On Monday, two House committees with oversight over health care and taxation, Energy and Commerce and Ways and Means, released draft reconciliation bills designed to repeal and alter significant portions of the Patient Protection and Affordable Care Act (PPACA). These long-awaited draft bills, collectively entitled the American Health Care Act (AHCA), would make significant modifications to the health insurance markets and to the operation of state Medicaid programs, and would also repeal or delay several taxes imposed by PPACA.
Energy and Commerce and Ways and Means are holding mark-ups of the legislation simultaneously today, with a House Budget Committee mark-up anticipated next week. Then the bill will go to the House floor for a vote of the full chamber. Despite Speaker Paul Ryan’s (R-WI) confidence the bill will move swiftly through the House, significant opposition among the House Republican Conference remains. The so called Freedom Caucus Members have expressed strong opposition to the tax credit and Medicaid expansion provisions in the current legislation and prefer the measure Congress passed previously, which was vetoed by President Obama. Moreover, the Congressional Budget Office (CBO) has not yet released the cost of the bill or the estimated number of Americans who will be covered under the AHCA, further adding to the frustration within the Republican Conference.
In the Senate, Majority Leader Mitch McConnell (R-KY) has echoed similar sentiments as Ryan, saying he hopes to bring a bill to the Senate floor before Congress recesses for two weeks in mid-April. Under the reconciliation process used to bring the AHCA forward, the Senate can only lose two Republican votes in order to pass the measure, and deep divisions among the GOP remain. Some Senators are aligned with the concerns expressed by the House Freedom Caucus Members, while others oppose the proposed Medicaid changes or the prohibition of federal funds for Planned Parenthood. President Trump has voiced support for the AHCA and will likely need to use the power of his office to get it across the finish line. Following passage of the AHCA, Republicans plan to issue additional changes to PPACA through Executive Order and additional legislation. Democrats in both the House and the Senate are expected to oppose the measure.
Foley attorneys are analyzing the impact of changes included in the AHCA, and over the next few weeks will be publishing more detailed analyses explaining the context and potential implications of the changes for the health care industry. Some of the big-picture items notable for their inclusion or absence in the AHCA are identified below.
Changes to the ACA Insurance Markets and Subsidies
The AHCA would make several immediate or near term changes to the health insurance markets established by PPACA.
- The tax penalties associated with the employer and individual mandates will be reduced to $0 effective January 1, 2016, essentially repealing the employer and individual mandates with retroactive effect.
- In 2018 and 2019, modifications to the premium tax credits (commonly referred to as subsidies) available under PPACA would take effect. These modifications would adjust the amount of premium tax credits available for the purchase of individual health insurance based on both income and age. Additionally, in 2018 and 2019, premium tax credits would be available for individuals who purchase catastrophic coverage and individuals who purchase off-Exchange individual health insurance. In 2020, a new premium tax credit system would take effect. Under this new system, tax credits would vary based only on age, but would phase out above an income threshold.
Transition Period (2018 and 2019)
2020 and Beyond
Amount of Premium Tax Credit
Lesser of actual premium paid by taxpayer or premium for second-lowest silver plan, adjusted by income.
Lesser of actual premium paid by taxpayer or premium for second-lowest silver plan, adjusted by age and income.
Fixed dollar amounts, set by a schedule. Tax credit amounts increase from $2,000 for people under 30 to $4,000 for people over 60. The credits phase out for higher-income taxpayers (above $75,000 single/$150,000 joint)
Availability of the Premium Tax Credit
On-Exchange purchases only; no catastrophic coverage.
On and off-Exchange purchases, including catastrophic coverage.
All individual major medical insurance, including catastrophic coverage.
- The AHCA would not rescind or modify many of the major insurance market reforms implemented by PPACA, including the ability for children to remain on their parents’ coverage until age 26, the requirement that individual health insurance be guaranteed issue and guaranteed renewable, the prohibition on pre-existing condition exclusions, and the requirement that health insurance provide coverage of ten “Essential Health Benefits” (EHBs).
- The AHCA removes requirements that individual health plans satisfy actuarial value requirements to be identified as a particular metal level (e.g., bronze, silver or gold). The AHCA does not provide an alternative method for identifying the metal level of a particular plan.
- Effective for special enrollments in 2018 and open enrollment for 2019 and later years, health insurance companies in the individual and small group market would assess a 30% premium surcharge if an applicant has gone longer than 63 days without continuous health insurance coverage during a 12-month lookback period. This surcharge applies regardless of the applicant’s health status.
Additional Insurance Market Reforms
The AHCA also would promote greater use of alternative approaches by states or by individuals to manage insurance costs, including use of high-risk pools and health savings accounts (“HSAs”).
- The AHCA will create a new Patient and State Stability Fund, which will provide $100 billion between 2018 and 2026 to mitigate the cost of individual health insurance and stabilize state markets. States will be given the flexibility to use these funds to establish or strengthen high-risk pool mechanisms, provide additional subsidies for individual health insurance, make payments to insurers for insureds who incur more than $50,000 in claims during any single year, promote participation in the individual/small group health insurance marketplace, promote preventive care and other public health services, or to defray out-of-pocket costs incurred by covered individuals.
- Effective January 1, 2018, the AHCA would expand the tax benefits associated with HSAs, and allow consumers to contribute substantially more pre-tax money to an HSA regardless of whether they have individual or employer-sponsored health coverage. HSA contributions would be allowed up to the limits on out-of-pocket expenses permitted for high deductible health plans (for 2017, $6,550 for self-only coverage and $13,100 for family coverage).
- Effective January 1, 2018, PPACA’s limit on the amount an employee may contribute to a health flexible spending account (health FSA) per year (for 2017, $2,600) would be repealed, and employees would again be able use health FSA funds to purchase over-the-counter medications without a prescription, as was the case before PPACA was adopted.
- While many of the taxes included in PPACA would be repealed, the AHCA retains but delays the “Cadillac Tax” until 2025. The Cadillac Tax is a 40% excise tax on high-cost health coverage provided by employers.
Modifications to the Medicaid Program
The AHCA proposes significant modifications to the financing and eligibility for Medicaid programs, including new incentives designed to reduce states expanding Medicaid coverage as envisioned by PPACA, new limits on federal matching of state Medicaid expenditures, and increased oversight and limitations on Medicaid eligibility.
- The AHCA would allow states, at their option, to continue PPACA’s Medicaid expansion, but would reduce federal matching funds for the expansion beginning January 1, 2020. Expenditures for services for individuals enrolled before January 1, 2020 would be separately identified and continue to be matched at PPACA’s enhanced rate if the individual does not have a gap in Medicaid coverage.
- Scheduled reductions in Medicaid disproportionate share hospital (“DSH”) payments would be reversed beginning with 2020; cuts would remain as scheduled for 2018 and 2019. These reductions in DSH payments would not be applied against providers in states that did not expand their Medicaid program.
- New authority for states to make up to $2 billion per year in increased Medicaid payments, consisting entirely or almost entirely of federal funds, to Medicaid providers in states that did not expand the Medicaid program under PPACA.
- New “per capita cap” formula would, beginning October 2019, penalize states whose aggregate Medicaid expenditure exceed a pre-determined per-capita target.
- Multiple revisions to increase oversight of Medicaid eligibility requirements, including:
- Requirement to revalidate Medicaid eligibility every 6 months.
- Removal of the ability to cover services provided to a Medicaid beneficiaries during the three months prior to the submission of an application
- Changes to limit the availability of federal financial participation for individuals who have attested to being citizens or nationals prior to the submission of verifying documentation
- Termination of certain presumptive eligibility options as of January 1, 2020
- Requirements for states to consider lottery winnings in Medicaid eligibility
- Removes requirement for Medicaid expansion beneficiaries to receive a package including “essential health benefits,” which includes requirements for access to coverage for mental health and substance abuse disorder treatment services.
Other Notable Changes
- The AHCA does not seek changes to the benefits or coverage under the Medicare program, although it does remove taxes imposed by PPACA that help finance the Medicare trust fund.
- An additional $422 million in funding will be provided to Federally Qualified Health Centers through the Community Health Center Fund in 2017.
- The AHCA would prevent any Medicaid, CHIP, and certain federal block grant payments from being made to Planned Parenthood for one year.