How Would the BCRA Impact Deductibles and Out-of-Pocket Costs?

Patients' Share of Costs Would Increase Under the BCRA

Under the BCRA, out-of-pocket costs will rise
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The version of the Senate health care reform bill that was introduced on July 20 would result in sharply higher deductibles. In fact, the Congressional Budget Office (CBO) projects that the average individual deductible for a standard benchmark plan would be $13,000 in 2026. Notably, this is higher than their projection of the maximum out-of-pocket amount that will be allowed that year unless the formula for capping out-of-pocket costs is changed. Clearly, that's an issue that would need some additional legislative work.

Throughout 2017, one of the most significant issues for Congressional Republicans has been repealing and replacing the ACA (Obamacare). The House passed the American Health Care Act (AHCA) in early May, and sent it to the Senate. GOP Senators convened a partisan working group to draft their own version of the bill, titled the Better Care Reconciliation Act (BCRA), and introduced it in late June. Senate Republicans released an updated version of the legislation a few days later, incorporating a continuous coverage requirement, which hadn't been included in their earlier version (you can see both versions of the Senate bill here).

New versions of the BCRA were introduced on July 13 ( section-by-section summary), and on July 20 (section-by-section summary).Throughout the process, the Senate has had no committee hearings or bipartisan debate about the proposed legislation.

The BCRA reached a vote in the Senate on July 27 when it was substituted for the language in the House-passed bill. It failed by a wide margin, 43-57. The Senate also rejected "skinny" repeal (the Health Care Freedom Act), which was intended to be a means of getting to a conference committee with House GOP leadership.

The House bill can still be added back to the Senate's calendar if and when GOP leaders have the votes to pass a Senate version of the bill. Although we don't yet know what agreement—if any—will ultimately be reached by Republicans in the Senate, the July 20 version of the BCRA gives us an idea of where Senate Republicans want to go with health care reform.

The BCRA that the Senate considered on July 27 was similar to earlier versions of the bill, but it also included the Cruz Amendment and the Portman Amendment. Neither of those have been scored by the CBO, so we don't have any numbers in terms of their impact. The Cruz Amendment would have let insurers sell skimpy, non-ACA-compliant plans as long as they also sold at least one gold plan, one silver plan and one "benchmark" plan under the BCRA's rules, which would have an actuarial value of 58 percent. The Portman Amendment would allocate $100 billion for states to use to reduce out-of-pocket costs for low-income enrollees, and would grant states additional flexibility to use Medicaid funds to reduce out-of-pocket costs for low-income enrollees who transition away from Medicaid to private coverage under the BCRA.

The BCRA (without the Portman and Cruz amendments) has been scored by the CBO and analyzed by numerous health policy experts, so we have a good idea of what its impact would be.The Portman Amendment would presumably have resulted in lower out-of-pocket costs initially, but it's important to note that the money would only have been provided for seven years; there was not an ongoing funding mechanism in the legislation. The Cruz Amendment would likely have resulted in higher out-of-pocket costs for anyone purchasing the noncompliant plans that would have arisen under the amendment. The analysis below is based on the CBO scoring of the BCRA. Since the Cruz and Portman amendments were not scored by the CBO, their impact is not included in the following discussion about out-of-pocket costs.

Although the BCRA would change many aspects of private insurance and Medicaid, let's consider for now how it would affect out-of-pocket costs (keeping in mind that while this particular version of the bill did not pass in the Senate, another version of it could be brough back to the Senate floor).

How Would the Senate Bill Impact Out-of-Pocket Costs?

The term "out-of-pocket" describes all of the costs that people have to pay when they need medical treatment, after their insurance company has paid its portion of the bill. It does not, however, include the cost of premiums, which have to be paid every month, regardless of whether you use any medical care.

The short story is that the BCRA would result in higher out-of-pocket costs. Let's take a look at why that would happen.

Under the ACA, all individual and small group plans have to cover a variety of services that are deemed essential health benefits, and all plans (including large group plans) have to cover at least 60 percent of average health care costs (this applies to a standard population; the percentage of costs covered for a given individual depends on the amount of health care the person needs over the course of the year). The average percentage of costs that a plan covers is called actuarial value (note that in the individual market, insurers can sell catastrophic plans—which have an actuarial value below 60 percent—to a limited population, although ACA premium subsidies cannot be used for those plans).

A plan that has an actuarial value of 60 percent is designated as a bronze plan in the case of individual and small group health insurance, and meets the requirement for providing "minimum value" in the case of large group coverage. Since it's difficult for insurance companies to get a plan design to match up exactly with a given actuarial value, insurers are allowed to use a -2/+2 de minimus range, so a bronze plan's actuarial value can range from 58 to 62 percent. That was slated to expand to -2/+5 in 2018, but regulations finalized in April 2017 call for further expansion of the bronze plan de minimus range, to -4/+5. So under current rules, bronze plans in 2018 will be allowed to cover an average of 56 to 65 percent of medical costs.

But with the exception of the aforementioned catastrophic plans, bronze plans are the bare minimum in terms of what insurers can offer. The benchmark plan, which tends to be much more popular with enrollees, is a silver plan, which has an actuarial value of about 70 percent. ACA premium subsidies are tied to the cost of a silver plan, and ACA cost-sharing subsidies are only available if enrollees pick silver plans.

Keeping all of that in mind, let's now take a look at the BCRA's provisions. In general, there are several aspects of the bill that would serve to increase out-of-pocket costs:

  • States would be able to relax the rules in terms of what benefits have to be covered in the individual and small group markets, and what services are subject to the ACA's out-of-pocket caps and ban on lifetime and annual benefit maximums across all markets, including large group plans.
  • By 2026, "benchmark" plans would go from having average deductibles of about $5,000 to having average deductibles of $13,000. (note that if the ACA remains in place, the $5,000 projected average deductible in 2026 would apply to people who do not qualify for cost-sharing subsidies; for a person with an income of about $26,500 in 2026, the CBO projects that average deductibles would be only about $800 if they enroll in a benchmark plan, since the ACA's cost-sharing subsidies make out-of-pocket costs much more affordable for lower-income enrollees).
  • Cost-sharing subsidies would be eliminated by the BCRA, resulting in much higher out-of-pocket costs for people with lower incomes (as noted above, the ACA's cost-sharing subsidies will reduce average benchmark deductibles from $5,000 to $800 for a person earning 175 percent of the poverty level in 2026... but only if the ACA and the cost-sharing subsidies remain in place).

Although the CBO projects that a plan with an actuarial value of 58 percent would have a deductible of $13,000 by 2026, they also project that the maximum allowable out-of-pocket costs (for essential health benefits, in-network) will be $10,900 under the current formula that's used to determine how much the maximum allowable out-of-pocket goes up each year. That formula is not changed in the BCRA, but this is obviously a discrepancy that would have to be addressed if the BCRA were to be implemented. Essentially, the law calls for benchmark plans that will have benefits so weak they wouldn't even be allowed to be sold. 

Eroding Essential Health Benefits = Higher Costs for Patients

The BCRA would allow states, via the existing 1332 waiver process—but with far fewer restrictions and guardrails than the ACA implemented—to change the definition of essential health benefits. So a state could, for example, decide that maternity coverage is no longer an essential health benefit, and insurers would no longer have to cover it on new health plans (for that particular example, small group plans with 15 or more employees would still include maternity coverage, due to legislation that's been in place for decades).

If plans are allowed to be sold without some of the currently mandated benefits, people who need those services would obviously face much higher out-of-pocket costs, since they would no longer have health insurance coverage for those particular services. Things like prescription drugs, mental health/substance abuse treatment, and maternity care are all things that might not be covered in states that opt to redefine essential health benefits under the BCRA.

It's also important to understand that the ACA's ban on lifetime and annual benefit limits, along with the law's cap on out-of-pocket costs, are only applicable to essential health benefits—this applies to individual and small group plans, as well as to large employer plans. So if a state were to reduce the number of services that fall under the essential health benefits umbrella, insurers might still offer some coverage for those services, but they would not be required to cap enrollees' out-of-pocket spending on them, and they would be able to impose lifetime and annual benefit maximums for the services no longer considered essential health benefits.

BCRA Subsidies Would Be Linked to Bronze Plans Instead of Silver

The BCRA would continue to provide premium subsidies that would be loosely modeled on ACA premium subsidies, but not as robust. They would only extend to people who earn 350 percent of the poverty level, instead of the ACA's 400 percent (for reference, the upper income cap for subsidy eligibility for a family of four based on 2017 poverty levels would be $86,100, instead of $98,400). They would also require older people (in some cases, as young as 40) with income above about 250 percent of the poverty level to pay a larger percentage of their income for a benchmark plan.

But perhaps most importantly, BCRA premium subsidies would be linked to a plan with 58 percent actuarial value (instead of the current silver plans, which have an actuarial value of 68 to 72 percent).

So starting in 2020, the "standard" plan would have an actuarial value equal to the current bottom-of-the-ladder bronze plans. In their analysis of the BCRA, the CBO notes that across current silver plans, the average deductible is about $3,600, while the average bronze plan has a deductible of about $6,000. But deductibles and total out-of-pocket costs rise with medical inflation. In their July 20 analysis of the BCRA, the CBO projects that average deductibles for benchmark plans under the BCRA would be $13,000. And again, rather than being the lowest rung on the ladder, these would be the benchmark plans.

Currently, silver plans are by far the most popular category of coverage. In 2017, out of 9.65 million people who enrolled in health plans through, 7.1 million selected silver plans. If these individuals want to maintain their current level of coverage under the BCRA, they'll have to pay a larger portion of the premiums, since premium subsidies will be aimed at keeping much less robust coverage to an affordable percentage of enrollees' incomes.

If instead, they opt to buy the plans with premiums that are made affordable by the BCRA's subsidies, they'll end up with significantly higher out-of-pocket costs if and when they need to use their coverage.

Elimination of Cost-Sharing Subsidies = Dramatically Higher Out-of-Pocket Costs

The ACA's cost-sharing subsidies are only available when enrollees select silver plans and have a household income that doesn't exceed 250 percent of the poverty level. But of the 7.1 million people who selected silver plans on for 2017, more than 5.7 million bought plans that include cost-sharing reductions. These subsidies often reduce average deductibles to below $1,000, making health care accessible to people who would not otherwise be able to afford it—even with health insurance.

But the BCRA, like the AHCA, would eliminate cost-sharing subsidies after 2019. This means that people who currently are able to get plans with deductibles of $0 or $500 would instead be faced with deductibles of $6,000 or $7,000. And by 2026, the CBO projects that those deductibles will grow to $13,000 (again, assuming that the formula for calculating maximum out-of-pocket limits is adjusted to allow the BCRA to be implemented).

Although cost-sharing subsidies are available to enrollees with income up to 250 percent of the poverty level, they provide the most benefit to people with income up to 200 percent of the poverty level (that's currently about $24,000 for a single individual, but the poverty level rises each year). These individuals would still be eligible for premium assistance under the BCRA, but the plans that would be available to them—and made affordable by the premium subsidies—would have deductibles that would consume, in many cases, half of their income. And for people with income below the poverty level, the deductibles would literally be more than their annual income. 

The result, according to the CBO's projection, is that low-income people would be much more likely to just go without health insurance, rather than purchase coverage that would require them to pay such a large portion of their income to meet the deductible.

Transitioning from Medicaid to Private Insurance = Higher Out-of-Pocket

The BCRA will gradually end the enhanced federal funding that states currently get to cover their Medicaid expansion populations. It would also convert regular federal Medicaid funding from its current open-ended match to a per capita allotment that would eventually be indexed to the consumer price index (which tends to rise much more slowly than Medicaid costs).

The result, according to CBO projections, will be a reduction of $756 billion in federal Medicaid spending over the next decade, with spending in 2026 set to be about 26 percent lower than it would be under current law. The CBO has also published an extended analysis, estimating that federal Medicaid funding by 2036 will be 35 percent lower than it would be under current law.

The result of all of this is that by 2026, there will be an estimated 15 million fewer people on Medicaid than there would be under current law, and that disparity will continue to grow in the next decade as well.

People who are covered by Medicaid are responsible for only nominal out-of-pocket costs. Many of those 15 million people will simply become uninsured if they lose access to Medicaid. But those who transition to private health insurance (perhaps with the help of premium subsidies) will be faced with sharply higher out-of-pocket costs. This is especially true given the BCRA's elimination of cost-sharing subsidies, and the fact that benchmark plans will have an actuarial value of just 58 percent. A $13,000 deductible is simply not realistic for a person living in poverty or just slightly above poverty.

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