Unpacking The Senate’s Take On ACA Repeal and Replace
Source: Health Affairs Blog
On June 22, 2017, Senate Majority Leader Mitch McConnell (R-KY) released the Senate GOP’s version of Affordable Care Act repeal, the Better Care Reconciliation Act of 2017. The Senate bill is in many respects quite different from the House’s American Health Care Act (AHCA), which was introduced on March 6, 2017; AHCA passed on May 6 by a narrow, mostly party line 217 to 213 vote after lengthy negotiations and a series of amendments.
Although the Senate bill has the same bill number at the House, it entirely strikes the House bill and adopts a new bill with a new title. All of its amendments are amendments to the ACA itself or of other existing laws, not to the House bill.
The majority of the Senate bill is focused on changes to the Medicaid program. This post includes a brief summary of the Medicaid provisions by Sara Rosenbaum, who will examine these in greater detail in a post in the near future. The remainder of this post by Timothy Jost focuses on the non-Medicaid sections of the legislation.
A Quick Review Of The House Bill
As adopted, the House, the AHCA:
- Eliminated the taxes and tax increases imposed by the ACA (most, but not all of them for 2017);
- Phased out enhanced funding for the Medicaid expansions beginning in 2020 and imposed either a block grant or per capita caps on Medicaid;
- Permitted work requirements for Medicaid recipients and repealed various ACA Medicaid provisions;
- Removed the ACA’s individual and employer mandate penalties retroactively to 2016:
- Increased age rating ratios from 1 to 3 to 1 to 5 in the individual and small group market and allowed states to go higher by waiver;
- Repealed the ACA’s actuarial value requirements;
- Repealed funding for the Prevention and Public Health Fund;
- Withdrew funding for Planned Parenthood for one year;
- Permitted states to waive the ACA’s essential health benefit requirements;
- Imposed a penalty on individuals who failed to maintain continuous coverage;
- Alternatively allowed states to obtain a waiver to allow insurers to health status underwrite individuals who do not maintain continuous coverage;
- Created funds amounting to $138 billion to assist states in dealing with high-cost consumers and for other purposes;
- Liberalized requirements for Health Savings Accounts; and
- Ended the ACA’s means tested subsidies as of 2020 and substituted for them age-adjusted fixed-dollar tax credits.
The House version of the AHCA left six of the ACA’s ten titles, and virtually all of its insurance reforms, in place. The AHCA did not repeal or amend the ACA’s prohibition against preexisting condition exclusion clauses; its guaranteed issue and renewal requirements (except insofar as it allowed penalties for individuals with a gap in coverage); its requirement that health plans cover preventive services without cost sharing, its requirement that health plans and insurers cover adult children to age 26; or many other popular provisions.
The Senate Better Care bill leaves these provisions in place as well. Indeed, the House bill likely left many of them alone because most involved issues that could not be addressed by the Senate under budget reconciliation procedures being employed by Republicans. Reconciliation allows Senate passage with 51 votes (or 50 votes plus Vice President Pence’s tiebreaker) rather than the 60 votes normally needed to end a filibuster. However, the Senate’s Byrd Rule restricts these procedures to provisions that affect the revenues or expenditures of the federal government and do not do so simply incidental to some other purpose.
It is likely that parts of the Senate draft will be challenged under the Byrd rule. If the Senate Parliamentarian rules that challenged provisions are “extraneous,” it will take a three-fifths vote of the Senate for them to move forward, which is very unlikely to happen. The final Senate bill may, therefore, look different than the bill introduced on June 22. In addition, the bill remains subject to continued negotiations between conservative and moderate Republicans, and it will likely change as a result of these talks, and perhaps in response to a Congressional Budget Office score expected early next week as well.
Highly Similar Medicaid Provisions, But Senate Bill Has Its Own Flourishes
In many respects—in terms of both detail and broad structure—the Senate bill tracks the House bill in its Medicaid provisions. But it also has its own twists and turns.
Some examples of basically identical provisions in the two bills:
- A year-long exclusion of Planned Parenthood
- Elimination of state enrollment streamlining options
- Elimination of retroactive eligibility
- A state option to impose work requirements
Both the Senate and House bills contain a Medicaid block grant option, but the Senate version differs in multiple respects from the House option in both structure and in the populations who can be included; the Senate version is essentially for adults
Provider Tax Limits
The Senate draft introduces a new restriction on states’ ability to finance Medicaid through provider taxes, now in use by virtually all states
Treatment Of The Expansion Population
The Senate draft, like the House bill, establishes the ACA adult expansion population as an official state option but with deeply reduced federal funding. For states that expanded by March 1 2017, the phase-out begins on January 1 2020 and phases down over 3 years before settling in at the state’s normal federal payment rate. The slightly slower phase-out schedule in the Senate bill may have little if any effect on state decisions, not only because of the lead time needed to eliminate coverage for massive numbers of people, but also because in the Senate bill, the drop in federal funding is combined with important new restrictions on how states can generate the funding to meet their own state expenditure obligations.
Per Capita Cap
With respect to the per capita cap, states are given some flexibility to customize their base period within a FY 2014-2017 time period. This is still a considerable look-back period with no forward adjustments for volume, intensity, price increases, or new technology or other confounding variables.
Under the Senate’s rate-setting methodology, the cap increases ultimately are lowered to the urban consumer price index by 2025. Furthermore, the Secretary has the power to substitute his own base period if he concludes that the state—in his view—tampered with the data used to calculate the base period. There appears to be no process for challenging such a secretarial determination of data tampering, just as both the House and Senate bills offer a state no specific process for immediately challenging a decision to claw back federal payments as “excessive”.
The senate formula also includes specific penalties in the formula that target states with high per capita spending levels and certain states that have relied on local funding as a significant proportion of their qualifying state expenditures. The Senate draft also exempts state expenditures for “blind and disabled” children from the per capita caps, ending this exemption once children turn 18 and then are treated as adults.
Coverage Of Treatment In Institutions For Mental Diseases
The Senate bill loosens but does not eliminate restrictions on coverage of treatment in institutions for mental diseases. It freezes the FMAP at 50 percent rather than permitting a state’s normal FMAP.
Special State Status Under The Administrative Procedures Act Rulemaking Process
The Senate draft also grants states certain advance notice and consultation rights in the case of rulemakings governed by the Administrative Procedures Act.
The Senate Bill’s Non-Medicaid Provisions
Advance Premium Tax Credits
First, the Senate bill would replace the House’s age-based advance premium tax credits (APTC) with tax credits based on age, income, and the actual cost of health insurance in particular markets. The Senate bill’s tax credits are based on the pre-existing ACA APTC provisions. The ACA’s tax credit section is amended, but otherwise remain in place. This may have been done to incorporate the ACA’s abortion funding restrictions without having to address the issue of whether abortion restrictions are permissible under the Byrd rule. The Senate bill does in fact, however, include its own abortion funding restrictions, defining qualified health plans to exclude plans that pay for abortions not necessary to save the life of the mother or where the pregnancy results from rape or incest.
Beginning with 2020, the Senate bill would restrict APTC eligibility to people with incomes not exceeding 350 percent of the federal poverty level, a reduction from the 400 percent of FPL cap in the ACA and a substantial reduction in general from the $115,000 cap in the House AHCA (with a gradual phase-out beginning at $75,000). It also would allow tax credits for individuals with incomes below 100 percent of the FPL, although individual are not eligible for tax credits if they are eligible for Medicaid. This will cover some now in the coverage gap in non-Medicaid-expansion states.
The Senate Bill would also limit APTC eligibility to “qualified aliens” a much smaller category than the category of aliens “lawfully present in the United States” covered by the ACA. There is, however, no five-year exclusion period for aliens as there is under some other public programs.
Although APTC eligibility is not strictly age-based as under the AHCA, the “applicable percentage” schedule under the ACA, which determines what percentage of gross household income an enrollee must spend before becoming eligible for APTC, is amended to provide more assistance for younger people, less for older. A 60-year old with income between 300 and 350 percent of the FPL would have to spend 16.2 percent of household income on premiums before becoming eligible for APTC, while a 28 year old would only have to pay 4.3 percent. Under the ACA, both would have had to pay 9.5 percent.
These percentages would be adjusted upwards to reflect excess growth in premiums over income growth from year to year, as under the ACA, but would be made even less generous if APTC exceed 0.4 percent of the GDP. Under the ACA, an additional adjustment to reduce tax credits would only have applied if premium tax credits and cost-sharing reduction payments exceeded 0.504 percent of the GDP.
The Senate bill would allow states to increase age rating ratios from to 5 to 1, up from the maximum 3 to 1 permitted by the ACA. This would make coverage significantly more expensive for older enrollees and somewhat less expensive for younger enrollees.
Individuals eligible for employer coverage would be ineligible for premium tax credits regardless of the affordability of the employer coverage. This would substantially broaden that ACA’s “family glitch.” Monthly tax credits for individuals who benefit from qualified small employer health reimbursement arrangements would be reduced by the amount of the employee’s benefit under the arrangement.
As under the ACA, APTC would be based on benchmark plans and thus vary with local premium costs. But the benchmark plan would not be the second-lowest cost 70-percent actuarial value plan as under the ACA, but rather the median-cost plan in the individual market in the enrollee’s rating area that provides benefits actuarially equivalent to 58 percent of the full actuarial value of the ACA’s essential health benefits. This is equivalent to the lowest permissible bronze plan under the ACA, in fact the lowest plan probably permissible without a waiver from the ACA’s out-of-pocket expenditure limit. As the Senate bill repeals the ACA’s cost-sharing reductions as of the end of 2019, this would effectively mean that more people would be able to afford coverage than would be true under the AHCA (a fact that the CBO may recognize in its score), but that many of these people would simply not be able to afford health care.
The Senate bill would remove the ACA’s cap on the repayment obligation for individuals who underestimate their income and receive excessive APTC. It would also impose a 25 percent penalty on erroneous tax credit claims.
The Senate bill would end the ACA’s small-employer tax credit as of December 31, 2019, and prohibit the use of the tax credits to pay for plans that cover abortions other than where necessary to save the life of the mother or in cases of rape or incest.
Individual And Employer Mandates
The Senate bill, like the AHCA, would repeal the penalties under both the individual and employer mandates. In fact, it would repeal them retroactively to the end of 2015, raising questions as to how the IRS would handle penalties already paid for 2016. It would not repeal the ACA’s extensive employer coverage reporting requirements, which have provoked widespread complaints from employers. Because premium tax credits are not available to individuals offered employer coverage, employer reporting requirements would continue to be important.
Continuous Coverage Requirements
Unlike the AHCA, the Senate bill contains no penalty for not maintaining continuous coverage, apparently because of Byrd rule restrictions (although Senate leaders are reportedly exploring whether these restrictions can be circumvented). The AHCA imposed a premium surcharge for a year on individuals who had a gap in coverage or alternatively allowed states to permit insurers to impose health status underwriting on those who lacked continuous coverage. The Senate bill’s lack of any mechanism for requiring continuous coverage, raises serious questions as to how it would discourage adverse selection and maintain market stability.
Stability And Innovation Program
Like the AHCA, the Senate bill includes a state stability and innovation program. The funding is provided through the CHIP program, apparently to take advantage of the CHIP program’s abortion funding restrictions and avoid a Byrd amendment challenge on this issue (although, as already noted, the bill does contain its own abortion restrictions). The bill would first appropriate $15 billion for 2018 and 2019 and $10 billion for 2020 and 2021 for CMS to allocate for a short-term program to fund health arrangements “to address coverage and access disruption and respond to urgent health care needs within States.” Payments would be made directly to health insurers to help stabilize markets. No state match would apply.
A second long-term program would offer funding for states to provide financial assistance to help high-risk individuals who do not have access to employer coverage get individual market coverage, stabilize insurance markets, pay health care providers for health care services, or provide assistance to reduce out-of-pocket costs in the individual market. States could not use these funds to finance the state’s Medicaid share or for intergovernmental transfers.
Once a state’s application is approved, it would be deemed approved through the end of 2026. The bill appropriates $8 billion for 2019, $14 billion for 2020 and 2021, $6 billion for 2022 and 2023, $5 billion for 2024 and 2025, and $4 billion for 2026. At least $5 billion of the funds must be used in 2019, 2020, and 2021 for market stabilization purposes.
The bill does not specify an allocation formula but leaves allocation of the funds to the discretion of the CMS administrator. Funds not spent by a state within 3 years would be redistributed. Beginning in 2022, states would be required to provide matching contributions to obtain funding under the program, equal to 7 percent for 2022, 14 percent for 2023, 21 percent for 2024, 28 percent for 2025, and 35 percent for 2026.
Cost-Sharing Reduction Payments
The bill would appropriate funding to reimburse insurers for their required reduction of cost-sharing reductions for low-income enrollees through December 31, 2019, bringing an end to the House v. Price litigation. This has been a key demand of insurers for continued participation in insurance markets. The bill also repeals the cost-sharing reductions, however, as of December 31, 2019, leaving low-income enrollees with what would often be unaffordable deductibles, coinsurance, and out-of-pocket expenditures after that date.
The bill appropriates $500 million federal administrative expenses for its implementation.
Repealing The ACA’s Taxes
Like the House’s American Health Care Act, the Senate bill would repeal the taxes imposed by the ACA, but would do so on a different schedule;
- The “Cadillac plan” excise tax on high cost employer coverage would be delayed until 2026;
- Expenditures from HSAs, Archer MSAs, flexible spending accounts, and health reimbursement arrangements for over-the-counter drugs would be tax free effective 2017;
- The penalty on distributions for non-health care expenditures would be reduced from 20 percent to 10 percent for HSAs and 15 percent for MSA’s effective with 2017;
- The ACA’s $2500 annual limit on tax-free contributions to flex plans would be repealed effective 2018;
- The ACA’s tax on branded prescription drug manufacturers and importers medicine would be repealed effective 2018;
- The ACA’s medical device tax would be repealed effective 2018;
- The ACA’s health insurance provider fee, already suspended for 2017, would be repealed thereafter;
- The ACA’s elimination of the deduction by employers for expenses allocable to the Medicare Part D subsidy would be repealed effective 2017;
- The threshold for deducting qualified medical expenses would be reduced from 10 percent under the ACA back to 7.5 percent (the pre-ACA level), but not to the 5.8 percent level in the AHCA, effective 2017;
- The 1.45 percent Medicare payroll tax surcharge for individuals earning more than $200,000 a year ($250,000 for joint returns) would be repealed effective 2023;
- The tanning tax would be repealed for services received after September 30, 2017;
- The Medicare unearned income tax would be repealed effective 2017;
- The ACA’s limitation on the deduction as a business expense of compensation for insurance executives in excess of $500,000 would be repealed as of 2017;
- The maximum contribution limit for HSAs would be increased to the amount of the deductible and out-of-pocket limit effective 2018;
- Both spouses would be allowed to make catch-up contributions to the same HSA effective 2018; and
- Effective 2018, qualified medical expenses incurred before the establishment of an HSA could be paid out of an HSA if the account is established within 60 days of procuring high-deductible coverage.
Association Health Plans
The Senate bill, surprisingly, contains a long section on association health plans. The legislation would allow small businesses to purchase large group coverage through associations largely free from state insurance regulation. The House passed an association health plan bill in March, but it was not part of the AHCA and did not seem to be moving forward under the budget reconciliation process. Indeed, since it is hard to see how the provision in the Senate bill survives a Byrd rule challenge as it affects neither revenues nor outlays of the federal government and seems extraneous to reconciliation.
The bill would extend ERISA preemption of state insurance regulation to “small business health plans,” fully insured plans offered by health insurers to small businesses as large group plans through association sponsors. It would preempt any state laws that would preclude health insurance issuers from offering health insurance coverage in connection with small business health plans or that would mandate the provision of specific benefits. This could presumably stop a state from blocking the sale of insurance in the state even if the insurer was insolvent.
Insurers could offer coverage regulated as large group coverage to small employers through association plans. Association sponsors would have to be certified by the Labor Department as meeting certain requirements and the certification would have to be filed with states in which the association operates. The sponsor would have to meet certain requirements of the state in which it was domiciled, including bonding requirements. Participating employers would have to be the sponsor, members of the sponsor, or affiliated members of the sponsors. Franchisors could sponsor associations for their franchisees.
All covered individuals would have to be active or retired owners (including self-employed individuals); officers, directors, or employees or partners of participating employers; or their dependents. Associations could cover small groups of one if permitted under state law. Participating employers could not exclude employees from the plans and provide them coverage in the individual market on the basis of health status. The federal government would have to “consult” with a single domiciliary state identified for each association in exercising its authority. The provision would take effect one year after enactment.
The House has considered association health plan legislation for many years, passing a bill in 2003, but association health plan legislation has never passed the Senate. In the past, association health plans have been plagued with problems of fraud and insolvency and have served as vehicles for cherry picking. There is a real concern that this could seriously undermine or destroy state-regulated small group markets in states where coverage was sold under this provision. The Congress has pledged its allegiance to state insurance regulation, but the Senate bill includes this provision for essentially taking power away from state regulators and transferring it to the federal government.
The Prevention Fund
The Senate bill would repeal the ACA’s prevention and public health fund, which was to have provided $18.75 billion from 2010 to 2022 to fund public health activities and $2 billion a year after that. The bill would, however, provide $2 billion for 2018 for HHS to provide grants to states for substance abuse disorder treatment or recovery support services for individuals with mental health or substance use disorders to address the opioid crisis. It would also increase community mental health center funding by $422 million for 2017.
Medical Loss Ratios
The Senate bill would sunset the ACA’s medical loss ratio requirements beginning with 2019. It would thereafter allow states to determine the ratio of premium revenue that insurers could pay on non-claims cost and any rebates that would have to be paid to consumers if non-claims costs exceeded those ratios.
Expanded 1332 Waivers
Perhaps the most important private insurance market provision of the Senate bill comes near the end: its amendments to the 1332 state innovation waiver program. The ACA permitted states to seek waivers from certain requirements of the ACA beginning in 2017. Under these waivers, states could adopt alternative approaches that would offer insurance coverage at least as comprehensive as that provided under the ACA (as certified by the CMS Actuary), offer coverage and cost-sharing protections at least as affordable, cover at least a comparable number of residents, and be budget neutral.
The provisions of the ACA subject to 1332 waivers (and not otherwise repealed by the Senate bill) include the essential health benefits, actuarial value, out-of-pocket limits (for individual plans), and other qualified health plan requirements, as well as the ACA’s exchange provisions (which are not otherwise repealed by the Senate bill) and its premium tax credit provisions. Under the Senate bill, these can be waived if a state describes how it would ”provide for alternative means of, and requirements for, increasing access to comprehensive coverage, reducing average premiums, and increasing enrollment.”
This is a much lower standard than the ACA’s. It ignores both how comprehensive the coverage must be and how high cost-sharing may be under a waiver. The Senate bill also substitutes for the ACA’s budget neutrality requirement a requirement that the waiver not increase the federal deficit.
Like the ACA, the Senate bill would allow a state granted a waiver a pass through of federal funds that otherwise would have been spent on premium tax credits and, until they are repealed in 2020, cost-sharing reduction payments. It would additionally provide $2 billion in extra funding in 2017, to remain available through 2019, for grants to states for submitting and implementing waivers. States could also use their long-term state innovation and stability allotments for funding waiver programs.
The bill would require HHS to establish an expedited process for considering waivers in urgent or emergency situations involving access to health insurance coverage. It would also provide that HHS “shall” rather than “may: approve waivers. States would not have to enact legislation to seek waivers, which could rather be submitted based on a certification by the governor or insurance commissioner. Waivers would last for eight years rather than five (as under the ACA) and could be renewed for another eight-year period at the application of the state. The 1332 amendments would be applicable immediately upon enactment and retroactively apply to waivers requested before the date of the statute.
Unlike the House’s AHCA waivers under the MacArthur amendment, the Senate bill does not permit waivers of the ACA’s prohibition on health status underwriting. It would, however, allow comprehensive waivers of essential health benefits, out-of-pocket limits, and actuarial value requirements that would have much the same effect. Individuals with preexisting conditions would be able to get coverage, but they could be denied coverage for the pharmaceuticals or services that they would need for treatment of their preexisting conditions. Waivers of EHB could also affect large employer plans, which are only prohibited from imposing annual and lifetime limits on EHB and only required to cap out-of-pocket expenditures for EHB.
The Senate will not vote on the legislation until it is scored by the Congressional Budget Office, a process that is already underway and should be completed early next week. If the CBO scores the bill as cutting the deficit by less than $133 billion over ten years—the amount of on-budget savings in the House bill—it will have to be amended to meet this goal. Presumably the effective dates in the tax repeals have been jiggered to ensure that this requirement was met.
Senator McConnell intends to hold a vote on the bill by June 30, before the July 4 recess. He can only afford to lose two Republican votes, and it is not clear that the votes are there at this point. If he does not have the votes, he can either pull the bill, as the House Republicans did with their bill in late March, or he can put the bill to a vote, see it fail, and move on to other Republican priorities, such as tax reform or infrastructure.
Much has been made in recent days about the secrecy of the Senate process. Today is the first time that Democratic senators, the media, the public, and apparently some Republican senators have seen the bill. The bill will be advanced under Senate Rule 14, which allows it to move directly to the floor without committee hearings. Under Senate budget reconciliation procedures, debate will be limited, although an unlimited number of amendments can be offered without debate before the final vote.
It has been argued that this is how the Democrats adopted the ACA. It is true that the ACA, like other major pieces of legislation, was drafted by Senate staffers and, beginning with the fall of 2009, based on negotiations within the Democratic Party rather than through a bipartisan process. In the end, after Sen. Kennedy’s (D-MA) death and the election of Republican Scott Brown to Kennedy’s former seat, the Senate bill was adopted by the House in March of 2010 with little debate, together with a budget reconciliation act negotiated between House and Senate Democrats.
But the final votes came at the end of a year-long process during which Congress held dozens of committee hearings and mark-ups, heard testimony from many of experts, considered hundreds of amendments, and held 25 days of floor debate in the Senate itself. Republicans actively participated in the process until the late summer of 2009. The media and public were fully informed of the provisions of the legislation. The contents of the legislation were fully known and subject to vigorous public debate. There is simply no comparison between the two processes.