On Monday March 7, 2017, nearly 7 years after the enactment of the Patient Protection and Affordable Care Act (ACA), Republicans in the U.S. House of Representatives have finally introduced the first drafts of what they are calling the American Health Care Act (ACHA). There are two first drafts, 57 pages to be considered by the House Ways and Means Committee and 66 pages to be considered by the House Energy and Commerce Committee, with “mark-up” beginning tomorrow morning March 8, less than 48 hours after finally releasing the legislative language. There will be no Congressional Budget Office analysis available so the fiscal impact on the U.S. federal budget and the personal impact on Americans will not be known before the House Committees begin approving the drafts and moving the legislation forward.
There are numerous parts of the two drafts, without any real logical order of topics, and with many different implementation and effective dates, which makes it even more difficult to understand how the legislation would impact health insurance coverage for millions of Americans. Here is some initial analysis, organized by date of implementation. This analysis highlights how long “repealing and replacing” the ACA will take, with many provisions to go into effect beginning in 2018, and most of the important provisions not effective until 2020.
Effective Immediately:
+ Repeal of the individual mandate (requirement to have health insurance coverage) and tax penalties (retroactive to January 2016)
+ Repeal of the employer mandate for large employers (requirement for employers to offer health insurance coverage to their employees) and tax penalties (retroactive to January 2016)
These repeals would make it less likely for employers to offer health insurance to their employees and less likely for individuals to obtain health insurance, especially younger, healthier Americans who otherwise help balance/reduce the costs of those insured; the result is less Americans insured, more costs for health insurance plans so they raise their premiums, which, in turn, makes health insurance less affordable for everyone else. These repeals undo two of the fundamental changes under the ACA that successfully countered the failure of health insurance plans to provide affordable health insurance coverage to Americans on their own.
+ Allows age rating, or variations in health insurance premiums based on age (higher prices for older Americans) up to a ratio of 5:1 (rather than ACA’s limit of 3:1)
+ Repeals the requirement that health plan provide “actuarial value” (premiums reflect estimated costs of care) and allows health plans to offer minimal plans that would only cover catastrophic medical expenses
These provisions allow higher premiums and health plans with less coverage, minimizing the choices of affordable, comprehensive health insurance coverage options. All these provisions will continue to de-stabilize the health insurance markets for individuals, with many unable to afford continued coverage, which in turns means even higher premiums, and less affordable options for those remaining in those markets. While the latter changes allow health plans to charge higher premiums, the continued instability of these markets also will drive some health plans to stop participating in the health insurance exchanges.
Effective Current Fiscal Year 2017 (through September 30, 2017):
+ Eliminates all Medicaid and health plan funding for Planned Parenthood clinics for one year
This is a blatantly political, mean-spirited attack on Planned Parenthood, which already cannot receive any federal funding for abortion services; this defunds all Planned Parenthood clinics for ALL their health care services – including primary care, cancer screenings, contraception, and other sexual health services – for all their patients covered by Medicaid and any federally-funded health plan.
+ Provides $422 million in funding for community health centers
This is one of the only good things in the bill; without this appropriation, community health centers would have reverted to pre-ACA funding levels; however, this extension of funding is only for the one fiscal year, only postponing this serious cliff of loss of funding. The bill does not address the need for reauthorization and appropriations for the Children’s Health Insurance Program, which also expires in September 2017.
Effective Fiscal Year 2018 (beginning October 1, 2017):
+ Requires redetermination of eligibility for expanded Medicaid every 6 months
Requiring redetermination of eligibility more frequently than annually is a cynical but proven way to drop individuals from coverage; while the number of individuals who are found to be ineligible with more frequent redeterminations are always very small, not meeting the administrative requirements for redetermination in a timely manner (notice of redetermination not received because the individual moved, not responding to requests for updated documentation, etc.) results in loss of eligibility and coverage for many, especially those with lower education and health literacy, and limited English proficiency.
+ Repeals funding of the Prevention and Public Health Fund
This eliminates vital funding for prevention activities that save money in the long term; it also eliminates funding for the Racial and Ethnic Approaches Community Health (REACH) program
+ Creates $100 billion State Innovation Grant and Stability Program (over 9 years, through 2026) to states for high-risk pools, stabilizing private insurance premiums, providing cost-sharing subsidies, promoting preventive, dental, vision, mental health and substance use disorder services, and similar state activities
While this appears at first to be a lot of federal funding, this funding is for state governments (which could essentially keep the funds or give them to health plans) rather than to directly subsidize the costs of health care for Americans; and when divided among 50 states over 9 years, it doesn’t end up being very impactful.
Effective 2018:
+ Repeals tax on health insurance plans
+ Repeals excise tax on medical devices
+ Repeals drug manufacturer fee on branded prescription drugs
+ Repeals 10% sales tax on indoor tanning services
+ Repeals 0.9% Medicare Hospital Insurance payroll tax on high income individuals (income over $200,000; over $250,000 for joint filers)
+ Repeals 3.8% Medicare tax on unearned income for high income individuals (income over $200,000; over $250,000 for joint filers)
+ Repeals $500,000 limit of “ordinary and necessary” business expense deductions for compensation paid to health insurance officers, directors, and executive employees
+ Reduces minimum amount of medical expenses for tax deduction from 10% to 7.5% of the taxpayer’s adjusted gross income
These sections repeal most of the major revenue sources used to fund the ACA; without any analysis from the Congressional Budget Office, it is unknown how the American Health Care Act would be paid for, and what impact it will have on the federal deficit. Many of these repeals only benefit higher income taxpayers.
+ Creates a 30% premium penalty for individuals who have had a lapse in health insurance coverage (63 days or longer) to re-enroll in any coverage
Although the 30% premium penalty sounds high, this will actually create an perverse incentive for healthier Americans to wait until they need health care before enrolling; at that point, the one-time 30% penalty would often be less than the actual costs of health care; so rather than having a stable health insurance market where more Americans are covered and health plans have predictability about their costs, there will be these unpredictable re-entries into the health insurance market that will be costly and disruptive for both individuals and health plans.
+ Increases contribution limit for Health Savings Accounts (HSAs) to $6,550 for individuals and $13,100 for families (plus an additional $1,000 for individuals age 55 and over) to pay for costs of high deductible health plans
+ Eliminates limit of $2,500 on contributions to Flexible Savings Accounts
HSAs are only useful if an individual/family has sufficient income to “save” these amounts, to be used for deductibles, co-payments, and health-related costs such as over-the-counter medications; while these HSA contributions receive favorable tax treatment, they don’t help lower income families who don’t have the disposable income to save these amounts and use the savings for “excess” health care costs not covered by health insurance.
+ Restores Medicaid Disproportionate Share Hospital payments for states that did NOT expand Medicaid
+ Provides $10 billion (over five years, through 2022) to states that did NOT expand Medicaid for their “safety net providers”
These provisions are concessions to the states that did not expand Medicaid, providing federal funding that otherwise would have supported health insurance coverage for uninsured Americans; however, these funds go to health care providers rather than to uninsured Americans; in fact, non-expansion states lose this funding if they choose to actually reduce the number of uninsured residents in their state by now deciding to implement expanded Medicaid.
+ Prohibits small employer tax credits from being used to pay for coverage from any health plan that provides coverage for abortion services
This is another mean-spirited restriction intended to narrow the number of health plans that provide coverage for abortion services.
Effective 2020:
+ Repeals tax credits for cost-sharing expenses (deductibles and co-payments)
The House Republicans are currently litigating whether these cost-sharing subsidies were appropriated for this current fiscal year 2017; by delaying the repeal of these tax credits until 2020, the House Republicans are now essentially conceding that they will have to appropriate funding for these subsidies until then.
+ Repeals tax credits for small employers who offer health insurance to their employees
+ Implements substitute tax credits to help pay for health insurance premiums, based on age; would only be $2,000/year for those up to age 29, and up to $4,000 for those age 60 and older (up to $14,000 for a family); these tax credits are phased down at an income of $75,000 ($150,000 for joint filers), and phased out to zero at an income of $115,000; tax credits may be used to pay for unsubsidized COBRA coverage; limits tax credits to U.S. citizens, nationals, and “qualified aliens” as defined by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996
The replacement tax credits are far less than the tax credits for premiums and cost-sharing now available under the ACA (for example, with a annual income of $20,000, a 27-year old would only get $2,000 in tax credits under the ACHA, compared to $3,225 under the ACA, and a 60-year old would only get $4,000 rather than $9,900 under the ACA). In addition, minimizing the tax credits for younger, healthier Americans disincentivizes them from buying health insurance. The new restrictions based on immigration status means that many individuals who are legally authorized to reside in the U.S. (for example, migrants from the Compact of Free Association jurisdictions in the Pacific Islands) would no longer be able to obtain tax credits to help them buy affordable health insurance.
+ Repeals federal funding for Medicaid expansion (preserves a lower level of federal funding for individuals enrolled in expanded Medicaid as of December 31, 2019)
+ Repeals guaranteed federal funding for Medicaid, freezes total federal funding for Medicaid, and replaces federal funding to states with a per capita cap based on federal funding provided to each state (using five Medicaid population categories of elderly, blind and disabled, children, adults without ACA expansion, and adults under ACA expansion) as of 2016 (plus minor adjustment for inflation)
+ Repeals the requirement to provide “essential health benefits”, or a minimum level of health care services, in Medicaid
+ Repeals presumptive eligibility for Medicaid (requires documentation and verification of eligibility before coverage begins)
These fundamental changes to how Medicaid is funded are the most significant and damaging parts of the bill; once the per capita caps are implemented and overall Medicaid funding frozen, there will be less federal funding available to the states, which will force the states to restrict eligibility, pay providers less, and offer less benefits. That in turn will result in hundreds of millions of dollars of cost-shifts to the states (who would have to use state funds to backfill some of the federal funding cuts), health care providers (who would be paid less), and Medicaid beneficiaries (who would have to begin to pay premiums, deductibles, and co-payments, all for less health care benefits).
+ Restores Medicaid Disproportionate Share Hospital payments in expansion Medicaid states
+ Suspends 40% excise tax (“Cadillac” tax) on high-cost health plans provided by employers from 2020 through 2024
The American Health Care Act does not repeal or replace the following parts of the Affordable Care Act:
+ health insurance marketplaces offer health insurance; health plans in such marketplaces must cover pre-existing conditions, must guarantee coverage and renewal, must cover adult children up to age 26, caps on out-of-pocket expenses, no annual or lifetime limits on coverage, must provide “essential health benefits”, must meet minimum “medical loss ratio” (limit on administrative expenses/profits)
+ prohibitions against discrimination based on age, sex, race, ethnicity, national origin, or disability
+ states can offer a Basic Health Program (currently offered by New York and Minnesota)
+ states can continue to apply for an ACA section 1332 waiver to implement other innovations as long as they are cost-neutral
+ all quality improvement and payment reform initiatives, including funding and authority of Centers for Medicare and Medicaid Services’ Center for Medicare and Medicaid Innovation and Independent Payment Advisory Board
There also are no changes to the Medicare program although the repeal of several of the Medicare taxes significantly threatens the financial stability of the Medicare program in the future.
Finally, despite campaign pledges and other rhetoric, there are no provisions in the current drafts about more generous “risk corridor” payments to health plans (that end up with more high cost members than anticipated) and the ability of health plans to selling health insurance across state lines (which would result in a “race to the bottom” to avoid state regulations that protect consumers). While the selling across state lines provision could still be added later or introduced as a separate bill, it may have been thought to be outside the scope of the budget reconciliation process being used to enact this American Health Care Act, which is limited to tax revenues, tax credits, and federal government expenditures.
Here is the draft to be marked up by the House Ways and Means Committee:
The Ways and Means Committee has prepared a section-by-section summary:
And here is the draft to be marked up by the Energy and Commerce Committee:
The Energy and Commerce Committee has prepared this section-by-section summary:
Ignatius Bau 