On March 6, 2,540 days after the enactment of the Affordable Care Act (ACA), the House Ways & Means and Energy & Commerce committees finally released their proposed legislation to repeal and replace it. The American Health Care Act of 2017 is a toxic hot mess:
- The bill effectively amounts to a tax cut for the rich paid for by cuts to Medicaid and Medicare, drawing the immediate opposition of AARP, the American Hospital Association, and other powerful interest groups.
- It doesn’t appear to meet the needs of the various Republican factions that must support it: GOP Senators from Medicaid expansion states and the right-wing Freedom Caucus alike are all threatening to walk. Conservatives are calling the bill “ObamaCare Lite” and a “Republican welfare entitlement.” Americans for Prosperity, The Heritage Foundation and Club for Growth are all opposed.
- And it appears the Hill leadership is intent on moving the bill without scoring from the Congressional Budget Office (CBO), a move that amounts to legislative apostasy for budget hawks.
Its prospects seem questionable at best.
Republicans are using the budget reconciliation process, which only requires a majority vote in the Senate, but constrains the legislation to line items having a direct impact on the budget. On Wednesday, Ways & Means is scheduled to mark up the tax portions of the bill, and Energy & Commerce is scheduled to markup sections dealing with Medicaid, State Funding, and Market Stability.
Sunset of ACA’s Advance Premium Tax Credits and Small Business Tax Credits
The bill calls for a sunset of the ACA’s advance premium tax credits by 2020, to be replaced by the advanceable premium tax credits explained below. Small business tax credits would also be repealed in 2020. In the interim, the bill would require individuals who are overpaid due to an income increase to repay excess tax credits. The bill would prohibit the use of tax credits to purchase plans that offer elective abortion coverage. The bill would also raise the income levels and age bands currently used for the tax credits, a move that is expected to result in up to 15 million subsidized individuals losing coverage, most of them likely Trump supporters in Red States.
Creation of new “advanceable, refundable tax credits”
The bill creates an “advanceable, refundable tax credit” for the purchase of state-approved, major medical insurance and unsubsidized Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage. In order to use the credit, an individual must not have access to a government program such as Medicaid or Medicare, or any employer offered coverage. The amount of the credit would be based on age.
At first glance, these tax credits look very similar to the ACA. Unlike the ACA however, these credits would not be set based on income or geographical cost variations. The credits would however begin to phase out by $100 for every $1,000 higher than $75,000 or $150,000 for joint filers.
On the one hand, this approach means more individuals with higher incomes would now qualify for tax credits. However, the new levels of subsidies that are not adjusted for income mean lower income individuals will now receive much less financial assistance. While more individuals receiving a credit may spur the purchase of insurance for those previously maxed out of the income guidelines, this new tax credit setup may also mean the lower income, as well as younger, healthier populations with smaller paychecks, will forgo the purchase of coverage.
Interestingly, the bill references healthcare.gov and continued eligibility checks through the federal government. This means the bill intends to continue utilizing the current federal infrastructure to conduct eligibility checks. It is unclear whether healthcare.gov would remain a healthcare platform, as there is reference to the continued use of healthcare.gov by agents and insurers.
As these new sections get rolled out, the bill calls on the Internal Revenue Service (IRS) to stop enforcing employer reporting mandates as it deems duplicative based on the new laws given the reconciliation package cannot simply repeal the employer reporting requirements. Still, House conservatives are reportedly put off by continued IRS involvement in health care.
Repeal of Taxes
As promised, the reconciliation bill calls for a repeal of almost every ACA tax. The bill rolls back the individual mandate and employer mandate to zero and retroactively applies this to 2016. The bill would repeal the annual health insurer fee, brand pharmaceutical tax, tanning tax, net investment tax, medical device tax, and the Medicare hospital insurance trust fund payroll tax. Facing increasing pressure to come up with the funds, the bill does keep the Cadillac Tax, although delaying its implementation even further from 2020 to 2025. Naturally, the question is how this funding will be replaced, an answer that is elusive without scoring from the Congressional Budget Office (CBO). The argument is the savings from the framework will offset the need for these taxes, which remains to be seen. One other major consequence, however, is the acceleration of the exhaustion of Medicare’s Trust Fund. Per a new report from Brookings, the elimination of the 0.9% Hospital Insurance Trust Fund payroll tax on wages above $200,000 would accelerate Part A’s Trust Fund exhaustion from 2028 to 2024.
Under the ACA, the tax subsidy for employers who provided sufficient retiree prescription coverage was eliminated and would be brought back by this legislation. The ACA also increased medical expense deductions to 10% of adjusted gross income (AGI) for those 65 or older, and the bill would bring this back to 7.5%.
Interestingly, Republicans seemed to throw a bone to health insurance CEOs intending to buy their support. The ACA limited the amount of payment health insurers could deduct to $500,000 for any officer, director, or employee. The legislation would repeal this limit beginning in 2018, costing $600 million and allowing CEOs to set their comp however they’d like.
Loosening Health Savings Account (HSA) Regulations
The bill would make several changes to the treatment of HSA plans, including:
- Over the counter medications will be included as a qualified medical expense in 2018
- Lowers tax on distributions from HSAs that are not used for medical expenses
- Repeals the ACA cap of $2,500 for Flexible Spending Accounts (FSAs)
- Changes the max contribution to HSAs to at least $6,550 for individual and $13,100 for family coverage, equal to the sum of the max annual deductible and out-of-pocket expenses allowed on a high-deductible health plan (HDHP).
- Allows spouses to make catch up contributions.
- If an HSA is established during the 60-day period beginning on the date that an individual’s coverage under a HDHP begins, the HSA is treated as having been established on the date coverage under the HDHP begins for purposes of determining if an expense incurred is a qualified medical expense.
Patient Access to Public Health Programs
The legislation would repeal the Prevention and Public Health Fund (PPHF) appropriations for Fiscal Year (FY) 2019 and beyond. The bill adds $422 million of funding to Community Health Centers in FY 2017. Most significantly, this section puts forth a one-year ban on federal funding to entities designated as “prohibited entities”, in this case, targeting Planned Parenthood.
Medicaid Expansion Repeal
The bill would repeal States’ expanded authority to make presumptive eligibility determinations, except in the case of children, pregnant women, and breast cancer and cervical cancer patients. The mandatory Medicaid income eligibility level for children reverts back to 100 percent of FPL, and specifies that these children should be covered under CHIP. The legislation repeals the 6 percent bonus points in the federal match rate for community based attendant services and supports.
The section then goes on to repeal the Medicaid Expansion, imperiling coverage for millions of low-income mothers, children, elderly and disabled beneficiaries. Specifically, States may not extend coverage to adults above the 133% FPL after December 31, 2019. The legislation then eliminates Medicaid Disproportionate Share Hospital (DSH) cuts for non-expansion States in 2018. States that expanded would have DSH cuts repealed in 2020. The bill provides for $10 billion over five years to non-expansion states for safety net funding between 2018 to 2022.
The return of DSH payments is clearly an attempt to mitigate the level of payments that hospitals receive once the expansion is repealed, however will do little to offset the amount of funding that safety-net hospitals will lose out on if enacted.
Per Capita Funding
In FY 2020, the legislation would make the move to Per Capita funding for States. The spending would be based on 2016 spending and enrollment data for several categories of beneficiaries. DSH payments and administrative payments would be exempt, as would beneficiaries who are covered under the CHIP expansion program, Indian Health Service beneficiaries, breast and cervical cancer treatment enrollees, and other partial benefit enrollees, such as dual eligibles.
Other Medicaid Provisions
The legislation would require States that expanded Medicaid to re-determine eligibility of beneficiaries every six months. This will cause incalculable pain for millions of low-income beneficiaries. For complying with this, States would receive a five percent FMAP increase.
The essential health benefits requirement for some Medicaid benchmark plans is repealed in the bill. This appears to include the requirement that mental health services be covered the same as other health benefits, a huge question considering one-third of Medicaid beneficiaries have a mental health condition. It would also do harm to opioid treatment programs covered by Medicaid.
States would also be required to consider lottery winnings as income, limit the effective date of retroactive coverage of benefits, and require documentation of citizenship or lawful presence before obtaining coverage. They spent 6 pages of a 123-page bill on lottery winnings for reasons I can’t fathom. These three sections are intended to further reduce the cost of the program by weeding out beneficiaries that currently fall into these “loopholes”.
States and Market Stabilization
This section first repeals cost sharing subsidies, a dangerous move for Republicans considering most subsidized individuals reside in GOP Congressional districts.
To replace the individual mandate, the section introduces the “continuous health coverage incentive”, which essentially is another version of the “stick” vs. carrot approach, where if an individual went longer than 63 days without coverage, issuers may assess a 30 percent late enrollment surcharge on top of the base premium, which would last for 12 months. The legislation would then allow a 5 to 1 age rating, up from the current 3 to 1, which would be a major win for insurers, but a major cost shift onto older subsidized individuals. Finally, also to loosen regulatory requirements and constraints on insurers, the legislation repeals the actuarial value tiers (bronze, silver, gold, platinum).
Finally, the bill would provide $15 billion in 2018 and 2019, and $10 billion between 2020 and 2026 to States for a fund aimed at reducing costs and stabilizing the market. The States can use this coverage to establish a high risk pool, provide premium incentives, lower insurance costs in the individual and small group markets, promote participation in the state markets, provide access to preventive, dental, vision, and mental health services, make payments to providers, and to reduce out of pocket costs of those enrolled in overage in the State.
What’s Left Alone
- Basement dwellers are still covered by family plans until they are 26.
- Guaranteed issue and community ratings still exist, subject to continuous coverage.
- In a surprise, essential health benefits remain intact in the exchange market, including preventive services and maternity care.
- Annual and lifetime limits are still banned.
What it Means
Without a score from CBO, it’s hard to come to conclusions about the American Health Care Act. It’s reasonable to assume that millions will lose coverage, and that the bill will contribute significantly to the budget deficit. We know it will gut Medicaid in 2020 and accelerate the insolvency of Medicare. We know Trump supporters in Republican Congressional districts will bear a disproportionate burden of the cuts in coverage and spending.
Conservatives are right — it is ObamaCare Lite, but a toxic, deformed version that offers little to Republicans politically and even less to underinsured Americans. House Speaker Paul Ryan sought to unite the right with this bill, and he did: they’re united against it. The big question in the weeks ahead: who supports this hot mess?
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