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Takeaways from the Updated Better Care Reconciliation Act (BCRA)

Elizabeth Carpenter | Jul 15, 2017

As the Senate prepares to begin debate on a revised version of the Better Care Reconciliation Act (BCRA) next week, Avalere offers the following observations on select components of the legislation:

Medicaid

BCRA, as revised, does not include significant revisions to the Medicaid provisions. In particular, the version of the legislation released Thursday allows states to pursue a block grant for the expansion population and includes additional support for states in the face of public health crises, along with other technical reforms. 

  • States would see reductions in federal Medicaid funding. Avalere analysis shows that states would see an annual reduction in federal Medicaid funding of between 6% and 26% by 2026 when compared to current law. Over a 10-year period, state funding reductions could range from $152 million to $93 billion, depending on the state. 
  • Reductions in federal Medicaid funding would get bigger over time. Each year, the per capita caps or block grants in BCRA grow by a set inflation factor or growth rate. In 2025, BCRA transitions from a per capita growth rate set at medical inflation (CPI-M or CPI-M + 1% for certain populations), to economy-wide inflation (CPI-U). Economy-wide inflation typically grows slower than medical inflation. As a result, this transition would lead to dramatic changes in federal funding for the Medicaid program over the long-term.
  • States will need to adapt their programs or generate new funding to address budget gaps. States must balance their budgets every year. As a result, reductions in federal funding may require states to identify other sources of funding or reduce eligibility, benefits, or payment rates.

Individual Market

The revised BCRA includes significant changes to the individual market in addition to reforms already included as part of the original legislation. In particular, an amendment offered by Senator Cruz would allow insurers to offer plans that do not comply with most market standards, if they also offer Affordable Care Act (ACA)-compliant plans. 

  • Individuals may need to pay more in monthly premiums to keep their current plan. After continuing ACA premium tax credits for 2 years, BCRA implements a tax credit structure that caps premiums based on age and income. In general, younger individuals are required to contribute a smaller portion of their income toward premiums than under the ACA, while older individuals are required to contribute more. However, BCRA ties premiums to a lower actuarial value (AV) plan. As a result, consumers may need to pay more to maintain their current level of coverage.
  • Low-income individuals will pay more out-of-pocket. Like the House-passed American Health Care Act (AHCA), BCRA would repeal cost sharing reduction (CSR) subsidies that lower out-of-pocket costs. Individuals receiving the most generous CSRs had their deductibles reduced from $3,703 to $243 on average and their maximum out-of-pocket limits (MOOPs) lowered from $6,528 to $978 in 2017. In comparison, plans similar to those that would be used to calculate tax credits under the BCRA had an average deductible of $6,014 in 2017.
  • Premiums will increase for individuals who purchase more generous plan. Less-generous health plans are likely more attractive to healthier individuals with fewer healthcare needs. As a result, if the Cruz Amendment were adopted, healthy people are likely to buy health plans that do not comply with today’s market standards. Holding all other factors constant, if the healthiest 20% of current individual market enrollees were to purchase new, non-compliant plans, individuals seeking more generous, ACA-compliant plans would see an average premium increase of approximately 27% or $1,800 per year on average (before any applicable tax credits). 
  • Funding may be insufficient to mitigate the potential effects of a bifurcated market. As described above, the newest BCRA draft would likely create two markets – one for healthy individuals and one for patients with more significant healthcare needs. BCRA allocates $70 billion dollars from 2020 – 2026 to help mitigate these effects. However, this level of funding may be insufficient to compensate for the premium increases. For example, in the scenario described above, premium increases would drop from 27% to 15% as a result of the funding allocated – still leaving a premium increase of approximately $1,000 per year for the average individual market consumer purchasing an ACA-compliant plan.   

Avalere will continue to analyze the ongoing debate over ACA repeal and replace on Capitol Hill and in the states. To speak to an Avalere expert, please contact Liz Moore at lmoore@avalere.com. 

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