The American Health Care Act of 2017 (H.R. 1628) Executive Summary


Quick Jump
I. Introduction
II. Individual Insurance (Marketplace Plans)

A. Individual Mandate
B. Cost of Purchasing Plans on the Marketplace
C. Changes to the Way Insurance is Marketed
D. Coverage for Pre-Existing Conditions
E. Essential Health Benefits for Marketplace Plans: Added with the April 24 MacArthur Amendment

III. AHCA and Employer-Based Insurance
IV. Medicaid: What Happens Next

A. Medicaid Expansion
B. Medicaid Funding
C. Essential Health Benefits for Medicaid Enrollees
D. Work Requirements for Medicaid: Added with the March 20th Manager’s Amendment

V. Miscellaneous Taxes
VI. State Waivers for Some ACA Provisions: Added with the April 24th MacArthur Amendment
VII. The Patient and State Stability Fund
VIII. Economic Analysis of the Bill

 

Any changes related to the various amendments will be specified in the below summary.  For standalone summaries of the amendments, visit the following pages:
— March 20th Manager’s Amendment
— April 6th Amendment
April 24th MacArthur Amendment
May 3rd Upton Amendment

 

 


I. Introduction
The American Health Care Act of 2017 (“AHCA”) is the first of what could be several Congressional proposals aimed at repealing or replacing the Patient Protection and Affordable Care Act (“PPACA”) (commonly referred to as the “ACA” or “Obamacare”).

The proposed law would not automatically repeal all of the ACA.  Rather, it would make significant changes to the way in which consumers purchase insurance, the amount of subsidies available to individuals to purchase insurance, and the types of benefits that insurers must cover under a health insurance policy.  The bill would also do away with the Medicaid expansion over a period of several years.  In addition, much like the ACA’s limitations on abortion funding, the current proposal would prohibit the use of tax credits to purchase insurance plans that cover elective abortions and therefore would likely indirectly restrict access.

Below is a brief summary designed to address key provisions of the proposed law as of March 6, 2017.  It is not a comprehensive summary of the bill.  For more detail, you can read the Kaiser Family Foundation’s summary of the bill, the official section-by-section summary from the Ways and Means Committee, and the official section-by-section summary from the Energy and Commerce Committee.

If you are interested in reading the entire proposed legislation, you can do so here.

 

The March 20th Manager’s Amendment:

On March 20, 2017, House Republicans released a 21-page Manager’s Amendment to the AHCA. This amendment contains a series of both policy and technical adjustments designed to draw more votes from House Republicans who were unsatisfied by the original version of the bill. Any changes related to the Manager’s Amendment will be specified.

The full text of the Manager’s Amendment policy changes can be found here and the technical changes can be found here.

The official Energy and Commerce Committee’s and the Ways and Means Committee’s summary of the policy changes can be found here and the technical changes can be found here.

Our summary of only the Manager’s Amendment’s changes without the rest of the AHCA summary can be found here.

 

 

The April 24th MacArthur Amendment:

On April 24, 2017, Representative Tom MacArthur offered an amendment to the AHCA, referred to as the “MacArthur Amendment.” The amendment was a successful maneuver to garner necessary support from the House Freedom Caucus, a group of approximately 40 far-right conservative members of the House who believed the first version of the AHCA did not go far enough in repealing the ACA. In particular, the Freedom Caucus had pushed for elimination of the Essential Health Benefits (“EHBs”) required by the ACA, which the MacArthur Amendment accomplished. Representative Mark Meadows, head of the House Freedom Caucus, reportedly agreed to the amendment.

The MacArthur Amendment is an attempt to sway the Freedom Caucus to approve the AHCA. The amendment would significantly alter the health insurance requirements that the ACA currently places on states. Under the amendment, states could apply for a waiver to “encourage fair health insurance premiums.” This waiver would allow states to opt out of many provisions of the ACA.
Any changes related to the MacArthur Amendment will be specified.

You can read the original language of the amendment and an official section-by-section summary on the House website.

Our summary of only the MacArthur Amendment’s changes without the rest of the AHCA summary can be found here.

 

 

The May 3rd Upton Amendment:

When Republicans introduced the MacArthur Amendment, some critics argued that the high-risk pools were underfunded and would not be able to cover the amount of need.  In a last minute corrective amendment called the Upton Amendment, Republicans proposed to create a new fund that would go to states that permit insurers to charge higher premiums to individuals with pre-existing conditions.

Any changes related to the Upton Amendment will be specified.

For the full language of the Upton Amendment, click here.  You can also read the official section-by-section summary of the Upton Amendment.

 

 

The April 6th Amendment

On April 6, 2017, just one day before the House of Representatives went on its Easter recess, Representatives Gary Palmer and David Schweikert introduced an amendment (“April 6th Amendment”) to the AHCA.  This amendment creates a federal “invisible risk sharing program” within the AHCA’s Patient and State Stability Fund (“PSSF”) program.  The PSSF offers $100 billion to states over ten years in order to stabilize their insurance markets.  The April 6th Amendment allocates to the PSSF an additional $15 billion that states would use to cover a portion of the claims from the non-group insurance market.

This article details how the PSSF would function should the AHCA become law.  It further explains the intent of the invisible risk sharing program and how similar programs functioned in the past.

For the full language of the amendment, click here.  For the official section-by-section summary from the House Committee on Rules, click here.

 

 



II.  Individual Insurance (Marketplace Plans)

The AHCA would change several key features of the ACA that would, in turn, diminish consumers’ access to insurance, change the scope of their coverage, and alter the way they shop for plans.

 



A.  Individual Mandate

A key provision of the ACA (and one that was hotly contested) is the law’s “individual mandate” requirement. This provision requires most individuals to obtain health insurance or pay a penalty for refusing to do so. In 2016, the penalty was 2.5% of total income or $695 per person, whichever was higher.  The Kaiser Family Foundation has an excellent review of the ACA’s individual mandate here.

The purpose of the individual mandate is to spread the risk of having a significant medical expense across as much of the population as possible.  This, in turn, creates a broader base of premiums from healthy individuals to help support other unhealthier individuals in their time of need.  Click here for a deeper explanation of how the individual mandate works.  In 2012, the Supreme Court upheld the individual mandate as constitutional. (NFIB v. Sebelius (2012)).

The AHCA would completely remove the individual mandate.  Americans would no longer have to provide proof of health insurance in order to avoid a tax penalty.

However, the proposed law would still penalize individuals who have previously gone without health insurance. Individuals applying for insurance with more than a 63 day gap in coverage during the previous 12 months would need to pay an additional 30% late-enrollment surcharge to the insurer on top of the base premium.  The surcharge would be removed after one year of coverage.

The goal of the surcharge is to discourage individuals from dropping coverage when they are healthy and then purchasing it only when they know they are likely to need medical services in the coming year (a phenomenon known as adverse selection). Adverse selection results in the insured population being sicker than the general population, which can drive up the cost of the plan.   Both the ACA and the AHCA attempt to prevent this with these penalties.

Young adults that turn 26 would have to prove that they enrolled during the first open enrollment period after being removed from their parent’s plan.

 

The March 20th Manager’s Amendment:

The Manager’s Amendment would apply the 30% premium penalty only in the individual market. Small group markets would not have to face this penalty. For the CBO’s analysis of how the 30% premium penalty would discourage healthy individuals from participating in the market, see our summary of the CBO report.

 



B.  Cost of Purchasing Plans on the Marketplace

Prior to the ACA, individuals who did not qualify for Medicare or Medicaid, were not insured by an employer, and could not afford individual insurance (or were barred from purchasing due to a pre-existing condition) often went without health coverage at all.

Thus, the ACA aims to make individual insurance more affordable. To do so, the ACA offers income-based subsidies to enable individuals to purchase health plans in the Healthcare Marketplaces.   Based on individual and family income, the ACA’s subsidy program also takes geographic location and premium increases into account.

For more information on the subsidy program generally, go to the Henry J. Kaiser Family Foundation website.

The AHCA seeks to repeal this cost-sharing subsidy program and replace it with a program based on age and income rather than focusing only on income.  For individuals earning less than $75,000 per year, the government would offer tax credits starting at $2,000 for individuals under 30, rising to $3,000 for those age 40 to 49, $3,500 for those age 50 to 59, and $4,000 for those over 60.  The proposed law would limit subsidies to $4,000 per individual. No family could receive more than $14,000 in subsidies, and no more than five family members could be eligible for subsidies.

Not everyone will qualify for a tax credit, however.  The tax credits would diminish as individual income rose above $75,000 and are eliminated for income levels above $115,000.

This means that families and individuals making more than the certain specified amounts will not receive the tax credit. In addition, the proposed law prohibits tax credits in other circumstances, such as if the purchased plan covers “elective” abortions, or if the purchaser is in jail or an undocumented immigrant.

Unfortunately, for many individuals, these tax credits would be insufficient to enable them to purchase quality health insurance coverage. Some experts note that the credits will not cover the full cost of a health insurance plan that provides full benefits.

In 2016, the average annual premiums for employer-based insurance in the United States was $6,435 for an individual and $18,142 for a family, which is even less than the premiums for most individual plans. As a result, the law would particularly harm those who are lower income, older, or live in high-premium areas.

In fact, health economists estimate that by 2020 the average enrollee will pay $2,409 more under the AHCA. In 2020, older Americans (aged 55-64) will pay $6,971 more, and those with income levels under 250% of the federal poverty level will pay $4,061 more than they would under the ACA. See the full analysis here.

The Henry J. Kaiser Family Foundation has published an interactive map to illustrate the differences between the ACA and the AHCA’s tax credits.  The website also has further discussion of the impact of tax credits.  David Cutler and several other experts in the field have done a preliminary economic analysis of the tax credit scheme, published here.

 

The March 20th Manager’s Amendment:
According to the Press Release from the House Energy and Commerce Committee, the Manager’s Amendment is intended to help individuals between the ages of 50-64 who may face higher premiums under the AHCA. Under the Amendment, individuals could deduct from their taxes the cost of medical expenses if they exceed 5.8 percent of their income (under current law costs must exceed 10% of income before they can be deducted).

The Amendment also creates a $75 billion fund that states can use to assist older adults purchasing insurance. The Manager’s Amendment leaves the the work of deciding how to create and use this fund to the Senate.

 

 

The April 24th MacArthur Amendment:
Prior to the ACA, health insurance companies could charge Americans aged 50-64 significantly more for health insurance on the individual market.  In some states, older Americans were charged five times more for health insurance than the amount charged to younger Americans.  As a result, many Americans in this age group went without health insurance.

With passage of the ACA, insurance companies could not charge older Americans more than three times the rate charged  younger people for health insurance. This provision was a significant reason for the nearly 50% drop in uninsured adults between ages 50-64.

The AHCA originally amended the ACA to increase the age rating from 3:1 to 5:1, meaning insurers could charge older adults five times what they charged younger adults.  The MacArthur Amendment takes this a step further.  Pursuant to this amendment, a state could obtain a waiver that would allow insurers in some states to charge older Americans more than five times what they charge younger Americans starting in 2018.  The amendment does not limit the amount insurers could charge older Americans.

Older Americans would see their premiums rise if age ratings were raised to 5:1 or higher.  According to an analysis by Standard & Poor, older Americans would see a premium increase of approximately 30% if age ratings were increased to 5:1.  As a result, this would significantly increase the number of uninsured individuals in this age group as older Americans would be unable to afford the premiums.

 

 



C.  Changes to the Way Insurance is Marketed

The proposed AHCA would affect how consumers shop for individual insurance plans on the marketplace by making it more difficult to determine what particular plans cover.

Under the ACA, plan issuers are required to label their offerings by metal tier: Bronze, Silver, Gold, and Platinum.  These tiers allow consumers to know what percentage they will owe for any health visit (based on an insurance term known as actuarial value (“AV”)).

For instance, under current law, a bronze plan has an AV of 60%.  This means that an average consumer can expect to be responsible for 40% of their medical costs for services covered by the plan, over and above the premiums.  The higher the tier, the lower the consumer’s out-of-pocket cost will be for each benefit.  Under a platinum plan, for example, a consumer will typically be responsible for only 10% of the costs of all benefits under the plan.  Naturally, the higher the tier chosen, the higher the premium will be.

The AHCA would repeal the AV standards and metal requirements starting in 2020.  Plans would no longer have to meet the minimum of 60% coverage, meaning that an insurance company can sell a plan in which it pays for less than 60% of all costs.  These plans would likely have much lower upfront premiums, but would result in much higher out-of-pocket costs to the consumer for healthcare actually used.

However, insurers would not be able to sell plans less generous than current catastrophic plans. Currently, a catastrophic plan on the marketplace is available only to consumers under age 30 or who have a “hardship” qualification.  Under the AHCA, insurers can sell anyone a catastrophic plan. These plans have very low premiums, but very high deductibles.  In 2017, the deductible for a catastrophic plan was $7,150.  In other words, a person with this plan would have to pay out-of-pocket for $7,150 worth of medical care before their insurance would cover anything.

For more information on AVs, visit the Henry J. Kaiser Family Foundation website and for a discussion of what a complete repeal could do, visit the Health Affairs Blog.

 



D. Coverage for Pre-Existing Conditions

One well-received feature of the ACA was the requirement that insurance companies offer insurance even to people with pre-existing conditions. By doing so, the ACA eliminated a significant barrier that many individuals, such as those with diabetes, heart disease, or even pregnancy, met when trying to purchase individual health insurance.

The AHCA retains the ACA’s requirement that insurers offer coverage to individuals with pre-existing conditions.  Additionally, insurance companies still cannot charge individuals more based on the pre-existing conditions (as was typical pre-ACA).

However, because the AHCA allows for insurance plans with less actuarial value and high deductibles, many individuals with pre-existing conditions may not be able to afford those plans year after year, and would need to enter high risk pools.  For this reason, the AHCA would offer states $100 billion over 10 years to set up high risk pools or other funding mechanisms to assist those who are priced out of coverage on the traditional market.

A great discussion of high-risk pools and their impact on consumers is found here.

 

The April 24th MacArthur Amendment:
Prior to the ACA, insurance companies could refuse to provide coverage to individuals with pre-existing conditions, impose lengthy waiting periods before coverage started, or exclude coverage for a pre-existing condition.  In addition, insurers were free to charge those individuals significantly more for health coverage than individuals without pre-existing conditions.  In one study from Kaiser Family Foundation, researchers estimate that about  27% of Americans under age 65 have health conditions that would bar them from coverage in the individual market if pre-ACA conditions applied.

The ACA changed the rules on pre-existing conditions for plans beginning in 2014 or later.  Insurers can no longer refuse coverage to individuals with pre-existing conditions, nor can they charge more to an individual simply because of a pre-existing condition.  This is one of the most popular provisions of the ACA, with a 69% approval rating.

One way the ACA ensures that individuals are not charged more based on pre-existing health status is by requiring “community ratings.”  According to the Kaiser Family Foundation, community ratings refer to “a method of setting premiums so that risk is spread evenly across the community, with all individuals paying the same rate regardless of health status and other factors such as age, gender, and lifestyle characteristics.”  Thus, under the ACA, an insurer cannot charge a person more based on their health status.

The MacArthur Amendment would allow states to seek a waiver that would exempt insurers in those states from the community rating requirement.  In waiver states,  insurers could factor in an applicant’s health status when setting premiums if that person had a 63 day break in insurance coverage during the preceding 12 months.  According to Professor Timothy Jost of Washington and Lee University School of Law, this type of health status underwriting allows for insurers to charge “a higher (possibly much, unaffordably, higher) premium to people with pre-existing conditions.”  So while the MacArthur Amendment states that companies may not deny coverage to individuals with pre-existing conditions, insurers could easily price such individuals out of any type of coverage.  Many adults between ages 50-64 have pre-existing conditions and would likely be priced out of coverage in states that receive a waiver.

A state would only be allowed to opt out of the community ratings requirement if it demonstrated that it was operating a program under the Patient and State Stability Fund (“PSSF”).  One way it could demonstrate compliance would be to set up a high-risk pool for consumers who would be priced out of the marketplace due to their health status.  High-risk pools are not new.  Prior to the ACA, approximately 35 states had high-risk pools as a source of coverage for individuals who did not have group health insurance.  According to the Kaiser Family Foundation, nearly all of these pools excluded coverage for pre-existing conditions for 6-12 months and imposed lifetime dollar limits on benefits.  Most of these plans also had high deductibles.  In addition, many of these plans had unaffordable premiums, with some premiums 1.5 to 2 times higher than those in the individual market.

 

 

The May 3rd Upton Amendment:
When Republicans introduced the MacArthur Amendment, some critics argued that the high-risk pools were underfunded and would not be able to cover the amount of need.  In a last minute corrective amendment called the Upton Amendment, Republicans proposed to create a new fund of $8 billion that would be available from 2018 to 2023.  This money would go to states that permit insurers to charge higher premiums to individuals with pre-existing conditions.

Although this fund is intended to fund high risk pools, Timothy Jost writing for the Health Affairs Blog suggests that states might choose to use the funds to subsidize premiums and other other out of pocket costs for consumers instead.  Aviva Aron-Dine, a senior fellow and senior counselor at the nonpartisan Center on Budget and Policy Priorities, has commented that the fund of $8 billion is not enough money to ensure coverage to consumers with pre-existing conditions.  The Center on Budget and Policy Priorities reports that this “would leave these pools underfunded by at least $200 billion.”  For further analysis of the last minute amendment, read the report from the Center on Budget and Policy Priorities or the Center for American Progress.

 

 


 

E. Essential Health Benefits for Marketplace Plans: Added with the April 24 MacArthur Amendment

Under the ACA, all insurance plans offered on the exchanges and all Medicaid plans in expansion states must cover ten categories of EHBs.  The ACA defines ten broad categories of services as EHBs:

1. Ambulatory patient services;
2. Emergency services;
3. Hospitalization;
4. Maternity and newborn care;
5. Mental health and substance abuse disorder services, including behavioral health treatment;
6. Prescription drugs;
7. Rehabilitative and habilitative services and devices;
8. Laboratory services;
9. Preventative and wellness services and chronic disease management; and
10. Pediatric services, including oral and vision care.

The ACA required these EHBs in order to prevent insurers from selling policies that had minimal or nonexistent coverage.  According to the Center on Budget and Policy Priorities, prior to the ACA, “62 percent of individual market consumers had plans that didn’t cover maternity care, 18 percent had plans that didn’t cover mental health treatment, 34 percent had plans that didn’t cover substance abuse treatment, and 9 percent had plans that didn’t cover prescription drugs.”

The MacArthur Amendment would allow states to apply for a waiver of the ACA’s EHBs requirement.  Beginning in 2020, states could define the EHBs that insurance companies must offer in that state, just as they could pre-ACA.  In some states, this may mean that insurers could offer policies with significantly less coverage.  As the New York Times has pointed out, this may result in meaningless coverage — a person with a pre-existing condition might be able to purchase insurance, but the insurance may not cover their condition.

Residents of states that choose to redefine EHBs may also end up losing other protections as well.  Under the ACA, insurers can no longer impose lifetime or annual limits on any benefits that qualify as EHBs.  However, because the ACA only bans lifetime limits on “essential health benefits,” if a policy does not deign a particular benefit as essential, a lifetime limit would apply to it.

This could ultimately affect employer-based plans as well as individual marketplace plans because of the way the ACA set up the EHB requirement. Large group employer plans would not have to comply with the ACA’s EHB requirements except when covering catastrophic costs.  Rather, employers offering large plans (which often cover employees in multiple states) can choose to apply whichever state’s EHB requirements they like.  If a large employer wants to avoid covering maternity benefits, it could simply choose to adopt the EHB definitions in a state that does not include maternity benefits as an essential health benefit.  The Brookings Institution, a nonprofit organization that provides high level analysis of public policies, has a detailed explanation of how allowing states to redefine EHBs will affect both individual and the employer based insurance.

 

 



III. AHCA and Employer-Based Insurance

The AHCA completely removes the ACA mandate that required employers with 50 or more full time employees to provide health insurance for all employees.  The tax penalty for large employers that do not provide health benefits would be reduced to zero and retroactively enforced to January 1, 2016.  Of course, employers could continue to offer health insurance if they chose to do so.

Under the ACA, the federal government must provide tax credits for 2 years for certain low-wage small employers (up to 25 employees).  The AHCA would repeal these tax credits, effective 2020.

The ACA also contains a variety of insurer reporting requirements.  These include withholding and reporting an additional 0.9% on employee wages or compensation that exceed $200,000, reporting the value of the health insurance coverage provided to each employee, and reporting whether and what health insurance an employer offered to its employees.  The AHCA legislation maintains these insurer reporting requirements.

 



IV. Medicaid: What Happens Next

A. Medicaid Expansion

The ACA expanded Medicaid eligibility to all citizens earning less than 133% of the poverty level. In 2016, this meant that a family of four with a household income of about $32,000 was eligible for Medicaid coverage.

Medicaid expansion allowed approximately 10.8 million Americans, who were not previously eligible for Medicaid, to obtain coverage.  Although the ACA originally mandated that all states expand Medicaid, the Supreme Court determined in NFIB v. Sebelius (2012) that the federal government could incentivize, but not require states to expand their Medicaid programs.  As a result, 19 states chose not to expand their Medicaid program.  

The AHCA would effectively reverse the Medicaid expansion by ending federal funding for new Medicaid enrollees who do not meet the pre-ACA eligibility requirements.  Pre-ACA eligibility requirements only included certain categories of low income individuals like pregnant women and children. While states may choose to retain ACA eligibility levels, they would have to do so entirely at their own expense.  This may be cost prohibitive because the federal government paid 90% of the Medicaid costs for the expansion population under the ACA.

 



B.  Medicaid Funding

Beginning in 2020, the AHCA would restructure Medicaid in ways that would have a significant impact on many programs.

Currently, the states and federal government share the cost of Medicaid, meaning that the federal government matches state spending on qualified Medicaid expenditures dollar for dollar.  Under this open-ended funding scheme, the amount the state receives from the federal government is determined by actual costs rather than projected ones.  For instance, if there is an epidemic or natural disaster that increases health needs, state Medicaid programs can respond and federal payments automatically adjust to match that change.  An excellent explanation of how Medicaid is currently funded can be found here.

Under the AHCA, the federal government will no longer match state funding for Medicaid programs.  Rather, the AHCA establishes a per capita cap model (differentiated somewhat from a “block grant”) that limits federal spending to a set amount per state Medicaid enrollee without consideration of the state’s actual needs or costs.

Annual federal contributions would depend upon a state’s actual costs for 2016.  The federal government would increase its contributions based on the medical care component of the consumer price index and the share of Medicaid enrollees in different beneficiary categories (such as disabled, aged, or children).  Starting in 2020, any state with spending higher than their specified targeted aggregate amount would receive reductions to their Medicaid funding for the following fiscal year.  

Transitioning to a per capita cap funding mechanism would result in states having to bear a higher burden of the cost of providing Medicaid to its citizens. As a result, states maybe forced to cut eligibility, benefits, and reimbursement to providers.

For an excellent summary of block grants and per capita caps, view the Kaiser Family Foundation report here.  Additionally, the Brookings Institution has provided an early analysis of the problem state Medicaid programs will be facing under this new funding scheme.

 

The March 20th Manager’s Amendment:

The Manager’s Amendment would end the ACA’s mandatory expansion of Medicaid coverage for childless, non-disabled, non-pregnant adults up to 133% of the poverty level. In addition, after 2017, states would no longer receive enhanced federal matching funds if they wish to cover adults above 133% of the poverty level. They would continue to receive the normal federal match if choosing to expand above 133% of the poverty level after 2017.

Individuals enrolled in the Medicaid expansion prior to 2020 would receive “grandfathered” status. Thus, states would receive the enhanced matching rate under current law (90% in 2020) for grandfathered enrollees as long as such individuals remain eligible and enrolled in the program. In other words, as long as a state has expanded Medicaid by March 1, 2017, and an enrollee got coverage under the expansion by 2020, the state would retain the enhanced match rate after 2019.

The amendment also makes a technical change that would allow the AHCA to freeze the ACA-enhanced federal funding that was provided to certain states that covered low-income adults prior to the ACA at the regular matching level.

One of the biggest changes that the Manager’s Amendment would bring is that a state could choose a block grant rather than a per capita cap to fund its adult and children populations. However, states would not have the option of funding elderly and disabled populations with block grants.

States choosing a block grant would be given considerable flexibility in determining which populations they would cover (although they would have to cover certain low-income women and children) and the services they would provide to them.

The amount of block grant funding would be calculated by the following formula:


The funding would increase by the growth in the consumer price index but would not adjust for changes in population. Unused funds would rollover and remain available for expenditure so long as a state has a block grant.

States under a block grant scheme would need to provide medical assistance for hospital care; surgical care and treatment; medical care and treatment; obstetrical and prenatal care and treatment; prescribed drugs, medicines and prosthetics; other medical supplies and services; and health care for children under 18 years of age. A state could choose to provide healthcare to either non-expansion adults and children, or just non-expansion adults.

A plan submitted by a state to administer a block grant program would be deemed approved unless the Department of Health and Human Services (“HHS”) concludes within 30 days that the plan was incomplete or actuarially unsound.

 

 


C. Essential Health Benefits For Medicaid Enrollees

One of the goals of the ACA was to make sure that anyone who purchased health insurance was guaranteed coverage for some basic healthcare needs under their policy. Thus, the ACA requires all individual and small group plans to cover ten essential health benefits (“EHBs”).

These essential health benefits include ambulatory patient services (outpatient care), emergency services, hospitalization, maternity and newborn care, mental health services and addiction treatment, prescription drugs, rehabilitative services and devices, laboratory services, preventive services (including wellness services and chronic disease treatment), and pediatric services.

Requiring coverage for certain EHBs ensures that individual and small group plans offered a basic set of essential health services, some of which were frequently left out of these types of plans (such as maternity care).

 

The April 24th MacArthur Amendment:

As mentioned in the Individual Market section above, the MacArthur Amendment would allow states to apply for a waiver of the ACA’s EHBs requirement.  Beginning in 2020, states could define the EHBs that insurance companies must offer in that state, just as they could pre-ACA.  In some states, this may mean that insurers could offer policies with significantly less coverage.  As the New York Times has pointed out, this may result in meaningless coverage — a person with a pre-existing condition might be able to purchase insurance, but the insurance may not cover their condition.

Residents of states that choose to redefine EHBs may also end up losing other protections as well.  Under the ACA, insurers can no longer impose lifetime or annual limits on any benefits that qualify as EHBs.  However, because the ACA only bans lifetime limits on “essential health benefits,” if a policy does not deign a particular benefit as essential, a lifetime limit would apply to it.

This could ultimately affect employer-based plans as well as individual marketplace plans because of the way the ACA set up the EHB requirement. Large group employer plans would not have to comply with the ACA’s EHB requirements except when covering catastrophic costs.  Rather, employers offering large plans (which often cover employees in multiple states) can choose to apply whichever state’s EHB requirements they like.  If a large employer wants to avoid covering maternity benefits, it could simply choose to adopt the EHB definitions in a state that does not include maternity benefits as an essential health benefit.  The Brookings Institution, a nonprofit organization that provides high level analysis of public policies, has a detailed explanation of how allowing states to redefine EHBs will affect both individual and the employer based insurance.

 

 

For more information on EHBs, visit the Health Affairs Blog.


D. Work Requirements for Medicaid: Added with the March 20th Manager’s Amendment

The Manager’s Amendment would also allow states to institute a work requirement on non-disabled, non-elderly, non-pregnant adults as a condition of Medicaid coverage. This requirement is modeled after similar requirements in the Temporary Assistance for Needy Families (“TANF”) program. The amendment defines a countable work requirement as including:

– unsubsidized employment
– subsidized private or public sector employment;
– on-the-job training;
– job search or readiness assistance;
– community service programs;
– vocational educational training;
– satisfactory attendance at secondary school or in a course of study leading to a certificate of general equivalence (as long as the recipient has not already completed secondary school or received a certificate);
– education directly related to employment (if the recipient has not received a high school diploma or GED); or
– providing childcare to an individual participating in a community service program.

Note that college and graduate studies do not appear on this list.

A state would not be allowed to impose a work requirement as a condition for Medicaid to the following:

– pregnant women;
– children under the age of 19;
– an individual who is the only parent/caretaker of a child under the age of 6
– an individual who is the only parent/caretaker of a child with a disability; and
– an individual under the age of 20 who is married or is the head of the household and maintains satisfactory attendance at school or participates in education directly related to employment.

The bill would grant broad flexibility to implement the requirement as they see fit.

To ensure that states have the tools to implement the work requirement, the federal government would provide a 5% administrative FMAP bump to states who choose to implement a work requirement.

For current statistics on employment rates for Medicaid recipients as under the ACA, read the Henry J. Kaiser Family Foundation’s issue brief on employment status of Medicaid enrollees.

 

 


 

 

V. Miscellaneous Taxes

The AHCA would repeal several ACA tax provisions, including the:

Cadillac tax;
tanning tax;
branded prescription drug tax;
medical device excise tax;
health insurance tax;
$500,000 limit on business expense deductibility for compensation to insurance executives;
Medicare tax imposed on unearned income on taxpayers earning more than $200,000 ($250,000 for joint filers);
– repeal of the ACA’s Medicare 0.9% tax surcharge on taxpayers with incomes exceeding $200,000 ($250,000 for joint filers);
prohibition against paying for over-the-counter drugs with tax-subsidized funds from Health Savings Accounts (HSAs), Archer MSAs, or flexible spending or health reimbursement arrangements;
ACA’s increase in the penalty for the use of HSA and Archer MSA funds for non-medical purposes (reducing the penalty from 20 to 10 percent for HSAs and 20 to 15 percent for MSAs);
$2500 limit on contributions to flexible spending accounts; and
– requirement that employers reduce their deduction for expenses allowable for retiree drug costs without reducing the deduction by the amount of retiree drug subsidy.

 

The March 20th Manager’s Amendment:

The Manager’s Amendment would move the repeal of the Cadillac tax from 2025 to 2026. According to the Health Affairs blog, this was delayed “to satisfy Senate prohibitions on reconciliation provisions that increase out-year deficits.” All other repeals would be accelerated from 2018 to the beginning of 2017. The tanning tax repeal would take effect June 30, 2017.

 

 


VI. State Waivers for Some ACA Provisions: Added with the April 24th MacArthur Amendment

Under the MacArthur Amendment, states can apply to opt out of many provisions of the ACA.  In states with these waivers, insurers could charge more based on age (including over the pre-ACA 5:1 ratio), change or eliminate the ACA’s essential health benefits requirements, and charge individuals with pre-existing conditions higher premiums.

Each state that seeks a waiver must apply to the Department of Health and Human Services (“HHS”).  In order to obtain a waiver, the state must describe in its application how the waiver will do any one of the following:

  • Reduce average premiums for health insurance coverage in the state;
  • Increase enrollment in health insurance coverage in the state;
  • Stabilize the market for health insurance coverage in the state;
  • Stabilize premiums for individuals with pre-existing conditions; or
  • Increase the choice of health plans in the state

If the state is seeking a waiver of the age rating limit, it must specify the higher ratio that it plans to use.  Likewise, if it is seeking a waiver of EHB requirements, the state must specify how it will define EHB.

If a state is seeking a waiver of the community rating requirement (that would allow insurers to charge premiums based on health status), then the state must demonstrate that it can operate a program under the PSSF.  This requires states to show that they can:

— Provide financial aid to high-risk individuals or to provide cost-sharing subsidies.
— Provide incentives to insurers to enter into reinsurance programs for the individual market; or
— Participate in the AHCA’s federal invisible high risk sharing program, which also reinsures high cost cases.

The MacArthur Amendment also incorporates rules of construction that state that nothing in the AHCA may be construed as “permitting health insurance issuers to discriminate in rates for health insurance by gender or limit access to health coverage for individuals with [pre-existing] conditions.”  However, as mentioned previously, the very language of the bill allows for discrimination based on pre-existing conditions.

The Secretary of the HHS would determine whether the state has met its obligations for the waiver.  Under the Amendment, the waiver is granted by default; the Secretary must notify the state within 60 days if it did not adhere to the requirements for the waiver.  Essentially, any state could receive a waiver with minimal (if any) interference.

These waivers may be in effect for up to 10 years.  However, if any state with an approved waiver ends its risk-sharing program, the waiver becomes void.

 

 


VII. The Patient and State Stability Fund

Congress anticipated that the AHCA would cause higher potential losses for insurance companies and increase premiums for consumers.  In response to this likelihood, the AHCA creates a program designed to lower patient costs and stabilize state markets called the Patient and State Stability Fund (“PSSF”).  The PSSF would allot $15 billion for states from 2018 to 2019, and $10 billion annually from 2020 through 2026 for a total of $100 billion.  To qualify for these funds, a state must contribute matching funds starting at 7% of federal funds provided in 2020 and  gradually increasing to 50% by 2026.  If every state elected to participate and paid the required matching funds, then the state contributions would amount to an additional $20 billion for PSSF programs.  The PSSF would then have a total of $120 billion.

States could use the PSSF money for a variety of purposes, including to reduce premiums for the individual market.  This could be done by allowing states to reimburse insurers for some of the costs of enrollees with claims above a certain state-set threshold.  States could also set up risk adjustment, reinsurance, and risk corridor programs, which redistribute money for insurance companies that take on a higher percentage of sick patients.  Profitable insurers and/or the government pay funds into the program, and plans with higher medical claims receive the money.  States could also create high-risk pools to manage the costs of the most expensive patients.

In states without written plans on how to spend PSSF funds, the federal government would pay insurers in the individual market who have enrollees with relatively high claims.  According to the CBO’s analysis of the AHCA, most states would likely rely on the federal default program for at least one year, as they would likely not have enough time to set up their own programs before insurers set premiums for 2018.

 

April 6th Amendment: The Federal Invisible Risk Sharing Program

On April 6, 2017, House Republicans introduced and incorporated a new amendment to the AHCA that creates the Federal Invisible Risk Sharing Program under the PSSF.  The amendment earmarks $15 billion for this “invisible risk pool fund” beginning in 2018 through 2026.  The Centers for Medicare and Medicaid Services (“CMS”) would develop the program (including creating enrollment eligibility requirements) within 60 days after the enactment of the AHCA, though states could take over the program beginning in 2020.

The Robert Wood Johnson Foundation (“RWJF”) and the Urban Institute note in their analysis of the AHCA’s high-risk pools that this additional $15 billion is not for traditional high-risk pools.  Rather, this money would establish a reinsurance program that would allow insurers to shift some of the higher costs of insuring high-risk individuals in the individual market to the federal government.  Unlike the rest of the PSSF funding, the Invisible Risk Sharing Program would not require state matching funding.  Spread over nine years, federal funding would cover a portion of claims (particularly the higher cost claims of high-risk individuals) in the individual market.  A high-risk individual would be allowed into the individual market, and the insurer who would cover that person could charge a portion of those higher expenses back to the federal government.

According to the Timothy Jost, the Invisible Risk Sharing Program is modeled on similar programs that were implemented in Maine in 2011 and in Alaska in 2016.  Those programs have been successful in reducing premiums on those markets; however, experts contend that $15 billion over nine years may not be enough to replicate that success on a nationwide basis.  Still, this is only assuming that states do not contribute their own funds to the program, which some experts say is inappropriate to assume.

An additional consideration is that state waivers introduced under the MacArthur Amendment would allow states to permit insurers to charge more based on age, change or eliminate the ACA’s essential health benefits requirements, and charge individuals with pre-existing conditions higher premiums.  This would likely increase premiums and reduce benefits for people with health problems.  Timothy Jost, writing for the Health Affairs Blog, contends that these changes “would significantly undermine the benefits the April 6 amendment offers for improving access to health insurance coverage.”

For more information and analysis of the PSSF and the Invisible Risk Sharing Program, visit the Health Affairs Blog (and its follow-up articles here and here), Avalere’s analysis of the PSSF, the Robert Wood Johnson Foundation (“RWJF”) and the Urban Institute’s analysis of the AHCA’s high-risk pools, and Milliman’s white paper.

 

 

May 3rd Upton Amendment

The Upton Amendment allots an additional $8 billion over five years to those states that permit insurers to charge higher premiums to individuals with pre-existing conditions.

 

 



VIII. Economic Analysis of the Bill

On May 24, 2017, the nonpartisan Congressional Budget Office (“CBO”) released its report on the American Health Care Act of 2017 (“AHCA”) as passed by the House of Representatives on May 4, 2017.  This report is the third such analysis of the AHCA.  Previous CBO analyses of earlier versions of the bill were released on March 13, 2017 and on March 23, 2017.

According to this latest analysis, the AHCA is projected to reduce the cumulative federal deficit by $119 billion between 2017 and 2026.  The CBO estimates that significantly fewer people would be insured under the current version of the AHCA; 23 million more individuals would be uninsured by 2026 than would be under current law.  Furthermore, although the AHCA would reduce the deficit, it would do so by passing many of the costs onto consumers.

You can view our analysis of the CBO report here.  The full CBO scoring is available on the agency’s website.

The Commonwealth Fund has also analyzed the economic impact of a complete repeal and previous proposed bills in a report.  Additionally, David Cutler and several other experts in the field have done a preliminary economic analysis of the tax credit scheme, published here.