private insurance were never extended to patients who would otherwise have been covered under expanded Medicaid programs (a problem known as the “coverage gap”). 

Individuals falling in this coverage gap have incomes that exceed eligibility for Medicaid, but fall below the lowest income eligible for premium tax credits under the ACA. An estimated 2.5 million adults fall into this category. If the coverage gap had been closed through amendments to the ACA, rural providers in non-expansion states would be more affected by possible changes to the private insurance marketplace.  

How Tom Price's Obamacare Replacement Plan Might Look

President-elect Donald Trump’s reported selection of U.S. Representative Tom Price (R- Ga.) for Health and Human Services Secretary may indicate how the president-elect plans to fulfill his campaign promise of dismantling the Affordable Care Act. A leading critic of “Obamacare,” Rep. Price has introduced legislation during every Congress since 2009 to repeal the President Obama’s sweeping healthcare reform law.

The following are some key provisions of Rep. Price’s Empowering Patients First Act, the latest of his Obamacare replacement plans:

1)  Coverage Mandates. By its express terms, Empowering Patients does not “provide a mandate for guaranteed issue or community rating in the private insurance market.” Therefore, two of the ACA’s strongest controls on insurers’ actuarial behaviors would revert to their pre-ACA state of deregulation.

However, Empowering Patients would maintain a form of prohibition on preexisting condition exclusions. The law would prevent denials of coverage to certain individuals based on preexisting conditions so long as those individuals have maintained “continuous coverage” for at least 18 months prior to the date of enrollment. If a person has a lapse in insurance coverage, insurers may be allowed to deny coverage or charge up to 150 percent of the standard premium for two years under the continuous-coverage provision.

As for consumer mandates, Empowering Patients would remove the so-called “individual mandate” requiring patients to obtain insurance or else pay a tax penalty.

2)  Essential Health Benefits. Empowering Patients eliminates the essential health benefits package mandated by Obamacare, which required insurers to cover a set of 10 different types of care under all insurance plans. Empowering Patients would allow insurers to cut whatever benefits they no longer wish to cover.

3)  Tax Credits. Like Obamacare, Empowering Patients would extend annual tax credits to individuals purchasing private health insurance. However, how tax credits are structured under Empowering Patients is very different than under Obamacare. Obamacare’s tax credits are based upon income, with individuals who earn less getting more assistance. Empowering Patients bases annual tax credits only upon age, providing greater help to individuals who are older. The annual tax credits proposed by Empowering Patients are as follows:

a.   $900 for children under 18

b.   $1,200 for those between 18 and 35

c.   $2,100 for those between 36 and 50

d.   $3,000 for those 51 and older

4)  Medicaid Expansion. Simply put, Empowering Patients promises to undo the Medicaid expansion initiated by Obamacare. Unlike other alternatives to Obamacare, such as Rep. Paul Ryan’s ‘Better Way Plan,’ which allow states to continue operating currently expanded programs albeit with quickly diminishing federal support, Empowering Patients does not offer an alternative to the Medicaid expansion. People previously covered by the Medicaid expansion, if removed from their states’ Medicaid rolls, would be eligible for the age-based tax credits listed above if electing to purchase coverage through the private marketplace under Empowering Patients. 

5)    Employer-Based Insurance Limits. Empowering Patients would also impact employer-sponsored insurance. Empowering Patients proposes limiting employer-tax exclusions for insurance to $20,000 for a family and $8,000 for an individual. Any additional funds above those amounts would be treated as taxable dollars.

6)    New Provisions. Among Rep. Price’s proposals not directly tied to Obamacare are an emphasis on health savings accounts to allow for tax-deductible contributions to special accounts reserved for healthcare expenses; new laws aimed at allowing insurers to sell their products across state lines; medical malpractice reform aimed at changing the burden of proof in malpractice cases; and various provisions allowing beneficiaries under public programs (Medicare, VA, etc.) to seek coverage in the private marketplace.

Empowering Patients contains scant mention of the ACA’s innovation models that have steered federal reimbursement away from fee-from-service and toward quality-based care. However, in September 2016, Rep. Price co-authored a letter to CMS challenging the agency’s authority to enact certain mandatory programs under its Center for Innovation.

As HHS Secretary, Price can impact health reform through the regulatory process, but legislation is ultimately required to replace Obamacare. Price’s detailed Empowering Patients proposal will likely provide a framework for Congressional Republicans as they draft an alternative to Obamacare in the coming months.

Disclaimer: The foregoing materials are provided for informational purposes only, and are not to be construed as legal advice. The information relies on limited authority and has not been screened or approved by any governmental agency. Please consult an attorney before applying this guidance to any particular facts or circumstances. 

Georgia Medicaid Waiver Program Hits Snag

Georgia Health News reported today that the proposed Medicaid waiver program to insure low-income Georgians is facing significant pushback from the Department of Community Health. Grady Health System has led the charge on the program, known as a Section 1115 Waiver, that would serve as alternative to expanding Medicaid under the Affordable Care Act. 

According to the GHN report, the state health agency has taken issue with the proposed program's costs. Grady officials are studying the response and exploring possible adjustments. 

Medicaid waivers have become a popular alternative to the Medicaid expansion, expanding access to health insurance through premium assistance rather than state-administered coverage. The federal government has approved a handful of such waiver programs already and will match funds for qualifying programs as it would under the Medicaid expansion. 

What does King v. Burwell mean for Georgia?

This week, the U.S. Supreme Court will hear oral arguments in King v. Burwell, the case that threatens to undo a critical element of the Affordable Care Act. The Court will consider whether the subsidies that have allowed many to purchase health insurance were legally awarded to consumers using the ACA's federally run exchanges, and whether those subsidies should now be taken away. 

The ACA called for federal health insurance exchanges to fill the void left by states choosing not establish their own exchanges. This void was larger than expected, as only 14 states opted to operate their own insurance exchanges. Consequently, 8.84 million Americans have signed up for insurance via the federally run exchange, HealthCare.gov. 

However, the provision calling for subsidies that would help make insurance affordable on the exchanges — the provision at issue in King — perhaps mistakenly limited those subsidies to “exchange[s] established by the state.” While other portions of the law suggest subsidies were intended to be available through state and federal exchanges, the challengers in King contend the law means what it says: subsidies are limited to state-run exchanges.

Georgia is one of the states that declined to establish an insurance exchange. Approximately 425,000 Georgians have purchased insurance through the federal exchange, 90 percent of whom receive subsidies. 

If the Supreme Court rules against the government in King, these half-million Georgians will lose their subsidies and face significantly heightened premiums. The effects of this change will likely be felt by anyone who holds private insurance in Georgia: unaffordable insurance means fewer insured, and fewer insured means higher premiums across the board. 

Such a ruling would reduce the financial support available to Georgians under the ACA to roughly zero, as the state has already rejected the law’s Medicaid expansion. From a practical standpoint, dismantling the law in such piecemeal fashion would continue to be highly problematic, given that much of the ACA would still impact Georgia. (For example, certain individuals and employers will still be mandated to purchase insurance.) 

The worst victim of this selective undoing of the ACA might be providers, as the law's reimbursement and disproportionate share cuts will remain in effect, but would not be offset by increased privately insured or Medicaid patients. Providers would also continue to bear the same amount of uncompensated care they did before the ACA. 

The Department of Health and Human Services has announced it is not pursuing a contingency plan in the event of an adverse ruling, though some Republican legislators have proposed alternatives to the law they have long maligned. The Court’s decision is expected in late June.