Tag Archives: Employer mandate

Summary of House Republicans’ Latest Obamacare “Replace” Legislation

UPDATE:        On March 13, the Congressional Budget Office (CBO) released its score of the bill. CBO found that the bill would:

  • Reduce deficits by about $337 billion over ten years—$323 billion in on-budget savings, along with $13 billion in off-budget (i.e., Social Security) savings.
  • Increase the number of uninsured by 14 million in 2018, rising to a total of 24 million by 2026.
  • Raise individual market premiums by 15-20 percent in 2018 and 2019, but then lower premiums in years following 2020, such that in 2026, premiums would be about 10 percent lower than under current law.

Among CBO’s major conclusions regarding provisions in the bill:

Individual Market Changes, 2017-19:             CBO believes that eliminating the mandate penalties will effectively increase insurance premiums; however, the presence of subsidies will still induce “a significant number of relatively healthy people” to purchase coverage. The budget office believes that elimination of the mandate will increase the number of uninsured by roughly 4 million in 2017. In 2018, CBO believes the number of uninsured would increase by 14 million—6 million from the individual market, 5 million from Medicaid, and 2 million from employer coverage. “In 2019, the number of uninsured would grow to 16 million people because of further reductions in Medicaid and non-group coverage.” CBO believes most of these coverage losses would be due to repealing the individual mandate—as a result of individuals who stop buying coverage with repeal of the mandate penalties, or those deterred by expected premium spikes.

With respect to premiums, CBO believes that “average premiums for single policy-holders in the non-group market would be 15 percent to 20 percent higher than under current law, mainly because of the elimination of the individual mandate penalties.” Eliminating the mandate penalties would increase adverse selection (i.e., a disproportionately older and sicker enrollee population), mitigated somewhat by potential reinsurance payments from the State Stability Fund.

CBO believes that the availability of Obamacare premium subsidies (but NOT cost-sharing subsidies) to individuals purchasing coverage off of Exchanges in 2018 and 2019 will lead to about 2 million individuals taking the subsidies for off-Exchange coverage. Likewise, CBO believes that altering the subsidy regime for 2019 only—to increase subsidies for younger enrollees, while decreasing them for older enrollees—will increase enrollment by about one million, “the net result of higher enrollment among younger people and lower enrollment among older people.”

With respect to other market changes during the transition period, CBO expects that the State Stability Fund will operate through the Department of Health and Human Services (as opposed to the states) before 2020, as states will not have adequate time to set up their own programs for 2018 and 2019. CBO also notes that the “continuous coverage” provision—i.e., a 30 percent surcharge for those who lack coverage for more than 63 days—will induce about 1 million individuals to purchase coverage in 2018, but will deter about 2 million individuals from purchasing coverage in 2019 and future years.

CBO also notes that “the people deterred from purchasing coverage [by the surcharge] would tend to be healthier than those who would not be deterred and would be willing to pay the surcharge”—raising the question of whether or not this “continuous coverage” provision would exacerbate, rather than alleviate, adverse selection in insurance markets.

The expansion of age rating bands—from 3-to-1 under current law to 5-to-1 in the new bill—would increase enrollment marginally, by less than 500,000 in 2019, “the net result of higher enrollment among younger people and lower enrollment among older people.”

While CBO does not believe a “death spiral” would emerge in most sections of the country, it does note that “significant changes in non-group subsidies and market rules would occur each year for the first three years following enactment, which might cause uncertainty for insurers in setting premiums.” CBO believes that the health status of enrollees would worsen in 2018, due to the elimination of the individual mandate penalties. However, in 2019 CBO notes that two changes for that year—expansion of the age rating bands, as well as a one-year change to the Obamacare subsidies—may attract healthier enrollees, but “it might be difficult for insurers to set premiums for 2019 using their prior experience in the market.”

Individual Market Changes, 2020-2026: In 2020, CBO believes that roughly 9 million fewer individuals would purchase coverage on the individual market than under current law—a number that would fall to 2 million in 2026. Employer-based coverage would also decline, by a net of roughly 2 million in 2020, rising to 7 million by 2026, because elimination of the individual mandate penalties will discourage individuals from taking up employer-sponsored coverage. “In addition, CBO and JCT expect that, over time, fewer employers would offer health insurance to their workers.” Overall, the number of uninsured would increase to 48 million by 2020, and 52 million by 2026, with the increase “disproportionately larger among older people with lower income.”

With respect to premiums in years 2020 and following, CBO believes that “the increase in average premiums from repealing the individual mandate penalties would be more than offset by the combination of three main factors:” 1) a younger and healthier mix of enrollees than under current law; 2) elimination of actuarial value requirements, therefore lowering premiums; and 3) reinsurance payments from the State Stability Fund. CBO believes that “by 2025, average premiums for single policy-holders in the non-group market under the legislation would be roughly 10 percent lower than the estimates under current law.” Some conservatives may note that in 2009, CBO analyzed Obamacare as increasing premiums by 10-13 percent relative to prior law—meaning that under the best possible assumptions, the bill might only begin to undo one decade from now the harmful premium increases created by Obamacare.

CBO also notes that the overall reduction in premiums would mask significant changes by age, raising premiums for older enrollees while lowering them for younger enrollees. Specifically, “premiums in the non-group market would be 20 percent to 25 percent lower for a 21-year-old and 8 percent to 10 percent lower for a 40-year-old—but 20 percent to 25 percent higher for a 64-year-old.”

CBO notes that, while elimination of the actuarial value requirements would theoretically allow health insurance plans to reduce coverage below 60 percent of actuarial value (i.e., percentage of expected health costs covered by insurance), retention of Obamacare’s essential health benefits requirements would “significantly limit the ability of insurers to design plans with an actuarial value much below 60 percent.”

However, CBO does believe that the insurance market changes would lower plans’ average actuarial value overall, while increasing out-of-pocket costs. “CBO and JCT [also] expect that, under the legislation, plans would be harder to compare, making shopping for a plan on the basis of price more difficult.”

The transition to a new subsidy regime in 2020 would change market composition appreciably. Specifically, CBO believes that “fewer lower-income people would obtain coverage through the non-group market under the legislation than under current law,” and that because “the tax credits under the legislation would tend to be larger than current law premium tax credits for many people with higher income,” the new subsidy regime “would tend to increase enrollment in the non-group market among higher-income people.”

In general, changes in the age-rating in the individual market, coupled with changes in the subsidy regime, lead CBO to conclude that “a larger share of enrollees in the non-group market would be younger people and a smaller share would be older people.” Overall spending on subsidies would be “significantly smaller under the legislation than under current law,” due to both smaller take-up of the subsidies and smaller per-beneficiary subsidies. CBO believes that subsidies in 2020 will equal about 60 percent of average premium subsidies under current law, and will equal about 50 percent of current law subsidies in 2026.

According to CBO, the State Stability Fund grants “would exert substantial downward pressure on premiums in the non-group market in 2020 and later years and would help encourage participation in the market by insurers.” However, CBO did note that effects may be determined by whether states elect to participate in the grant programs, and whether states’ activities directly affect the individual market for health insurance.

CBO believes that the bill would encourage employers to drop employer-sponsored health coverage—both due to the elimination of the employer mandate penalties, and the broader availability of subsidies to individuals at higher income levels than Obamacare. In part as a result, CBO scores a total of $70 billion in savings due to interaction effects—that is, individuals’ compensation moving from pre-tax health insurance to after-tax wages as employers drop coverage. However, CBO also believes that the lower level of subsidies compared to Obamacare—which would grow more slowly over time—coupled with less rich health coverage offered on the individual market would mitigate employers’ incentives to drop coverage.

In 2020, CBO believes the State Stability Fund grants “would contribute substantially to the stability of the non-group market,” and that “the non-group market is expected to be smaller in 2020 than in 2019 but then is expected to grow somewhat over the 2020-2026 period.”

Medicaid Changes:  Overall, CBO believes that about 5 million fewer individuals with enroll in Medicaid in 2018 (due largely to elimination of the individual mandate penalties), 9 million fewer individuals in 2020, and 14 million in 2026.

If the bill passes, CBO believes that coming changes taking effect in 2020 mean that “no additional states will expand eligibility, thereby reducing both enrollment in and spending on Medicaid,” because CBO’s current-law baselines assume that additional states will expand their programs by 2026. This change would lead to a reduction in estimated enrollment of approximately 5 million by 2026.

CBO believes that “some states that have already expanded their Medicaid programs would no longer offer that coverage, reducing the share of the newly eligible population residing in a state with expanded eligibility to about 30 percent in 2026.” (CBO believes roughly half of the Medicaid eligible population currently lives in one of the 31 states that have expanded eligibility—and that, absent changes, this percentage will increase to 80 percent in 2026.)

CBO believes that, once the “freeze” on the enhanced Medicaid match takes effect at the beginning of 2020, “about one-third of those enrolled as of December 31, 2019 would have maintained continuous eligibility two years later,” remaining eligible for the enhanced federal match. By the end of 2024 (i.e., five years after the “freeze” takes effect), the enhanced federal match would apply to under 5 percent of newly eligible enrollees.

With respect to the per capita caps on Medicaid, CBO believes that the CPI-medical inflation measure in the House bill would reduce spending slightly compared to CBO’s baseline projections: CPI-medical would increase at a 3.7 percent rate, compared to a 4.4 percent increase in Medicaid spending under current law. CBO believes states would adopt a mix of approaches to reflect the lower spending growth: increasing state spending; reducing payments to health care providers and plans; eliminating optional services; restricting eligibility; or improving program efficiency.

 

Where available, scores of specific provisions are integrated into the earlier summary of the legislation, which follows below.

Legislative Summary

On March 6, House leadership released a revised draft of their Obamacare “repeal-and-replace” bill—the Energy and Commerce title is here, and the Ways and Means title is here.

A detailed summary of the bill is below, along with possible conservative concerns where applicable. Changes with the original leaked discussion draft (dated February 10) are noted where applicable. Where provisions in the bill were also included in the reconciliation bill passed by Congress early in 2016 (H.R. 3762, text available here), differences between the two versions, if any, are noted.

Of particular note: It is unclear whether this legislative language has been vetted with the Senate Parliamentarian. When the Senate considers budget reconciliation legislation—as it plans to do with the Obamacare “repeal-and-replace” bill—the Parliamentarian plays a key role in determining whether provisions are budgetary in nature and can be included in the bill (which can pass with a 51-vote simple majority), and which provisions are not budgetary in nature and must be considered separately (i.e., require 60 votes to pass).

In the absence of a fully drafted bill and complete CBO score, it is entirely possible the Parliamentarian has not vetted this draft—which means provisions could change substantially, or even get stricken from the bill, due to procedural concerns as the process moves forward.

Title I—Energy and Commerce

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances. This language is substantially similar to Section 101 of the 2015/2016 reconciliation bill. Saves $8.8 billion over ten years.

Community Health Centers:             Increases funding for community health centers by $422 million for Fiscal Year 2018—money intended to offset reductions in spending on Planned Parenthood affiliates (see “Federal Payments to States” below). The spending amount exceeds the $285 million provided in the leaked discussion draft. Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill. Costs $422 million over ten years.

Federal Payments to States:             Imposes a one-year ban on federal funds flowing to certain entities. This provision would have the effect of preventing Medicaid funding of certain medical providers, including Planned Parenthood, so long as Planned Parenthood provides for abortions (except in cases of rape, incest, or to save the life of the mother). This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill. CBO believes that, after taking into account increased births (and Medicaid spending) due to lack of access to contraceptive care, this provision will save Medicaid a net of $156 million over ten years.

Medicaid:       The discussion draft varies significantly from the repeal of Medicaid expansion included in Section 207 of the 2015/2016 reconciliation bill. The 2015/2016 reconciliation bill repealed both elements of the Medicaid expansion—the change in eligibility allowing able-bodied adults to join the program, and the enhanced (90-100%) federal match that states received for covering them.

By contrast, the House discussion draft retains eligibility for the able-bodied adult population—making this population optional for states to cover, rather than mandatory. (The Supreme Court’s 2012 ruling in NFIB v. Sebelius made Medicaid expansion optional for states.) Some conservatives may be concerned that this change represents a marked weakening of the 2015/2016 reconciliation bill language, one that will entrench a massive expansion of Medicaid beyond its original focus on the most vulnerable in society.

With respect to the Medicaid match rate, the discussion draft reduces the enhanced federal match to states, effective December 31, 2019. The bill provides that states receiving the enhanced match for individuals enrolled by December 31, 2019 will continue to receive that enhanced federal match, provided they do not have a break in Medicaid coverage of longer than one month. (In the case of states that already expanded Medicaid to able-bodied adults prior to Obamacare’s enactment, the bill provides for an 80 percent federal match for 2017 and all subsequent years.)

Some conservatives may be concerned that—rather than representing a true “freeze” that was advertised, one that would take effect immediately upon enactment—the language in this bill would give states a strong incentive to sign up many more individuals for Medicaid over the next three years, so they can qualify for the higher federal match as long as those individuals remain in the program.

The bill also repeals the requirement that Medicaid “benchmark” plans comply with Obamacare’s essential health benefits, also effective December 31, 2019.

The repeal of the Medicaid expansion, when coupled with the per-capita caps, will reduce Medicaid spending by a total of $880 billion over ten years. CBO did not provide granularity on the savings associated with each specific provision.

Finally, the bill repeals the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services. This provision saves $12 billion over ten years.

DSH Payments:         Repeals the reduction in Medicaid Disproportionate Share Hospital (DSH) payments. Non-expansion states would see their DSH payments restored immediately, whereas states that expanded Medicaid to the able-bodied under Obamacare would see their DSH payments restored in 2019. This language varies from both Section 208 of the 2015/2016 reconciliation bill and the leaked discussion draft. Spends $31.2 billion over ten years. In addition, increases in the number of uninsured will have the effect of increasing Medicare DSH payments, raising spending by an additional $43 billion over ten years.

Medicaid Program Integrity:             Beginning January 1, 2020, requires states to consider lottery winnings and other lump sum distributions as income for purposes of determining Medicaid eligibility. Effective October 2017, restricts retroactive eligibility in Medicaid to the month in which the individual applied for the program; current law requires three months of retroactive eligibility.

Requires, beginning six months after enactment, Medicaid applicants to provide verification of citizenship or immigration status prior to becoming presumptively eligible for benefits during the application process. With respect to eligibility for Medicaid long-term care benefits, reduces states’ ability to increase home equity thresholds that disqualify individuals from benefits; within six months of enactment, the threshold would be reduced to $500,000 in home equity nationwide, adjusted for inflation annually. These provisions were not included in the leaked discussion draft.

Eligibility Re-Determinations:             Requires states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income at least every six months. This provision was not included in the leaked discussion draft. All told, this change, along with the program integrity provisions highlighted above, saves a total of $7.1 billion over ten years.

Non-Expansion State Funding:             Includes $10 billion ($2 billion per year) in funding for Medicaid non-expansion states, for calendar years 2018 through 2022. States can receive a 100 percent federal match (95 percent in 2022), up to their share of the allotment. A non-expansion state’s share of the $2 billion in annual allotments would be determined by its share of individuals below 138% of the federal poverty level (FPL) when compared to non-expansion states. This funding would be excluded from the Medicaid per capita spending caps discussed in greater detail below. This provision was not included in the leaked discussion draft. Costs $8 billion over ten years.

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in Fiscal Year 2019. States that exceed their caps would have their federal match reduced in the following fiscal year.

The cap would include all spending on medical care provided through the Medicaid program, with the exception of DSH payments and Medicare cost-sharing paid for dual eligibles (individuals eligible for both Medicaid and Medicare). The cap would rise by medical CPI plus one percentage point annually.

While the cap would take effect in Fiscal Year 2019, the “base year” for determining cap levels would be Fiscal Year 2016 (which concluded on September 30, 2016), adjusted forward to 2019 levels using medical CPI. The inflation adjustment is lower than the leaked discussion draft, which set the level at medical CPI plus one percent.

Creates five classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; 4) expansion enrollees (i.e., able-bodied adults enrolled under Obamacare); and 5) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services eligible individuals, and certain other partial benefit enrollees from the per capita caps.

Requires the Department of Health and Human Services (HHS) to reduce states’ annual growth rate by one percent for any year in which that state “fails to satisfactorily submit data” regarding its Medicaid program. Permits HHS to adjust cap amounts to reflect data errors, based on an appeal by the state, increasing cap levels by no more than two percent.

For the period including calendar quarters beginning on October 1, 2017 through October 1, 2019, increases the federal Medicaid match for certain state expenditures to improve data recording, including a 100 percent match in some instances.

Some conservatives may note the bill’s creation of a separate category of Obamacare expansion enrollees, and its use of 2016 as the “base year” for the per capita caps, benefit states who expanded Medicaid to able-bodied adults under Obamacare. The most recent actuarial report on Medicaid noted that, while the actuary originally predicted that adults in the expansion population would cost less than existing populations, in reality each newly eligible enrollee cost 13.6% more than existing populations in 2016. Some states have used the 100% federal match for their expansion populations—i.e., “free money from Washington”—to raise provider reimbursement levels.

Some conservatives may therefore be concerned that the draft bill would retain the increased spending on adults in expansion states—extending the inequities caused by states that have used Obamacare’s “free money” to raise Medicaid spending while sending Washington the tab.

The per-capita caps, when coupled with the repeal of the Medicaid expansion, will reduce Medicaid spending by a total of $880 billion over ten years. CBO did not provide granularity on the savings associated with each specific provision.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. However, the bill does not include an appropriation for cost-sharing subsidies for 2017, 2018, or 2019. The House of Representatives filed suit against the Obama Administration (House v. Burwell) alleging the Administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump Administration and the House. Similar language regarding cost-sharing subsidies was included in Section 202(b) of the 2015/2016 reconciliation bill.

On a related note, the bill does NOT include provisions regarding reinsurance, risk corridors, and risk adjustment, all of which were repealed by Section 104 of the 2015/2016 reconciliation bill. While the reinsurance and risk corridor programs technically expired on December 31, 2016, insurers have outstanding claims regarding both programs. Some conservatives may be concerned that failing to repeal these provisions could represent an attempt to bail out health insurance companies.

Patient and State Stability Fund:              Creates a Patient and State Stability Fund, to be administered by the Centers for Medicare and Medicaid Services (CMS), for the years 2018 through 2026. Grants may be used to cover individuals with pre-existing conditions (whether through high-risk pools or another arrangement), stabilizing or reducing premiums, encouraging insurer participation, promoting access, directly paying providers, or subsidizing cost-sharing (i.e., co-payments, deductibles, etc.).

In the leaked discussion draft, the program in question was called the State Innovation Grant program. The new bill changes the program’s name, and includes additional language requiring the CMS Administrator, in the case of a state that does not apply for Fund dollars, to spend the money “for such state,” making “market stabilization payments” to insurers with claims over $50,000, using a specified reinsurance formula. Some conservatives may view this as a federal infringement on state sovereignty—Washington forcibly intervening in state insurance markets—to bail out health insurers.

Provides for $15 billion in funding for each of calendar years 2018 and 2019, followed by $10 billion for each of calendar years 2020 through 2026 ($100 billion total). Requires a short, one-time application from states describing their goals and objectives for use of the funding, which will be deemed approved within 60 days absent good cause.

For 2018 and 2019, funding would be provided to states on the basis of two factors. 85% of the funding would be determined via states’ relative claims costs, based on the most recent medical loss ratio (MLR) data. The remaining 15% of funding would be allocated to states 1) whose uninsured populations increased from 2013 through 2015 or 2) have fewer than three health insurers offering Exchange plans in 2017. This formula is a change from the leaked discussion draft, which determined funding based on average insurance premiums, and guaranteed every state at least a 0.5% share of funding ($75 million).

For 2020 through 2026, CMS would be charged with determining a formula that takes into account 1) states’ incurred claims, 2) the number of uninsured with incomes below poverty, and 3) the number of participating health insurers in each state market. The bill requires stakeholder consultation regarding the formula, which shall “reflect the goals of improving the health insurance risk pool, promoting a more competitive health insurance market, and increasing choice for health care consumers.” The formula language and criteria has been changed compared to the leaked discussion draft.

Requires that states provide a match for their grants in 2020 through 2026—7 percent of their grant in 2020, 14 percent in 2021, 21 percent in 2022, 28 percent in 2023, 35 percent in 2024, 42 percent in 2025, and 50 percent in 2026. For states that decline to apply for grants, requires a 10 percent match in 2020, 20 percent match in 2021, 30 percent match in 2022, 40 percent match in 2023, and 50 percent match in 2024 through 2026. In either case, the bill prohibits federal allocation should a state decline to provide its match.

Some conservatives may note the significant changes in the program when compared to the leaked discussion draft—let alone the program’s initial variation, proposed by House Republicans in their alternative to Obamacare in 2009. These changes have turned the program’s focus increasingly towards “stabilizing markets,” and subsidizing health insurers to incentivize continued participation in insurance markets. Some conservatives therefore may be concerned that this program amounts to a $100 billion bailout fund for insurers—one that could infringe upon state sovereignty.

This program spends a total of $80 billion over ten years, according to CBO.

Continuous Coverage:         Requires insurers, beginning after the 2018 open enrollment period (i.e., open enrollment for 2019, or special enrollment periods during the 2018 plan year), to increase premiums for individuals without continuous health insurance coverage. The premium could increase by 30 percent for individuals who have a coverage gap of more than 63 days during the previous 12 months. Insurers could maintain the 30 percent premium increase for a 12 month period. Requires individuals to show proof of continuous coverage, and requires insurers to provide said proof in the form of certificates. Some conservatives may be concerned that this provision maintains the federal intrusion over insurance markets exacerbated by Obamacare, rather than devolving insurance regulation back to the states.

Essential Health Benefits:              Permits states to develop essential health benefits—which include actuarial value and cost-sharing requirements—for insurance for all years after December 31, 2019.

Age Rating:   Changes the maximum variation in insurance markets from 3-to-1 (i.e., insurers can charge older applicants no more than three times younger applicants) to 5-to-1 effective January 1, 2018, with the option for states to provide for other age rating requirements. Some conservatives may be concerned that, despite the ability for states to opt out, this provision, by setting a default federal standard, maintains the intrusion over insurance markets exacerbated by Obamacare.

Special Enrollment Verification:                Removes language in the leaked discussion draft requiring verification of all special enrollment periods beginning for plan years after January 1, 2018, effectively codifying proposed regulations issued by the Department of Health and Human Services earlier this month.

Transitional Policies:           Removes language in the leaked discussion draft permitting insurers who continued to offer pre-Obamacare health coverage under President Obama’s temporary “If you like your plan, you can keep it” fix to continue to offer those policies in perpetuity in the individual and small group markets outside the Exchanges.

Title II—Ways and Means

Subsidy Recapture:              Eliminates the repayment limit on Obamacare premium subsidies for the 2018 and 2019 plan years. Obamacare’s premium subsidies (which vary based upon income levels) are based on estimated income, which must be reconciled at year’s end during the tax filing season. Households with a major change in income or family status during the year (e.g., raise, promotion, divorce, birth, death) could qualify for significantly greater or smaller subsidies than the estimated subsidies they receive. While current law caps repayment amounts for households with incomes under 400 percent of the federal poverty level (FPL, $98,400 for a family of four in 2017), the bill would eliminate the repayment limits for 2018 and 2019. This provision is similar to Section 201 of the 2015/2016 reconciliation bill. Saves $4.9 billion over ten years.

Modifications to Obamacare Premium Subsidy:         Allows non-compliant and non-Exchange plans to qualify for Obamacare premium subsidies, with the exception of grandfathered health plans (i.e., those purchased prior to Obamacare’s enactment) and plans that cover abortions (although individuals receiving subsidies can purchase separate coverage for abortion). In a change from the leaked discussion draft, individuals with “grandmothered” plans—that is, those purchased after Obamacare’s enactment, but before the law’s major benefit mandates took effect in 2014—also cannot qualify for subsidies.

While individuals off the Exchanges can receive premium subsidies, they cannot receive these subsidies in advance—they would have to claim the subsidy back on their tax returns instead.

Modifies the existing Obamacare subsidy regime beginning in 2018, by including age as an additional factor for determining subsidy amounts. Younger individuals would have to spend a smaller percentage of income on health insurance than under current law, while older individuals would spend a higher percentage of income. For instance, an individual under age 29, making just under 400% FPL, would pay 4.3% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 11.5% of income on health insurance. (Current law limits individuals to paying 9.69% of income on insurance, at all age brackets, for those with income just below 400% FPL.)

Some conservatives may be concerned that 1) these changes would make an already complex subsidy formula even more complicated; 2) could increase costs to taxpayers; and 3) distract from the purported goal of the legislation, which is repealing, not modifying or “fixing,” Obamacare. No independent score of the cost of the modified subsidy regime is available—that is, the CBO score did not provide a granular level of detail regarding these particular provisions in isolation.

Repeal of Tax Credits:         Repeals Obamacare’s premium and small business tax credits, effective January 1, 2020. This language is similar to Sections 202 and 203 of the 2015/2016 reconciliation bill, with one major difference—the House bill provides for a three-year transition period, whereas the reconciliation bill provided a two-year transition period. Repeal of the subsidy regime saves a net of $673 billion (after taking into account the modifications to subsidies outlined above), while repeal of the small business tax credit saves an additional $8 billion.

In addition, CBO estimates an additional $70 billion of “interaction” savings—based largely on assumed reductions in employer-sponsored health coverage, which would see individuals receiving less compensation in the form of pre-tax health insurance and more compensation in the form of after-tax wages.

Abortion Coverage:             Clarifies that firms receiving the small business tax credit may not use that credit to purchase plans that cover abortion (although they can purchase separate plans that cover abortion).

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. This language is similar to Sections 204 and 205 of the 2015/2016 reconciliation bill, except with respect to timing—the House bill zeroes out the penalties beginning with the previous tax year, whereas the reconciliation bill zeroed out penalties beginning with the current tax year. Reduces revenues by $38 billion over ten years in the case of the individual mandate, and $171 billion in the case of the employer mandate.

Repeal of Other Obamacare Taxes:             Repeals all other Obamacare taxes, effective January 1, 2018. Taxes repealed include (along with CBO/Joint Committee on Taxation revenue estimates over ten years):

  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $400 million);
  • Tax on tanning services (lowers revenue by $600 million);
  • Tax on pharmaceuticals (lowers revenue by $24.8 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Net investment tax (lowers revenue by $157.6 billion);
  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2025 (lowers revenue by $48.7 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.5 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $18.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.7 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $34.9 billion);
  • Medicare tax on “high-income” individuals (lowers revenue by $117.3 billion);

These provisions are all substantially similar to Sections 209 through 221 of the 2015/2016 reconciliation bill. However, when compared to the leaked discussion draft, the bill delays repeal of the tax increases by one year, until the end of calendar year 2017. Additionally, the bill does NOT repeal the economic substance tax, which WAS repealed in Section 222 of the 2015/2016 bill, as well as the leaked discussion draft.

Refundable Tax Credit:       Creates a new, age-rated refundable tax credit for the purchase of health insurance. Credits total $2,000 for individuals under age 30, $2,500 for individuals aged 30-39, $3,000 for individuals aged 40-49, $3,500 for individuals aged 50-59, and $4,000 for individuals over age 60, up to a maximum credit of $14,000 per household. The credit would apply for 2020 and subsequent years, and increase every year by general inflation (i.e., CPI) plus one percent. Excess credit amounts can be deposited in individuals’ Health Savings Accounts.

When compared to the leaked discussion draft, the bill would also impose a means-test on the refundable credits. Individuals with modified adjusted gross incomes below $75,000, and families with incomes below $150,000, would qualify for the full credit. The credit would phase out linearly, at a 10 percent rate—every $1,000 of income would cause the subsidy to shrink by $100. Assuming the maximum credit possible ($14,000), the credit would phase out completely at income of $215,000 for an individual, and $290,000 for a family.

The credit may be used for any individual policy sold within a state, or unsubsidized COBRA continuation coverage. The credit may also not be used for grandfathered or “grandmothered” health plans—a change from the leaked discussion draft. The bill also increases penalties on erroneous claims for the credit, from 20 percent under current law for all tax credits to 25 percent for the new credit—a change from the leaked discussion draft.

Individuals may not use the credit to purchase plans that cover abortions (although they can purchase separate plans that cover abortion). The credit would be advanceable (i.e., paid before individuals file their taxes), and the Treasury would establish a program to provide credit payments directly to health insurers.

Individuals eligible for or participating in employer coverage, Part A of Medicare, Medicaid, the State Children’s Health Insurance Program, Tricare, or health care sharing ministries cannot receive the credit; however, veterans eligible for but not enrolled in VA health programs can receive the credit. Only citizens and legal aliens qualify for the credit; individuals with seriously delinquent tax debt can have their credits withheld.

Some conservatives may be concerned that, by creating a new refundable tax credit, the bill would establish another source of entitlement spending at a time when our nation already faces significant fiscal difficulties.

Some conservatives may also note that, by introducing means-testing into the bill, the revised credit (when compared to the leaked discussion draft) by its very nature creates work disincentives and administrative complexities. However, whereas Obamacare includes several “cliffs”—where one additional dollar of income could result in the loss of thousands of dollars in subsidies—this credit phases out more gradually as income rises. That structure reduces the credit’s disincentives to work—but it by no means eliminates them. Costs $361 billion over ten years. The CBO score did not provide any granularity on the amount of the credit that represents revenue effects (i.e., tax cuts to individuals with income tax liability) versus outlay effects (i.e., spending on “refunds” to individuals who have no income tax liability).

Health Savings Accounts:  Increases contribution limits to HSAs, raising them from the current $3,400 for individuals and $6,750 for families in 2017 to the out-of-pocket maximum amounts (currently $6,550 for an individual and $13,100 for a family), effective January 2018. Allows both spouses to make catch-up contributions to the same Health Savings Account. Permits individuals who take up to 60 days to establish an HSA upon enrolling in HSA-eligible coverage to be reimbursed from their account for medical expenses. The increase in contribution limits would lower revenue by $18.6 billion, and the other two provisions would lower revenue by a combined $600 million.

Cap on Employer-Provided Health Coverage: Does NOT contain a proposed cap on the deductibility of employer-sponsored health insurance coverage included in the leaked discussion draft.

Summary of House Republicans’ “Repeal-and-Replace” Legislation

This evening, House leadership released a revised draft of their Obamacare “repeal-and-replace” bill—the Energy and Commerce title is here, and the Ways and Means title is here.

A detailed summary of the bill is below, along with possible conservative concerns where applicable. Changes with the original leaked discussion draft (dated February 10) are noted where applicable. Where provisions in the bill were also included in the reconciliation bill passed by Congress early in 2016 (H.R. 3762, text available here), differences between the two versions, if any, are noted.

Of particular note: It is unclear whether this legislative language has been vetted with the Senate Parliamentarian. When the Senate considers budget reconciliation legislation—as it plans to do with the Obamacare “repeal-and-replace” bill—the Parliamentarian plays a key role in determining whether provisions are budgetary in nature and can be included in the bill (which can pass with a 51-vote simple majority), and which provisions are not budgetary in nature and must be considered separately (i.e., require 60 votes to pass).

In the absence of a fully drafted bill and complete CBO score, it is entirely possible the Parliamentarian has not vetted this draft—which means provisions could change substantially, or even get stricken from the bill, due to procedural concerns as the process moves forward.

Title I—Energy and Commerce

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances. This language is substantially similar to Section 101 of the 2015/2016 reconciliation bill.

Community Health Centers:             Increases funding for community health centers by $422 million for Fiscal Year 2018—money intended to offset reductions in spending on Planned Parenthood affiliates (see “Federal Payments to States” below). The spending amount exceeds the $285 million provided in the leaked discussion draft. Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill.

Federal Payments to States:             Imposes a one-year ban on federal funds flowing to certain entities. This provision would have the effect of preventing Medicaid funding of certain medical providers, including Planned Parenthood, so long as Planned Parenthood provides for abortions (except in cases of rape, incest, or to save the life of the mother). This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill.

Medicaid:       The discussion draft varies significantly from the repeal of Medicaid expansion included in Section 207 of the 2015/2016 reconciliation bill. The 2015/2016 reconciliation bill repealed both elements of the Medicaid expansion—the change in eligibility allowing able-bodied adults to join the program, and the enhanced (90-100%) federal match that states received for covering them.

By contrast, the House discussion draft retains eligibility for the able-bodied adult population—making this population optional for states to cover, rather than mandatory. (The Supreme Court’s 2012 ruling in NFIB v. Sebelius made Medicaid expansion optional for states.) Some conservatives may be concerned that this change represents a marked weakening of the 2015/2016 reconciliation bill language, one that will entrench a massive expansion of Medicaid beyond its original focus on the most vulnerable in society.

With respect to the Medicaid match rate, the discussion draft reduces the enhanced federal match to states, effective December 31, 2019. The bill provides that states receiving the enhanced match for individuals enrolled by December 31, 2019 will continue to receive that enhanced federal match, provided they do not have a break in Medicaid coverage of longer than one month. (In the case of states that already expanded Medicaid to able-bodied adults prior to Obamacare’s enactment, the bill provides for an 80 percent federal match for 2017 and all subsequent years.)

Some conservatives may be concerned that—rather than representing a true “freeze” that was advertised, one that would take effect immediately upon enactment—the language in this bill would give states a strong incentive to sign up many more individuals for Medicaid over the next three years, so they can qualify for the higher federal match as long as those individuals remain in the program.

Finally, the bill repeals the requirement that Medicaid “benchmark” plans comply with Obamacare’s essential health benefits, also effective December 31, 2019.

DSH Payments:         Repeals the reduction in Medicaid Disproportionate Share Hospital (DSH) payments. Non-expansion states would see their DSH payments restored immediately, whereas states that expanded Medicaid to the able-bodied under Obamacare would see their DSH payments restored in 2019. This language varies from both Section 208 of the 2015/2016 reconciliation bill and the leaked discussion draft.

Medicaid Program Integrity:             Beginning January 1, 2020, requires states to consider lottery winnings and other lump sum distributions as income for purposes of determining Medicaid eligibility. Effective October 2017, restricts retroactive eligibility in Medicaid to the month in which the individual applied for the program; current law requires three months of retroactive eligibility.

Requires, beginning six months after enactment, Medicaid applicants to provide verification of citizenship or immigration status prior to becoming presumptively eligible for benefits during the application process. With respect to eligibility for Medicaid long-term care benefits, reduces states’ ability to increase home equity thresholds that disqualify individuals from benefits; within six months of enactment, the threshold would be reduced to $500,000 in home equity nationwide, adjusted for inflation annually. These provisions were not included in the leaked discussion draft.

Non-Expansion State Funding:             Includes $10 billion ($2 billion per year) in funding for Medicaid non-expansion states, for calendar years 2018 through 2022. States can receive a 100 percent federal match (95 percent in 2022), up to their share of the allotment. A non-expansion state’s share of the $2 billion in annual allotments would be determined by its share of individuals below 138% of the federal poverty level (FPL) when compared to non-expansion states. This funding would be excluded from the Medicaid per capita spending caps discussed in greater detail below. This provision was not included in the leaked discussion draft.

Eligibility Re-Determinations:             Requires states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income at least every six months. This provision was not included in the leaked discussion draft.

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in Fiscal Year 2019. States that exceed their caps would have their federal match reduced in the following fiscal year.

The cap would include all spending on medical care provided through the Medicaid program, with the exception of DSH payments and Medicare cost-sharing paid for dual eligibles (individuals eligible for both Medicaid and Medicare). The cap would rise by medical CPI plus one percentage point annually.

While the cap would take effect in Fiscal Year 2019, the “base year” for determining cap levels would be Fiscal Year 2016 (which concluded on September 30, 2016), adjusted forward to 2019 levels using medical CPI. The adjustment was reduced from medical CPI plus one percentage point in the leaked discussion draft.

Creates five classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; 4) expansion enrollees (i.e., able-bodied adults enrolled under Obamacare); and 5) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services eligible individuals, and certain other partial benefit enrollees from the per capita caps.

Requires the Department of Health and Human Services (HHS) to reduce states’ annual growth rate by one percent for any year in which that state “fails to satisfactorily submit data” regarding its Medicaid program. Permits HHS to adjust cap amounts to reflect data errors, based on an appeal by the state, increasing cap levels by no more than two percent.

For the period including calendar quarters beginning on October 1, 2017 through October 1, 2019, increases the federal Medicaid match for certain state expenditures to improve data recording, including a 100 percent match in some instances.

Some conservatives may note the bill’s creation of a separate category of Obamacare expansion enrollees, and its use of 2016 as the “base year” for the per capita caps, benefit states who expanded Medicaid to able-bodied adults under Obamacare. The most recent actuarial report on Medicaid noted that, while the actuary originally predicted that adults in the expansion population would cost less than existing populations, in reality each newly eligible enrollee cost 13.6% more than existing populations in 2016. Some states have used the 100% federal match for their expansion populations—i.e., “free money from Washington”—to raise provider reimbursement levels.

Some conservatives may therefore be concerned that the draft bill would retain the increased spending on adults in expansion states—extending the inequities caused by states that have used Obamacare’s “free money” to raise Medicaid spending while sending Washington the tab.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. However, the bill does not include an appropriation for cost-sharing subsidies for 2017, 2018, or 2019. The House of Representatives filed suit against the Obama Administration (House v. Burwell) alleging the Administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump Administration and the House. Similar language regarding cost-sharing subsidies was included in Section 202(b) of the 2015/2016 reconciliation bill.

On a related note, the bill does NOT include provisions regarding reinsurance, risk corridors, and risk adjustment, all of which were repealed by Section 104 of the 2015/2016 reconciliation bill. While the reinsurance and risk corridor programs technically expired on December 31, 2016, insurers have outstanding claims regarding both programs. Some conservatives may be concerned that failing to repeal these provisions could represent an attempt to bail out health insurance companies.

Patient and State Stability Fund:              Creates a Patient and State Stability Fund, to be administered by the Centers for Medicare and Medicaid Services (CMS), for the years 2018 through 2026. Grants may be used to cover individuals with pre-existing conditions (whether through high-risk pools or another arrangement), stabilizing or reducing premiums, encouraging insurer participation, promoting access, directly paying providers, or subsidizing cost-sharing (i.e., co-payments, deductibles, etc.).

In the leaked discussion draft, the program in question was called the State Innovation Grant program. The new bill changes the program’s name, and includes additional language requiring the CMS Administrator, in the case of a state that does not apply for Fund dollars, to spend the money “for such state,” making “market stabilization payments” to insurers with claims over $50,000, using a specified reinsurance formula. Some conservatives may view this as a federal infringement on state sovereignty—Washington forcibly intervening in state insurance markets—to bail out health insurers.

Provides for $15 billion in funding for each of calendar years 2018 and 2019, followed by $10 billion for each of calendar years 2020 through 2026 ($100 billion total). Requires a short, one-time application from states describing their goals and objectives for use of the funding, which will be deemed approved within 60 days absent good cause.

For 2018 and 2019, funding would be provided to states on the basis of two factors. 85% of the funding would be determined via states’ relative claims costs, based on the most recent medical loss ratio (MLR) data. The remaining 15% of funding would be allocated to states 1) whose uninsured populations increased from 2013 through 2015 or 2) have fewer than three health insurers offering Exchange plans in 2017. This formula is a change from the leaked discussion draft, which determined funding based on average insurance premiums, and guaranteed every state at least a 0.5% share of funding ($75 million).

For 2020 through 2026, CMS would be charged with determining a formula that takes into account 1) states’ incurred claims, 2) the number of uninsured with incomes below poverty, and 3) the number of participating health insurers in each state market. The bill requires stakeholder consultation regarding the formula, which shall “reflect the goals of improving the health insurance risk pool, promoting a more competitive health insurance market, and increasing choice for health care consumers.” The formula language and criteria has been changed compared to the leaked discussion draft.

Requires that states provide a match for their grants in 2020 through 2026—7 percent of their grant in 2020, 14 percent in 2021, 21 percent in 2022, 28 percent in 2023, 35 percent in 2024, 42 percent in 2025, and 50 percent in 2026. For states that decline to apply for grants, requires a 10 percent match in 2020, 20 percent match in 2021, 30 percent match in 2022, 40 percent match in 2023, and 50 percent match in 2024 through 2026. In either case, the bill prohibits federal allocation should a state decline to provide its match.

Some conservatives may note the significant changes in the program when compared to the leaked discussion draft—let alone the program’s initial variation, proposed by House Republicans in their alternative to Obamacare in 2009. These changes have turned the program’s focus increasingly towards “stabilizing markets,” and subsidizing health insurers to incentivize continued participation in insurance markets. Some conservatives therefore may be concerned that this program amounts to a $100 billion bailout fund for insurers—one that could infringe upon state sovereignty.

Continuous Coverage:         Requires insurers, beginning after the 2018 open enrollment period (i.e., open enrollment for 2019, or special enrollment periods during the 2018 plan year), to increase premiums for individuals without continuous health insurance coverage. The premium could increase by 30 percent for individuals who have a coverage gap of more than 63 days during the previous 12 months. Insurers could maintain the 30 percent premium increase for a 12 month period. Requires individuals to show proof of continuous coverage, and requires insurers to provide said proof in the form of certificates. Some conservatives may be concerned that this provision maintains the federal intrusion over insurance markets exacerbated by Obamacare, rather than devolving insurance regulation back to the states.

Essential Health Benefits:              Permits states to develop essential health benefits—which include actuarial value and cost-sharing requirements—for insurance for all years after December 31, 2019.

Age Rating:   Changes the maximum variation in insurance markets from 3-to-1 (i.e., insurers can charge older applicants no more than three times younger applicants) to 5-to-1 effective January 1, 2018, with the option for states to provide for other age rating requirements. Some conservatives may be concerned that, despite the ability for states to opt out, this provision, by setting a default federal standard, maintains the intrusion over insurance markets exacerbated by Obamacare.

Special Enrollment Verification:                Removes language in the leaked discussion draft requiring verification of all special enrollment periods beginning for plan years after January 1, 2018, effectively codifying proposed regulations issued by the Department of Health and Human Services earlier this month.

Transitional Policies:           Removes language in the leaked discussion draft permitting insurers who continued to offer pre-Obamacare health coverage under President Obama’s temporary “If you like your plan, you can keep it” fix to continue to offer those policies in perpetuity in the individual and small group markets outside the Exchanges.

Title II—Ways and Means

Subsidy Recapture:              Eliminates the repayment limit on Obamacare premium subsidies for the 2018 and 2019 plan years. Obamacare’s premium subsidies (which vary based upon income levels) are based on estimated income, which must be reconciled at year’s end during the tax filing season. Households with a major change in income or family status during the year (e.g., raise, promotion, divorce, birth, death) could qualify for significantly greater or smaller subsidies than the estimated subsidies they receive. While current law caps repayment amounts for households with incomes under 400 percent of the federal poverty level (FPL, $98,400 for a family of four in 2017), the bill would eliminate the repayment limits for 2018 and 2019. This provision is similar to Section 201 of the 2015/2016 reconciliation bill.

Modifications to Obamacare Premium Subsidy:         Allows non-compliant and non-Exchange plans to qualify for Obamacare premium subsidies, with the exception of grandfathered health plans (i.e., those purchased prior to Obamacare’s enactment) and plans that cover abortions (although individuals receiving subsidies can purchase separate coverage for abortion). In a change from the leaked discussion draft, individuals with “grandmothered” plans—that is, those purchased after Obamacare’s enactment, but before the law’s major benefit mandates took effect in 2014—also cannot qualify for subsidies.

While individuals off the Exchanges can receive premium subsidies, they cannot receive these subsidies in advance—they would have to claim the subsidy back on their tax returns instead.

Modifies the existing Obamacare subsidy regime beginning in 2018, by including age as an additional factor for determining subsidy amounts. Younger individuals would have to spend a smaller percentage of income on health insurance than under current law, while older individuals would spend a higher percentage of income. For instance, an individual under age 29, making just under 400% FPL, would pay 4.3% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 11.5% of income on health insurance. (Current law limits individuals to paying 9.69% of income on insurance, at all age brackets, for those with income just below 400% FPL.)

Some conservatives may be concerned that 1) these changes would make an already complex subsidy formula even more complicated; 2) could increase costs to taxpayers; and 3) distract from the purported goal of the legislation, which is repealing, not modifying or “fixing,” Obamacare.

Repeal of Tax Credits:         Repeals Obamacare’s premium and small business tax credits, effective January 1, 2020. This language is similar to Sections 202 and 203 of the 2015/2016 reconciliation bill, with one major difference—the House bill provides for a three-year transition period, whereas the reconciliation bill provided a two-year transition period.

Abortion Coverage:             Clarifies that firms receiving the small business tax credit may not use that credit to purchase plans that cover abortion (although they can purchase separate plans that cover abortion).

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. This language is similar to Sections 204 and 205 of the 2015/2016 reconciliation bill, except with respect to timing—the House bill zeroes out the penalties beginning with the previous tax year, whereas the reconciliation bill zeroed out penalties beginning with the current tax year.

Repeal of Other Obamacare Taxes:             Repeals all other Obamacare taxes, effective January 1, 2018, including:

  • Limitation on deductibility of salaries to insurance industry executives;
  • Tax on tanning services;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Net investment tax;
  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2025;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Medical device tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction;
  • Medicare tax on “high-income” individuals;

These provisions are all substantially similar to Sections 209 through 221 of the 2015/2016 reconciliation bill. However, when compared to the leaked discussion draft, the bill delays repeal of the tax increases by one year, until the end of calendar year 2017. Additionally, the bill does NOT repeal the economic substance tax, which WAS repealed in Section 222 of the 2015/2016 bill, as well as the leaked discussion draft.

Refundable Tax Credit:       Creates a new, age-rated refundable tax credit for the purchase of health insurance. Credits total $2,000 for individuals under age 30, $2,500 for individuals aged 30-39, $3,000 for individuals aged 40-49, $3,500 for individuals aged 50-59, and $4,000 for individuals over age 60, up to a maximum credit of $14,000 per household. The credit would apply for 2020 and subsequent years, and increase every year by general inflation (i.e., CPI) plus one percent. Excess credit amounts can be deposited in individuals’ Health Savings Accounts.

When compared to the leaked discussion draft, the bill would also impose a means-test on the refundable credits. Individuals with modified adjusted gross incomes below $75,000, and families with incomes below $150,000, would qualify for the full credit. The credit would phase out linearly, at a 10 percent rate—every $1,000 of income would cause the subsidy to shrink by $100. Assuming the maximum credit possible ($4,000 for an individual, $14,000 for a family), the credit would phase out completely at income of $115,000 for an individual, and $290,000 for a family.

The credit may be used for any individual policy sold within a state, or unsubsidized COBRA continuation coverage. The credit may also not be used for grandfathered or “grandmothered” health plans—a change from the leaked discussion draft. The bill also increases penalties on erroneous claims for the credit, from 20 percent under current law for all tax credits to 25 percent for the new credit—a change from the leaked discussion draft.

Individuals may not use the credit to purchase plans that cover abortions (although they can purchase separate plans that cover abortion). The credit would be advanceable (i.e., paid before individuals file their taxes), and the Treasury would establish a program to provide credit payments directly to health insurers.

Individuals eligible for or participating in employer coverage, Part A of Medicare, Medicaid, the State Children’s Health Insurance Program, Tricare, or health care sharing ministries cannot receive the credit; however, veterans eligible for but not enrolled in VA health programs can receive the credit. Only citizens and legal aliens qualify for the credit; individuals with seriously delinquent tax debt can have their credits withheld.

Some conservatives may be concerned that, by creating a new refundable tax credit, the bill would establish another source of entitlement spending at a time when our nation already faces significant fiscal difficulties.

Some conservatives may also note that, by introducing means-testing into the bill, the revised credit (when compared to the leaked discussion draft) by its very nature creates work disincentives and administrative complexities. However, whereas Obamacare includes several “cliffs”—where one additional dollar of income could result in the loss of thousands of dollars in subsidies—this credit phases out more gradually as income rises. That structure reduces the credit’s disincentives to work—but it by no means eliminates them.

Health Savings Accounts:  Increases contribution limits to HSAs, raising them from the current $3,400 for individuals and $6,750 for families in 2017 to the out-of-pocket maximum amounts (currently $6,550 for an individual and $13,100 for a family), effective January 2018. Allows both spouses to make catch-up contributions to the same Health Savings Account. Permits individuals who take up to 60 days to establish an HSA upon enrolling in HSA-eligible coverage to be reimbursed from their account for medical expenses.

Cap on Employer-Provided Health Coverage: Does NOT contain a proposed cap on the deductibility of employer-sponsored health insurance coverage included in the leaked discussion draft.

A PDF version of this document is available at the Texas Public Policy Foundation website.

Summary of House Republicans’ (Leaked) Discussion Draft

On Friday, Politico released a leaked version of draft budget reconciliation legislation circulating among House staff—a version of House Republicans’ Obamacare “repeal-and-replace” bill. The discussion draft is time-stamped on the afternoon of Friday February 10—and according to my sources has been changed in the two weeks since then—but represents a glimpse into where House leadership was headed going into the President’s Day recess.

A detailed summary of the bill is below, along with possible conservative concerns where applicable. Where provisions in the discussion draft were also included in the reconciliation bill passed by Congress early in 2016 (H.R. 3762, text available here), differences between the two versions, if any, are noted. In general, however, whereas the prior reconciliation bill sunset Obamacare’s entitlements after a two-year transition period, the discussion draft would sunset them at the end of calendar year 2019—nearly three years from now.

Of particular note: It is unclear whether this legislative language has been vetted with the Senate Parliamentarian. When the Senate considers budget reconciliation legislation—as it plans to do with the Obamacare “repeal-and-replace” bill—the Parliamentarian plays a key role in determining whether provisions are budgetary in nature and can be included in the bill (which can pass with a 51-vote simple majority), and which provisions are not budgetary in nature and must be considered separately (i.e., require 60 votes to pass).

In the absence of a fully drafted bill and complete CBO score, it is entirely possible the Parliamentarian has not vetted this discussion draft—which means provisions could change substantially, or even get stricken from the bill, due to procedural concerns as the process moves forward.

Title I—Energy and Commerce

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances. This language is substantially similar to Section 101 of the 2015/2016 reconciliation bill.

Community Health Centers:             Increases funding for community health centers by $285 million for Fiscal Year 2018—money intended to offset reductions in spending on Planned Parenthood affiliates (see “Federal Payments to States” below). A parenthetical note indicates intent to add Hyde amendment restrictions, to ensure this mandatory funding for health centers—which occurs outside their normal stream of funding through discretionary appropriations—retains prohibitions on federal funding of abortions. Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill.

Medicaid:       The discussion draft varies significantly from the repeal of Medicaid expansion included in Section 207 of the 2015/2016 reconciliation bill. The 2015/2016 reconciliation bill repealed both elements of the Medicaid expansion—the change in eligibility allowing able-bodied adults to join the program, and the enhanced (90-100%) federal match that states received for covering them.

By contrast, the House discussion draft retains eligibility for the able-bodied adult population—making this population optional for states to cover, rather than mandatory. (The Supreme Court’s 2012 ruling in NFIB v. Sebelius made Medicaid expansion optional for states.) Some conservatives may be concerned that this change represents a marked weakening of the 2015/2016 reconciliation bill language, one that will entrench a massive expansion of Medicaid beyond its original focus on the most vulnerable in society.

With respect to the Medicaid match rate, the discussion draft reduces the enhanced federal match to states, effective December 31, 2019. The bill provides that states receiving the enhanced match for individuals enrolled by December 31, 2019 will continue to receive that enhanced federal match, provided they do not have a break in Medicaid coverage of longer than one month. (In the case of states that already expanded Medicaid to able-bodied adults prior to Obamacare’s enactment, the bill provides for an 80 percent federal match for 2017 and all subsequent years.)

Some conservatives may be concerned that—rather than representing a true “freeze” that was advertised, one that would take effect immediately upon enactment—the language in this bill would give states a strong incentive to sign up many more individuals for Medicaid over the next three years, so they can qualify for the higher federal match as long as those individuals remain in the program.

Finally, the bill repeals the requirement that Medicaid “benchmark” plans comply with Obamacare’s essential health benefits, also effective December 31, 2019.

DSH Payments:         Repeals the reduction in Medicaid Disproportionate Share Hospital (DSH) payments. This language is identical to Section 208 of the 2015/2016 reconciliation bill.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019 (the year is noted in brackets, however, suggesting it may change). However, the bill does not include an appropriation for cost-sharing subsidies for 2017, 2018, or 2019. The House of Representatives filed suit against the Obama Administration (House v. Burwell) alleging the Administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump Administration and the House. Similar language regarding cost-sharing subsidies was included in Section 202(b) of the 2015/2016 reconciliation bill.

On a related note, the House’s draft bill does NOT include provisions regarding reinsurance, risk corridors, and risk adjustment, all of which were repealed by Section 104 of the 2015/2016 reconciliation bill. While the reinsurance and risk corridor programs technically expired on December 31, 2016, insurers have outstanding claims regarding both programs. Some conservatives may be concerned that failing to repeal these provisions could represent an attempt to bail out health insurance companies.

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in Fiscal Year 2019. States that exceed their caps would have their federal match reduced in the following fiscal year.

The cap would include all spending on medical care provided through the Medicaid program, with the exception of DSH payments and Medicare cost-sharing paid for dual eligibles (individuals eligible for both Medicaid and Medicare). The cap would rise by medical CPI plus one percentage point annually.

While the cap would take effect in Fiscal Year 2019, the “base year” for determining cap levels would be Fiscal Year 2016 (which concluded on September 30, 2016), adjusted forward to 2019 levels using medical CPI plus one percentage point.

Creates five classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; 4) expansion enrollees (i.e., able-bodied adults enrolled under Obamacare); and 5) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services eligible individuals, and certain other partial benefit enrollees from the per capita caps.

Requires the Department of Health and Human Services (HHS) to reduce states’ annual growth rate by one percent for any year in which that state “fails to satisfactorily submit data” regarding its Medicaid program. Permits HHS to adjust cap amounts to reflect data errors, based on an appeal by the state, increasing cap levels by no more than two percent.

For the period including calendar quarters beginning on October 1, 2017 through October 1, 2019, increases the federal Medicaid match for certain state expenditures to improve data recording, including a 100 percent match in some instances.

Some conservatives may note the bill’s creation of a separate category of Obamacare expansion enrollees, and its use of 2016 as the “base year” for the per capita caps, benefit states who expanded Medicaid to able-bodied adults under Obamacare. The most recent actuarial report on Medicaid noted that, while the actuary originally predicted that adults in the expansion population would cost less than existing populations, in reality each newly eligible enrollee cost 13.6% more than existing populations in 2016. Many states have used the 100% federal match for their expansion populations—i.e., “free money from Washington”—to raise provider reimbursement levels.

Some conservatives may therefore be concerned that the draft bill would retain the increased spending on adults in expansion states—extending in perpetuity the inequities caused by states that have used Obamacare’s “free money” to raise Medicaid spending while sending Washington the tab.

Federal Payments to States:             Imposes a one-year ban on federal funds flowing to certain entities. This provision would have the effect of preventing Medicaid funding of certain medical providers, including Planned Parenthood, so long as Planned Parenthood provides for abortions (except in cases of rape, incest, or to save the life of the mother). This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill.

State Innovation Grants:    Creates a new program of State Innovation Grants, to be administered by the Centers for Medicare and Medicaid Services, for the years 2018 through 2026. Grants may be used to cover individuals with pre-existing conditions (whether through high-risk pools or another arrangement), stabilizing or reducing premiums, encouraging insurer participation, promoting access, directly paying providers, or subsidizing cost-sharing (i.e., co-payments, deductibles, etc.). A similar program was first proposed by House Republicans in their alternative to Obamacare in 2009.

Provides for $15 billion in funding for each of calendar years 2018 and 2019, followed by $10 billion for each of calendar years 2020 through 2026 ($100 billion total). Requires a short, one-time application from states describing their goals and objectives for use of the funding, which will be deemed approved within 60 days absent good cause.

For 2018 and 2019, funding would be provided to states on the basis of relative costs, determined by the number of Exchange enrollees and the extent to which individual insurance premiums in the state exceed the national average. Every state would receive at least 0.5% of the national total (at least $75 million in 2018 and 2019).

For 2020 through 2026, CMS would be charged with determining a formula that takes into account the percentage of low-income residents in the state (the bill text includes in brackets three possible definitions of “low-income”—138%, 250%, or 300% of the federal poverty level) and the number of residents without health insurance.

Requires that states provide a match for their grants in 2020 through 2026—7 percent of their grant in 2020, 14 percent in 2021, 21 percent in 2022, 28 percent in 2023, 35 percent in 2024, 42 percent in 2025, and 50 percent in 2026.

Continuous Coverage:         Requires insurers, beginning after the 2018 open enrollment period (i.e., open enrollment for 2019, or special enrollment periods during the 2018 plan year), to increase premiums for individuals without continuous health insurance coverage. The premium could increase by 30 percent for individuals who have a coverage gap of more than 63 days during the previous 12 months. Insurers could maintain the 30 percent premium increase for a 12 month period. Requires individuals to show proof of continuous coverage, and requires insurers to provide said proof in the form of certificates. Some conservatives may be concerned that this provision maintains the federal intrusion over insurance markets exacerbated by Obamacare, rather than devolving insurance regulation back to the states.

Essential Health Benefits:              Permits states to develop essential health benefits for insurance for all years after December 31, 2019.

Age Rating:   Changes the maximum variation in insurance markets from 3-to-1 (i.e., insurers can charge older applicants no more than three times younger applicants) to 5-to-1 effective January 1, 2018, with the option for states to provide for other age rating requirements. Some conservatives may be concerned that, despite the ability for states to opt out, this provision, by setting a default federal standard, maintains the intrusion over insurance markets exacerbated by Obamacare.

Special Enrollment Verification:               Requires verification of all special enrollment periods beginning for plan years after January 1, 2018. This provision would effectively codify proposed regulations issued by the Department of Health and Human Services earlier this month. Some conservatives may be concerned about the continued federal intrusion over what had heretofore been a matter left to state regulation, and question the need to verify enrollment in Exchanges, given that the underlying legislation was intended to repeal Obamacare—and thus the Exchanges—entirely.

Transitional Policies:          Permits insurers who continued to offer pre-Obamacare health coverage under President Obama’s temporary “If you like your plan, you can keep it” fix to continue to offer those policies in perpetuity in the individual and small group markets outside the Exchanges.

Title II—Ways and Means

Subsidy Recapture:              Eliminates the repayment limit on Obamacare premium subsidies for the 2018 and 2019 plan years. Obamacare’s premium subsidies (which vary based upon income levels) are based on estimated income, which must be reconciled at year’s end during the tax filing season. Households with a major change in income or family status during the year (e.g., raise, promotion, divorce, birth, death) could qualify for significantly greater or smaller subsidies than the estimated subsidies they receive. While current law caps repayment amounts for households with incomes under 400 percent of the federal poverty level (FPL, $98,400 for a family of four in 2017), the bill would eliminate the repayment limits for 2018 and 2019. This provision is similar to Section 201 of the 2015/2016 reconciliation bill.

Modifications to Obamacare Premium Subsidy:         Allows non-compliant and non-Exchange plans to qualify for Obamacare premium subsidies, with the exception of grandfathered health plans (i.e., those purchased prior to Obamacare’s enactment) and plans that cover abortions (although individuals receiving subsidies can purchase separate coverage for abortion). While individuals off the Exchanges can receive premium subsidies, they cannot receive these subsidies in advance—they would have to claim the subsidy back on their tax returns instead. Only citizens and legal aliens could receive subsidies.

Modifies the existing Obamacare subsidy regime beginning in 2018, by including age as an additional factor for determining subsidy amounts. Younger individuals would have to spend a smaller percentage of income on health insurance than under current law, while older individuals would spend a higher percentage of income. For instance, an individual under age 29, making just under 400% FPL, would pay 4.3% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 11.5% of income on health insurance. (Current law limits individuals to paying 9.69% of income on insurance, at all age brackets, for those with income just below 400% FPL.)

Some conservatives may be concerned that 1) these changes would make an already complex subsidy formula even more complicated; 2) could increase costs to taxpayers; and 3) distract from the purported goal of the legislation, which is repealing, not modifying or “fixing,” Obamacare.

Repeal of Tax Credits:         Repeals Obamacare’s premium and small business tax credits, effective January 1, 2020. This language is similar to Sections 202 and 203 of the 2015/2016 reconciliation bill, with one major difference—the House discussion draft provides for a three-year transition period, whereas the reconciliation bill provided a two-year transition period.

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. This language is similar to Sections 204 and 205 of the 2015/2016 reconciliation bill, except with respect to timing—the House discussion draft zeroes out the penalties beginning with the previous tax year, whereas the reconciliation bill zeroed out penalties beginning with the current tax year.

Repeal of Other Obamacare Taxes:             Repeals all other Obamacare taxes, effective January 1, 2017, including:

  • Tax on high-cost health plans (also known as the “Cadillac tax”);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Tax on pharmaceuticals;
  • Medical device tax;
  • Health insurer tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction;
  • Medicare tax on “high-income” individuals;
  • Tax on tanning services;
  • Net investment tax;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Economic substance doctrine.

These provisions are all substantially similar to Sections 209 through 222 of the 2015/2016 reconciliation bill.

Refundable Tax Credit:       Creates a new, age-rated refundable tax credit for the purchase of health insurance. Credits total $2,000 for individuals under age 30, $2,500 for individuals aged 30-39, $3,000 for individuals aged 40-49, $3,500 for individuals aged 50-59, and $4,000 for individuals over age 60, up to a maximum credit of $14,000 per household. The credit would apply for 2020 and subsequent years, and increase every year by general inflation (i.e., CPI) plus one percent. Excess credit amounts can be deposited in individuals’ Health Savings Accounts.

The credit may be used for any individual policy sold within a state (although apparently not a policy purchased across state lines) or unsubsidized COBRA continuation coverage.

Individuals may not use the credit to purchase plans that cover abortions (although they can purchase separate plans that cover abortion). The credit would be advanceable (i.e., paid before individuals file their taxes), and the Treasury would establish a program to provide credit payments directly to health insurers.

Individuals eligible for or participating in employer coverage, Part A of Medicare, Medicaid, the State Children’s Health Insurance Program, Tricare, or health care sharing ministries cannot receive the credit; however, veterans eligible for but not enrolled in VA health programs can receive the credit. Only citizens and legal aliens qualify for the credit; individuals with seriously delinquent tax debt can have their credits withheld.

Some conservatives may be concerned that, by creating a new refundable tax credit, the bill would establish another source of entitlement spending at a time when our nation already faces significant fiscal difficulties.

Cap on Employer-Provided Health Coverage:                    Establishes a cap on the current exclusion for employer-provided health coverage, making any amounts received above the cap taxable to the employee. Sets the cap, which includes both employer and employee contributions, at the 90th percentile of group (i.e., employer) plans for 2019. In 2020 and subsequent years, indexes the cap to general inflation (i.e., CPI) plus two percentage points. Also applies the cap on coverage to include self-employed individuals taking an above-the-line deduction on their tax returns. While the level of the cap would be set in the year 2019, the cap itself would take effect in 2020 and subsequent tax years.

Excludes contributions to Health Savings Accounts and Archer Medical Savings Accounts, as well as long-term care, dental, and vision insurance policies, from the cap. Exempts health insurance benefits for law enforcement, fire department, and out-of-hospital emergency medical personnel from the cap.

Some conservatives may be concerned that this provision raises taxes. Economists on all sides of the political spectrum generally agree that an unlimited exclusion for employer-provided health insurance encourages over-consumption of health insurance, and therefore health care. However, there are other ways to reform the tax treatment of health insurance without raising taxes on net. Given the ready availability of other options, some conservatives may be concerned that the bill repeals all the Obamacare tax increases, only to replace them with other tax hikes.

Health Savings Accounts:  Increases contribution limits to HSAs, raising them from the current $3,400 for individuals and $6,750 for families in 2017 to the out-of-pocket maximum amounts (currently $6,550 for an individual and $13,100 for a family), effective January 2018. Allows both spouses to make catch-up contributions to the same Health Savings Account. Permits individuals who take up to 60 days to establish an HSA upon enrolling in HSA-eligible coverage to be reimbursed from their account for medical expenses.

Abortion Coverage:             Clarifies that firms receiving the small business tax credit may not use that credit to purchase plans that cover abortion (although they can purchase separate plans that cover abortion).

Past as Prologue? A Review of “The System”

A young president promising hope and change takes over the White House. Immediately embarking upon a major health-care initiative, he becomes trapped amidst warring factions in his party in Congress, bickering interest groups, and an angry public, all laying the groundwork for a resounding electoral defeat.

Barack Obama, circa 2009-10? Most definitely. But the same story also applies to Bill Clinton’s first two years in office, a period marked by a health-care debate in 1993-94 that paved the way for the Republican takeover of both houses of Congress.

In their seminal work “The System,” Haynes Johnson and David Broder recount the events of 1993-94 in detail—explaining not just how the Clinton health initiative failed, but also why. Anyone following the debate on Obamacare repeal should take time over the holidays to read “The System” to better understand what may await Congress and Washington next year. After all, why spend time arguing with your in-laws at the holiday table when you can read about people arguing in Congress two decades ago?

Echoes of History

For those following events of the past few years, the Clinton health debate as profiled in “The System” provides interesting echoes between past and present. Here is Karen Ignani of the AFL-CIO, viewed as a single-payer supporter and complaining that insurance companies could still “game the system” under some proposed reforms. Ironic sentiments indeed, as Ignani went on to chair the health insurance industry’s trade association during the Obamacare debate.

There are references to health care becoming a president’s Waterloo—Johnson and Broder attribute that quote to Grover Norquist, years before Sen. Jim DeMint uttered it in 2009. Max Baucus makes an appearance—he opposed in 1994 the employer mandate he included in Obamacare in 2009—as do raucous rallies in the summer of 1994, presaging the Obamacare town halls 15 years later.

Then there are the bigger lessons and themes that helped define the larger debate:

“Events, Dear Boy, Events:” The axiom attributed to Harold Macmillan about leaders being cast adrift by crises out of their control applied to the Clintons’ health-care debate. Foreign crises in Somalia (see “Black Hawk Down”) and Haiti sapped time on the presidential calendar and press attention, and distracted messaging. During the second half of 2009, Obama spent most of his time and energy focused on health care, leading some to conclude he had turned away from solving the economic crisis.

Old Bulls and Power Centers: “The System “spends much more time profiling the chairs of the respective congressional committees—including Dan Rostenkowski at House Ways and Means, John Dingell at House Energy and Commerce, and Patrick Moynihan at Senate Finance—than would have been warranted in 2009-10. While committee chairs held great power in the early 1990s, 15 years later House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid called most of the legislative shots from their leadership offices.

Whereas the House marked up three very different versions of health-care legislation in 1993-94, all three committees started from the same chairman’s mark in 2009. With Speaker Paul Ryan, like John Boehner before him, running a much more diffuse leadership operation than Pelosi’s tightly controlled ship, it remains to be seen whether congressional leaders can drive consensus on both policy strategy and legislative tactics.

The Filibuster: At the beginning of the legislative debate in 1993, Robert Byrd—a guardian of Senate rules and procedures—pleaded for Democrats not to try and enact their health agenda using budget reconciliation procedures to avoid a filibuster. Democrats (begrudgingly) followed his advice in 1993, only to ignore his pleadings 16 years later, using reconciliation to ram through changes to Obamacare. Likewise, what and how Republicans use reconciliation, and Democrats use the filibuster, on health care will doubtless define next year’s Senate debate.

Many Obama White House operatives such as Rahm Emanuel, having lived through the Clinton debate, followed the exact opposite playbook to pass Obamacare.

They used the time between 1993 and 2009 to narrow their policy differences as a party. Rather than debating between a single-payer system and managed competition, most of the political wrangling focused on the narrower issue of a government-run “public option.” Rather than writing a massive, 1,300-page bill and dropping it on Capitol Hill’s lap, they deferred to congressional leaders early on. Rather than bashing special interest groups publicly, they cut “rock-solid deals” behind closed doors to win industry support. While their strategy ultimately led to legislative success, the electoral consequences proved eerily similar.

Lack of Institutional Knowledge

The example of Team Obama aside, Washington and Washingtonians sometimes have short memories. Recently a reporter e-mailed asking me if I knew of someone who used to work on health care issues for Vice President-elect Mike Pence. (Um, have you read my bio…?) Likewise, reporters consider “longtime advisers” those who have worked the issue since the last presidential election. While there is no substitute for experience itself, a robust knowledge of history would come in a close second.

Those who underestimate the task facing congressional Republicans would do well to read “The System.” Having read it for the first time the week of President Obama’s 2009 inauguration, I was less surprised by how that year played out on Capitol Hill than I was surprised by the eerie similarities.

George Santayana’s saying that “Those who cannot remember the past are condemned to repeat it” bears more than a grain of truth. History may not repeat itself exactly, but it does run in cycles. Those who read “The System” now will better understand the cycle about to unfold before us in the year ahead.

This post was originally published at The Federalist.

The High Stakes of the House’s Lawsuit over Obamacare Subsidies

Most coverage of House Republicans’ lawsuit against the Obama administration has focused on the latter’s delay implementing Obamacare’s employer mandate. But five of the eight counts of the lawsuit focus on another issue–one that, depending on the outcome of the suit, could cause insurers to re-assess their involvement in the health-care exchanges.

The issue revolves around the law’s cost-sharing subsidies, a program I analyzed in a June blogpost. The administration had said it was combining the law’s premium subsidies and cost-sharing subsidies–which provide lower co-payments and deductibles to certain low-income individuals—into one set of payments to insurers. “The problem with this? That’s not what the law says,” I wrote, based on a previous analysis showing that the law structured the two types of subsidies very differently.

In my earlier post, I posited that the administration may have combined the two programs to exempt the cost-sharing subsidies from sequester budget cuts. But the House’s lawsuit alleges a more fundamental point: that lumping cost-sharing subsidies in with premium subsidies attempts to hide the fact that Congress never appropriated funds for the cost-sharing subsidies. In another June Think Tank post analyzing similar questions about Obamacare’s “risk corridor” program (under which plans with enrollees who are healthier than average pay into a pool that subsidizes plans whose enrollees are unhealthier than average), I noted the basic legal question about risk corridors, which also applies to the cost-sharing subsidies:

January memo from the Congressional Research Service … and manuals of appropriations law published by the Government Accountability Office provide the minute background, but the basic premise is simple: To spend money, Congress must pass legislation authorizing the executive to do X action and then also appropriate Y dollars for that purpose.

The House’s lawsuit alleges that Congress authorized but never appropriated funds for the cost-sharing subsidies, and it asks the court to block further payments to insurers under the subsidy program unless and until Congress specifically appropriates funds.

The potential impact on insurers and exchanges is enormous. The Congressional Research Service observed in May 2013 that, should the sequestration budget cuts apply to cost-sharing subsidies, “insurers presumably will still have to provide required coverage [i.e., reductions in co-payments and deductibles] to qualifying enrollees, but they will not receive the full subsidy to cover their increased costs.” If a court prohibits the administration from paying out the cost-sharing subsidies, the financial hit to insurers would be $175 billion over the next 10 years, according to Congressional Budget Office estimates of spending on the subsidies through 2024.

In October, it was reported that insurers had requested language from the administration for the second Affordable Care Act open-enrollment season that gives insurers the opportunity to stop offering plans, and cancel existing plans, in the 37 states with a federally run exchange should court cases–now scheduled to be heard by the Supreme Court in March–disrupt federal premium and cost-sharing subsidies to those states. The language also appears to allow insurers to take the same actions should a court halt the flow of cost-sharing subsidies as a result of the House lawsuit. If insurers end up facing an unfunded mandate–a requirement to provide reduced cost-sharing to low-income individuals but no federal subsidies to help finance those benefits–totaling tens of billions of dollars per year, it seems likely that many, if not most or all, insurers would seek to terminate their exchange offerings.

If King v. Burwell–the lawsuit the Supreme Court has agreed to hear about the legality of subsidies in federally run exchanges—represents an existential threat to Obamacare, the implications of the Boehner lawsuit come a close second. If a court blocks the health-care law’s cost-sharing subsidies, insurers facing an uncertain financial, legal and actuarial environment could opt out of the exchanges. The fact that insurers could pull out of the exchanges, and the possibility that the House lawsuit could trigger such an outcome, make the lawsuit worth watching.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Obamacare and the Pitfalls of Congressional Legislating

Weeks before Congress embarked on its final push to put Obamacare on the statute books, then-House Speaker Nancy Pelosi infamously stated that Congress had to pass the bill “so that you can find out what’s in it.” But last week, a staffer at the heart of drafting the legislation admitted that Congress itself failed to comprehend the implications of the provisions it imposed upon the American people.

On Friday, a Capitol Hill newspaper published a story outlining the history of Obamacare’s employer mandate and whether the administration might delay its implementation still further. In the article, Yvette Fontenot—a lobbyist who helped write the bill for then-Senate Finance Committee Chairman Max Baucus and later worked on implementing the legislation at the White House—admitted that when Mr. Baucus’s staff drafted the employer mandate, “we didn’t have a very good handle on how difficult operationalizing the provision would be at that time.”

Indeed, the employer mandate has proved difficult to implement. Defining who counts as a full-time employee across a variety of industries and creating databases to track employees’ hours have taxed regulators and companies alike. While the administration has cited these difficulties in twice delaying the mandate’s implementation, the law’s critics take a different view—believing the administration postponed the mandate to avoid potential stories about job losses prior to the 2014 elections.

Likewise, the import of Ms. Fontenot’s admission. Liberals and supporters of a strong executive might argue that her comments highlight the need for agency rulemaking, rather than placing final authority in the hands of inexpert legislators and overtaxed congressional staff—essentially saving Congress from itself. House Speaker John Boehner obviously disagrees. The Ohio Republican views the impending House vote exploring legal action against the administration as one way for the legislature to regain its authority.

But more broadly, conservatives would argue that Ms. Fontenot’s comments highlight the need for a more deliberative—and more humble—Congress, one quicker to acknowledge its own flaws, and change its processes accordingly. Recall that Max Baucus—the prime congressional author of Obamacare—said four years ago that he didn’t want to “waste my time” reading the legislation, because “we hire experts.” But one of those “experts” now says she didn’t understand how one of the major portions of the bill would work. It makes a very compelling argument that Congress, rather than relying on agency employees to resolve its self-imposed problems, should instead revert to the Hippocratic oath, and focus first and foremost on doing no legislative harm.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Democrats’ Obamacare “Fix”

front-page story in Saturday’s Washington Post discussing Republican candidates’ positions on the Affordable Care Act included a curious quote from Rep. Steve Israel, chairman of House Democrats’ campaign committee, who said that Republicans are “promising fixes but won’t be specific.”

Actually, many conservatives have outlined numerous alternatives to Obamacare. Republicans in the House have written at least 200 separate bills showing their ideas on health care, large and small. My own organization, America Next, released its blueprint for health reform earlier this year.

Conversely, the comparatively small universe of “fixes” advocated by supporters of the health legislation omit major fiscal details. Here are three examples:

In a March Politico op-ed, several Democratic senators (and one independent, Sen. Angus King) proposed allowing the broader sale of low-cost, high-deductible health plans, whose availability is currently limited under the ACA. The senators also advocated expanding the law’s tax credits for small business—making them available to more firms and for longer periods—and further diluting the ACA’s employer mandate on businesses, which already has been delayed twice.

Former President Bill Clinton last year called for fixing a provision that disqualifies families for insurance subsidies if one member of the family can get “affordable” health coverage from an employer.

Others have discussed repealing a provision in the law that would slow the growth in premium subsidies beginning in 2019.

Most of these “fixes” come with price tags—and potentially large ones at that. A 2011 study by the Employment Policies Institute found that fixing the affordability definition, as President Clinton proposed, could increase spending by nearly $50 billion per year.

Supporters of the Affordable Care Act suggesting modifications have a duty to explain whether and how any spending increases would be paid for—through tax increases or other spending reductions.  Because proposing new federal spending without a way to pay for it could put Democrats—and taxpayers—in, well, a bit of a fix.

This post was originally published at the Wall Street Journal’s Think Tank blog.

The Daily Show: Sebelius Swings–And Misses

Last night, Secretary of Health and Human Services (HHS) Kathleen Sebelius appeared on The Daily Show to talk about Obamacare (you can watch Part 1 and Part 2 of the extended interview). She attempted to defend the Administration’s botched opening of the law’s exchanges, but like the rollout itself, most of what she said in the law’s defense ended up falling flat:

“We have a terrific market.” Thus far, the facts speak otherwise. Even Sebelius was forced to concede the exchanges’ flaws, when she admitted to host Jon Stewart that she didn’t know how many people have “fully enrolled” in exchange plans. Sebelius claimed that “this is like a Kayak site, where you might check out what plane you want to get on.” However, I’m guessing that Kayak knows exactly how many customers have purchased plane tickets from its site.

“For the first time, people are going to have a chance to compare plans…You can also figure out if your doctor is in the plan that you want, if the network of hospitals is in the plan you want, what kind of drug you take is that in the plan you want. We’ve never been able to do that before…You would never know what is there.” The idea that the federal government “invented” shopping for health insurance holds about as much water as the idea that Al Gore invented the Internet. Companies have been selling health insurance online, and allowing people to compare plans, for more than a decade. And their websites didn’t crash last week, either.

“For about 85 percent of us, we don’t have to sign up for anything, because we have insurance that works…I think the President did not want to dismantle the health care that 85 percent of the country had and start all over again.” That may not have been intent of Obamacare—but it has been one of the law’s effects. Companies are already dropping health insurance for part-time workers and for spouses, causing individuals to lose their employer-provided coverage and raising the cost of federal insurance subsidies.

“We know about 6 out of 10 people will get a policy for under $100 a month—never happened before.” We also know that most of those individuals will be dumped into the Medicaid program—a form of coverage that its own members don’t even call “real insurance,” because low reimbursement rates prevent Medicaid patients from seeing actual doctors.

“Nothing that helps an individual get health insurance has been delayed at all.” That’s simply not accurate. The insurance subsidies may not have been delayed, but many elements of the insurance shopping experience—from a choice of insurance companies for those working for small businesses, to the basic health plan, to caps on out-of-pocket spending—have been delayed. All these Obamacare features were thrown overboard in an attempt to make the core elements of the exchanges work—which they haven’t.

The sharpest part of the interview came when Stewart pressed Sebelius on the delay in the law’s employer mandate, and the disparity in treatment between big business and the rest of America: “Geez, it looks like because I don’t have a lobbying group…I would feel like you are favoring big business because they lobbied you to delay it because they didn’t want to do it this year but you are not allowing individuals that same courtesy.” That is of course consistent with the attitude the Administration has taken towards the law from the start—reward “squeaky wheels” who hire lobbyists and make political noise by exempting them from some of Obamacare’s most harmful effects.

Stewart’s opening comment summed up the exchanges’ flaws: “I’m going to try and download every movie ever made and you’re going to try and sign up for Obamacare and we’ll see which happens first.” Sebelius may have played the part of a loyal trouper, but the facts speak for themselves.

This post was originally published at The Federalist.

Report Reveals Obamacare’s Side Effects: Higher Costs, Fewer Jobs

What will Obamacare mean for American businesses? Higher costs, according to a report released yesterday from consultants at Mercer.

Here are the preliminary results from Mercer’s annual survey of large employers about the impact of Obamacare:

Costs Continue to Rise: Despite the moderating effects of the recession in dampening consumer demand, “employers expect health benefit cost per employee will rise by 4.8 percent on average in 2014.” Recall that then-Senator Obama promised in 2008 that his health plan would lower health costs by an average of $2,500 per family.

Obamacare’s Mandates Hitting Many Businesses: “About a third of all large employer health plan sponsors (those with 500 or more employees) do not currently offer coverage to all employees working 30 or more hours per week, as will be required under the [law] beginning in 2015. Industries that rely heavily on part-time workers will be the hardest hit by this rule. About half of respondents in retail and hospitality currently do not offer coverage to all employees working 30 or more hours per week.”

Obamacare Will Raise Costs by at Least 2 Percent for Majority of Firms: “When asked to consider the impact of higher enrollment and new [Obamacare] fees…about half of the employers surveyed say they will spend at least 2% more on health benefits in 2014 – over and above the normal increase in cost. Another third are unable to predict. Only about a fifth of employers are confident that [Obamacare] will have little or no impact on spending in 2014.” The Mercer consultants also pointed out that Obamacare could impose additional costs on businesses once the delayed employer mandate takes effect in 2015.

More Workers Will See Their Hours Cut: “Some employers will minimize the number of newly eligible employees by cutting back on hours for at least a portion of their workforce – 11% of all large employers say they will do so.”

The impact of Obamacare on the American economy is well-documented, and growing. It’s why Congress needs to stop Obamacare now.

This post was originally published at the Daily Signal.

The Obamacare Shutdown

In the debate surrounding the partial US government shutdown, rhetoric and scare-mongering often seem to be overwhelming the facts. Lest they be lost, here are some highly pertinent facts about the shutdown fight, and about Obamacare.

First, fiscal conservatives in Congress want to fund the government – all of it – except for Obamacare. The House of Representatives, which takes the lead on budget and tax bills, has passed – several times now – legislation that would defund or eliminate portions of the widely unpopular health-care law, while fully funding all other federal operations.

The Senate, controlled by Majority Leader Harry Reid (D) of Nevada and the Democrats, has so far rejected the lower chamber’s attempts to keep money flowing to government operations. In case the Senate continues to rebuff these attempts, the House has taken the precaution of passing legislation (which the Senate approved and President Obama signed into law last night) that would ensure that our military personnel around the world will continue to receive their hard-earned pay during the shutdown.

Second, the Obama administration’s stated position for months amounts to agreeing to the shutdown of the government. The president’s advisers have publicly threatened to veto multiple House-passed spending bills. Those threats came because the president and his allies want to replace spending cuts already agreed to under the Budget Control Act with more tax increases. In other words, if Mr. Obama and Sen. Reid didn’t shut down the government to insist on funding Obamacare, they likely would have shut down the government to essentially insist on spending more.

Third, while a “government shutdown” is an inconvenience to many Americans, the federal government never fully shuts down. The majority of the nation’s 2 million federal workers will likely not be furloughed. The military will continue to protect our shores, Social Security and Medicare checks will be processed as usual – and the Postal Service will remain open for business to deliver them. In many respects, the term “shutdown” is a misnomer; the current situation is more like a slowdown of government services than a complete shutdown.

If that conflicts with the dire predictions you’ve heard about the “disastrous” consequences of a shutdown, consider this. Since 1976, the federal government has “shut down” 17 times. And still the republic survives!

As for Obamacare itself, many of its effects will be more harmful, and more long-lasting, than a temporary government slowdown. First, premiums continue to go up. Even a recent report released by the Obama administration admitted that. When the report says that premiums have come in “lower than projected,” that doesn’t mean “lower.” That means “slightly less high.” As for the $2,500 per family premium reduction that candidate Obama promised his plan would deliver when campaigning in 2008, forget about it.

Second, Obamacare is undermining America’s health-care system. Many individuals have already found out they’re losing the health insurance they have and like. Others have learned that they may not be able to maintain access to their current doctor. One “dirty little secret” about Obamacare is that the law is built around an expansion of Medicaid – and Medicaid-like insurance plans offered in exchanges – even though Medicaid patients often have worse health outcomes than the uninsured.

Third, Obamacare is harming our economy. Firms are dropping health coverage, or cutting back hours, in response to the law’s new mandates and penalties. Bureaucrats have already turned out more than 20,000 pages of regulations implementing Obamacare. All of these regulations will have costs, many of which will be borne by the small businesses that traditionally serve as the nation’s job generator and the backbone of the economy.

Defunding the law represents the best way for Congress to combat the looming threat Obamacare poses. Defunding Obamacare would prevent the law’s costly new entitlements from taking effect, and would prevent the enforcement of its 18 new tax increases. Just as important, defunding Obamacare would ensure that bureaucrats in Washington would not be able to add to the 20,000 page “Red Tape Tower” any more regulations strangling the economy.

Obamacare was, has been, and remains unpopular; support even among Democrats has dwindled in recent months. The law is unfair: Witness the waivers and exemptions granted to unions, to big businesses, and most recently to members of Congress and their staff. As it stands now, the law has proven to be inherently unwieldy: More than a dozen elements of the law have been delayed, modified, or repealed.

Conservatives in Congress do believe in funding the government, but also want to save the American people from Obamacare’s harmful effects before they take root. Unfortunately, President Obama and Harry Reid have insisted that the only way they will keep the government open is if Congress funds every last word of the 2,700-page law. We hope they will listen to the people, reconsider, and move to save our country from the Obamacare train wreck about to hit.

This post was originally published by the Christian Science Monitor.