On July 13, Senate Republican leaders released a second working draft of the Senate version of H.R. 1628, the American Health Care Act (AHCA), the Better Care Reconciliations Act of 2017. Senate Majority Leader Mitch McConnell (R) has commented that the House AHCA failed to meet the Senate requirements to be considered for a reconciliation vote requiring only 51 votes to pass.
This second iteration contains revised language to include two tax provisions from the Affordable Care Act (ACA) and some provisions that would help pay for low-income insurance premiums and is being sent to the Congressional Budget Office to see if it too meets the reconciliation standards. Once these procedural challenges have been met, the Senate plans to vote to amend H.R. 1628. Should the Senate pass the measure, it will be sent back to the House for its consideration. The Senate has sent the bill to CBO for an updated score.
Several of the changes made in the Senate from the proposed language in the House respond to concerns raised by legislators and legislative fiscal staff as a result of survey responses provided to Senate Finance staffers two weeks ago by NCSL.
The CBO's previous report estimated the bill’s proposed Medicaid changes will increase the number of uninsured Americans to 15 million to 22 million over a decade. The report drew concern from several Republican senators, including those whose states have undergone Medicaid expansion. There has also been debate on the legislation’s proposed tax cuts, which largely mirror the earlier passed House version. One of the tax cuts under discussion is the repeal of a 3.8 percent net investment tax.
The lastest bill also includes several new proposals to help offset costs including:
Premiums Stabilization: To assist individuals in a high-risk pool that are participating in the individual market the government would provide $5 billion per year from 2019-2021 to help offset the costs of their higher premiums.
HSAs: New language would allow individuals to use HSAs dollars toward purchasing health plans.
Better Care Reconciliation Implementation Fund: A new fund that will provide $500 million to help with administrative costs of implementing the law.
Catastrophic Plans: Allows any individual to enroll in a catastrophic plan, and allows catastrophic enrollees to be eligible for tax credits, effective for plans beginning on or after Jan. 1, 2019.
Senators Lindsey Graham (R-S.C.) and Bill Cassidy (R-La.) unveiled a competing proposal that would redirect ACA funding directly to the states.
Under the Graham/Cassidy proposal:
- Federal money currently spent on the ACA health insurance—an estimated $110 billion in 2016—would be given as block grants to the states.
- The individual mandate and employer mandate instituted under ACA would be repealed under Senate reconciliation rules that only require 50 votes, plus the Vice President.
- The ACA requirements covering pre-existing conditions would be retained.
- The ACA medical device tax would be eliminated but other ACA taxes would remain in place.
- Federal Medicaid funding to the states will continue to grow in a sustainable manner, adjusted for inflation. Provides additional flexibility to the states to ensure health care dollars are spent in a manner providing the most effective and efficient coverage based on their health care needs and populations.
- Federal funds would be restricted to health care spending only. These funds could be distributed by the states in the forms of tax credits, subsidies, health savings account premiums, and other means as the individual states see fit to meet their health care needs.
The senators' proposal would repeal the ACA's individual and employer mandates, but retain the current law's requirement for coverage of those with pre-existing conditions. Under their plan, per Graham and Cassidy, "Medicaid funding to the states will continue to grow in a sustainable manner, adjusted for inflation."
Key Provisions in the Measure
- Restrictions for Premium Tax Credit: The bill will change the Affordable Care Act (ACA) tax credit for those from 0-400 percent of the federal poverty level to 0-350 percent with an assumption those at 100 percent would be enrolled in Medicaid.
Provider Taxes—Phases down the Medicaid provider tax threshold from the current level of six percent to 5.8 percent in FY2021. The new language continues to phase-down the provider tax as follows: 5.6 percent in FY2022, 5.4 percent in FY2023, 5.2 percent in FY2024, and 5 percent in FY 2025 and subsequent years.
Cadillac Tax: Delays implementation of the tax on employee health insurance premiums and health plan benefits, known as the Cadillac tax, until Jan. 1, 2026. Originally slated to begin in 2018, the Cadillac tax imposes an excise tax on high-cost employer sponsored insurance coverage more than a predetermined threshold. The tax is imposed on the coverage provider, typically the health insurance provider or the entity that administers the plan benefit
Premium Tax Assistance Amounts for Benchmark Plans: This will remove the ACA’s requirement of those enrolling to choose from at least the marketplace’s second lowest cost silver plan, with a median cost benchmark plan. This new median plan will be a qualified health plan (QHP) that is offered in an individual’s state marketplace, and must meet 58 percent of an average QHP with the inclusion of essential health benefits.
- Tax Credits Based on Age and Income: Unlike the House-passed ACHA, the Senate’s legislation determines an individual’s annual contribution based on age and income. The the age and income adjusted percentages become applicable in 2020.
- Chronic Care Tax: Will change from 10 percent to 7.5 percent
- Medicare Tax Increase: People with employer insurance will be taxed 1.45 percent of their income; those who are self-employed will be taxed 2.5 percent.
Other Tax Repeals (As seen in ACHA)
- Repeals the 10 percent tax on indoor tanning services.
- Repeals prohibition on using tax-advantage funds for over-the counter medication.
- Reduces the tax rate for distributions from Archer MSAs from 20 percent to 15 percent and HSAs from 20 percent to 10 percent.
- Repeals tax on certain manufacturers or importers of branded prescription drugs.
- Repeals the 2.3 percent medical device tax.
- Repeals health FSA maximum contribution limit.
- Repeals the annual fee on certain health care insurers.
- Repeals the elimination of employer deduction for expenses allocable to Medicare Part D subsidy.
- Changes ACA requirement of affordable coverage by small business employers to 1/12 of the employee’s permitted benefit.
Individual Mandate and Employer Mandate
- Repeals ACA Individual and Employer Mandate insurance requirement with no replacement action, and would make the repeal retroactive upon enactment.
State Stability and Innovation Fund
Will provide funding for state insurance stabilization and reinsurance for 2018-2021 for a total of $50 billion over four years, with $15 billion allocated in 2018 and 2019 and $10 billion allocated in 2020 and 2021. This fund will also help with providing coverage to high-risk individuals.
Under new language the Administrator of CMS would provide issuers 1 percent of funds appropriated to states where the cost of insurance premiums is at least 75 percent higher than the national average. The fund would also now allow the federal government to pay the states at their percentage minus the state’s expenditures, making the federal percentage 100 percent reduced by the state’s percentage for that year.
Long-Term State Stability and Innovation Program
Sets up a program for states to apply for funds to innovate in their markets to help high risk individuals.
- States must address one or more of the following issues to be considered for funding under this program: lowering co-payments, coinsurance deductibles or other out-of-pocket costs and or dealing with provider payments, these changes should apply to those enrolled in the individual market.
- The fund will provide $54 billion to states from 2019-2026, individual amounts are listed below.
- $8 billion for 2019
- $14 billion for 2020
- $14 billion for 2021
- $19.2 billion for 2022
- $19.2 billion for 2023
- $19.2 billion for 2024
- $19.2 billion for 2025
- $19.2 billion for 2026
For states that have unused funds these will be reallocated to states in need of such funding.
Support for State Responses to Opioid Crisis
- There will be $45 billion distributed for grants to support treatment, recovery for mental or substance use disorders. These funds will be made available until drawn down.
Medical Loss Ratio
- States will determine medical loss ratio starting in 2019.
- The bill will provide $2 billion for 1332 waivers applied to in 2017, funding will be allocated from 2017-2019.
- Waiver process will be expedited in the cases of urgent or emergency health situations.
- States with an approved 1332 waiver as of 2017 can keep them and those who already submitted have waiver applications can have them approved upon enactment.
New Senate language would not modify the specified provisions that can be waived under a 1332 waiver, however, the draft bill would alter three of the provisions that can be waived under a 1332 waiver: the individual mandate, the employer mandate, and the cost-sharing subsidies. It amends the criteria related to coverage, affordability, comprehensiveness, and federal-deficit neutrality—a state’s plan would have to meet for the secretary to approve a 1332 waiver.
Cost Sharing Reduction (CSR) payments authorized under the ACA will be funded until 2019.
Coordination with States: The new version of the Senate bill requires the HHS secretary to undertake additional policy consultation with states and additional Medicaid rulemaking procedures, effective for rules that are finalized on or after Jan. 1, 2018.
Medicaid Expansion Phasedown: The bill leaves the Medicaid expansion as it is under the Affordable Care Act (ACA) for three years. Then there will be a three-year phasedown of the enhanced federal match for the expansion population in states that have elected to cover newly eligible people before March 1, 2017, as follows;
- 90 percent for calendar quarters in 2020
- 85 percent for calendar quarters in 2021
- 80 percent for calendar quarters in 2022
- 75 percent for calendar quarters in 2023
Per-Capita-Cap Funding Option: A per-capita-cap funding mechanism based on a state’s choice of their base year of eight consecutive quarters from the first quarter of 2014 through the second quarter of 2017. The annual inflator will remain at the House level until 2025, and then will be reduced to the urban consumer price index. Disabled children will be carved out of the caps.
- Retains the House excess aggregate medical assistance expenditure penalty.
- Excludes from calculation of state medical expenditures disproportionate share hospital payments, Medicare cost-sharing payments, and safety net provider payment adjustments in nonexpansion states.
Medicaid Block Grant Option: The House Medicaid block grant option for states remains in the package but children, the elderly and disabled would not be included under the block grant. The provisions contains a maintenance of effort (MOE) and a penalty in the event a state fails to sustain the MOE.
Bonus Quality Payment to States: The Senate language provides a bonus quality payment to states that underspend within their caps instead of penalizing states for excess aggregate expenditures as proposed in the House language.
Medicaid Provider Taxes: Cuts Medicaid provider taxes by .1 percent every year until 2025 until the tax rate falls to 5 percent. Currently 49 states, and the District of Columbia have in place one or more forms of a provider tax help fund their Medicaid programs.
DSH Calculation for Nonexpansion State: Alters the nonexpansion state DSH calculation for fiscal year (FY) 2020 by calculating a ratio equal to the state’s FY 2016 DSH allotment divided by the number of people enrolled in the state plan. This alteration in the calculation was included because nonexpansion states fail to hit the per person national average for DSH payments and this added payment helps them meet the national average.
Effective Date for Medicaid Coverage: Amends language to alter the date which medical assistance begins coverage of an individuals’ health expenditures from beginning the third month before the month of application, and changing it to the month of the application to reduce state Medicaid costs. The amendment to reduce state Medicaid costs will apply beginning Oct. 1, 2017.
Enhanced Safety Net Provider Payment: Adds a new section to the Social Security Act that allows nonexpansion states to adjust payment amounts beginning with FY2018 and ending with FY2022 to safety net health providers, and the state would receive an increased federal match equal to :
- 100 percent for calendar quarters in FY 2018, FY 2019, FY 2020, and FY 2021.
- 95 percent for calendar quarters in FY 2022.
MAGI Eligibility Redeterminations: In the case of individuals whose eligibility for medical assistance is determined based on the application of modified adjusted gross income, the individuals’ eligibility must be redetermined every six months at least. The language provides for an increased administrative federal match of 5 percent beginning Oct. 1, 2017, and ending on Dec. 31, 2019.
Optional Work Requirement: Beginning Oct. 1, 2017, states are provided an option to impose a work requirement on nondisabled, nonelderly, nonpregnant individuals as a condition to received medical assistance. Provides for required exceptions such as women during pregnancy, people under 19 years of age, an only parent or caretaker relative of a child under 6, and an individual who is married or head of household under 20. Provides an enhanced federal administrative match of 5 percent for those state implementing the option.
Grandfathering of Certain Medicaid and Home and Community Based Services (HCBS) Waivers—Grandfathers certain Medicaid waivers, managed care delivery systems, experimental pilots, and demonstrations, through a state plan amendment. Directs the secretary to implement procedures encouraging states to adopt or extend related authority for HCBS waivers.
Essential Health Benefits
Sunsets effective Dec. 31, 2019, the requirement that any benchmark benefit package or benchmark equivalent package provide at least essential health benefits.
CBO also reviewed language stating that any individual who goes without insurance for more than 63 days would not be eligible for health insurance enrollment for six months. They found this provision would not have a significant impact on increasing future enrollment.
For additional information please click on this NCSL Summary.