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Individual Health Care Subscribers May Feel Pinch From Federal Tax Reform

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Congress set an unprecedented land speed record on Dec. 20, passing the first major overhaul of the nation’s tax code along party lines in both chambers in the span of hours, with only Republican Sen. John McCain of Arizona absent from the proceedings. President Donald Trump is expected to sign the legislation in January.

One result of the changes will be the repeal of the individual mandate penalty for individuals without health insurance. Depending on how the penalty fee is calculated — the higher value of either a percentage of household income or a per person rate — it could put a sizeable amount of money back in uninsured taxpayers’ wallets.

As a percentage, the penalty amounts to 2.5% of household income, maxing out at the total yearly premium for the national average price of a Bronze plan sold through the marketplace, while the per person cost amounts to $695 per adult and $347.50 per child under 18, with a maximum cap of $2,085.

That doesn’t necessarily mean that people without coverage won’t pay, one way or another, or that there won’t be widespread repercussions.

As with any universal legislative change, there are a lot of moving parts, a lot of uncertainty and a lot of unpredictable consequences.

Significant Increase

Since the inception of the Affordable Care Act (ACA), individual plan costs and federal subsidies have steadily increased year by year. The current 2018 enrollment season saw the largest jump by far in the individual marketplace.

On Maryland’s individual market, the 2018 increase for CareFirst Blue Choice’s metal plans amounted to 34.5% for HMOs and 49.9% for PPOs, while rates increased an average of 22.6% for Kaiser Foundation Health Plan of the Mid-Atlantic States policyholders.

In October, the Maryland Insurance Administration (MIA) announced an amended premium increase for Silver plans purchased through the Maryland Health Connection exchange, amounting to 58.2% for CareFirst HMOs, 76% for CareFirst PPOs, and 43.4% for Kaiser HMOs.

Two other carriers, Cigna and Aetna, decided to exit the Maryland market for the 2018 enrollment season, leaving Marylanders with limited choices for individual coverage.

In response to the GOP’s attempts to repeal or otherwise disrupt the provisions of the ACA, many health insurance carriers made drastic changes to their plans this year.

“They are changing their formularies from what’s going to be considered generic and non-generic, they’re changing co-pays for some of the medications, they’re changing plan designs, all of that is going to be completely different,” said Beth Brigham, a sales executive with Commercial Insurance Managers, of Elkridge.

On top of the changes, the federal government shortened the enrollment cycle to 45 days, creating a heavier workload for the companies that help individuals acquire insurance, she said.

Some customers with individual plans have the option of joining a group plan through their employer, Brigham said, but others may face a loss of subsidy or even loss of coverage depending on how a particular employer’s benefits package is set up.

Plan price structure is also unbalanced in some cases.

“CareFirst increased the rate of the Silver plan on the exchange so that it’s [now] less expensive to buy the Gold Plan, because the Silver plan is so heavily subsidized,” Brigham said.

Disarray

While individual plan markets are in disarray, “I can tell you that rate increases for 2018 have been minimal in the group market,” said Martin Yost, a Columbia-based insurance broker.

On the individual side, one of the reasons Kaiser customers did not see as much of an increase as CareFirst customers can be attributed to Kaiser having a little more control over its medical plans, he said. “They do a lot more in-house.”

In August last year, CareFirst President and CEO Chet Burrell addressed the MIA’s approved rate increases, acknowledging that the market has reached the point where individual health care premium rates are too high to be readily affordable by the general public.

“At the same time, CareFirst has experienced enormous financial losses over the past four years ($550 million) in providing coverage to individual subscribers,” he said. “Such financial losses due to inadequate premium rates, despite being as high as they are, are simply not sustainable.”

Without changes made at the federal level, he said, “the promise of the ACA cannot be fulfilled, and its sustainability will cease.”

Provision Hurts Individuals

Judging from the provisions of the GOP’s tax overhaul, darker clouds loom ahead.

In November, the Congressional Budget Office estimated that a repeal of the individual mandate would reduce federal budget deficits by about $338 billion between 2018 and 2027, but the number of people with health insurance would decrease by 4 million in 2019 and 13 million in 2027.

Kaiser Permanente Chairman and CEO Bernard Tyson labeled the repeal of the individual mandate a “setback” for millions of Americans.

“Kaiser Permanente believes any changes to health policy should provide more Americans with access to high-quality, affordable health care, and maintain or expand access to health coverage,” Tyson said, in a statement. “The elimination of the individual mandate runs counter to this belief.”

He encouraged policymakers to move in a more positive direction by supporting currently pending bipartisan legislation to improve health care and coverage.

“Health insurance really is cost sharing, and as socialist as it sounds, it requires the healthy to buy in to cover the sick,” said John Krahel, assistant professor of accounting at Loyola University’s Sellinger School of Business. “This may lead to a downward demand spiral … then we’re going to have to raise the premiums [even more] because we’re sharing costs only among people who are incurring those costs. People who don’t get insurance through their employers may be forced to pay much higher premiums, die or get much sicker.”

The tax plan does not eliminate federal subsidies, however, and what happens in that arena is still anybody’s guess.

“What might happen is that the government may have to increase federal subsidies,” Krahel said. “Instead of healthy people covering the sick via insurance premiums, we may be forced to pay more in taxes to support those subsidies, so you’re paying one way or another.”

Still, he said, repeal of the individual mandate is not the repeal of Obamacare that President Trump claimed by default after Congress passed the tax reform bill.

“It’s going to hurt people,” Krahel said. “This will only really affect individuals; if you get your insurance through your employer, you’re not going to notice much of a difference.”