Tag Archives: essential health benefits

What You Need to Know about Trump’s Executive Order on Health Care

On Thursday morning, President Trump signed an Executive Order regarding health care and health insurance. Here’s what you need to know about his action.

What Actions Did the President Take?

The Executive Order did not change regulations on its own; rather, it instructed Cabinet Departments to propose changes to regulations in the near future:

  1. Within 60 days, the Department of Labor will propose regulatory changes regarding Association Health Plans (AHPs). Regulations here will look to expand the definition of groups that can qualify as an “employer” under the federal Employee Retirement Income Security Act (ERISA). AHPs have two advantages: First, all association health plans regulated by ERISA are federally pre-empted from state benefit mandates; second, self-insured plans regulated by ERISA are exempt from several benefit mandates imposed by Obamacare—such as essential benefits and actuarial value standards.
  2. Within 60 days, the Departments of Treasury, Labor, and Health and Human Services (HHS) will propose regulatory changes regarding short-term health plans. Regulations here will likely revoke rules put into place by the Obama Administration last October. Last year, the Obama Administration limited short-term plans to 90 days in duration (down from 364 days), and prevented renewals of such coverage—because it feared that such plans, which do not have to meet any of Obamacare’s benefit requirements, were drawing people away from Exchange coverage. The Trump Administration regulations will likely modify, or eliminate entirely, those restrictions, allowing people to purchase plans not compliant with the Obamacare mandates. (For more information, see my Tuesday article on this issue.)
  3. Within 120 days, the Departments of Treasury, Labor, and HHS will propose regulatory changes regarding Health Reimbursement Arrangements (HRAs), vehicles where employers can deposit pre-tax dollars for their employees to use for health expenses. A 2013 IRS Notice prevented employers from using HRA dollars to fund employees’ individual health insurance premiums—because the Obama Administration worried that doing so would encourage employers to drop coverage. However, Section 18001 of the 21st Century Cures Act, signed into law last December, allowed employers with under 50 employees to make HRA contributions that workers could use to pay for health insurance premiums on the individual market. The Executive Order may seek to expand this exemption to all employers, by rescinding the prior IRS notice.
  4. Within six months—and every two years thereafter—the Departments of Treasury, Labor, and HHS, along with the Federal Trade Commission, will submit reports on industry consolidation within the health care sector, whether and how it is raising health care costs, and actions to mitigate the same.

How Will the Order Affect the Health Sector?

To some extent, the full impact of the Executive Order will remain unclear until the respective Departments actually release their proposed regulatory changes. For instance, it is unclear how far the Department of Labor can go in re-defining the term “employer” with respect to who can join an Association Health Plan—so it’s hard to predict the scope of the changes the rules themselves will propose.

In general, however, the issues discussed by the Executive Order will:

  • Give individuals more options, and more affordable options. Premiums on the individual market have more than doubled since 2013, due to Obamacare’s regulatory mandates. AHPs would allow workers to circumvent state benefit mandates through ERISA’s federal pre-emption of state laws; self-insured AHPs would also gain exemption from several federal Obamacare mandates, as outlined above. Because virtually all of Obamacare’s mandated benefits do not apply to short-term plans, these would obtain the most regulatory relief.
  • Allow more small businesses to subsidize workers’ coverage—either through Association Health Plans, or by making contributions to HRAs, and allowing employees to use those pre-tax dollars to buy the health coverage of their choosing on the individual market.

When Will the Changes Occur?

The Executive Order directed the Departments to announce regulatory changes within 60-120 days; the Departments could of course move faster than that. If the Departments decide to release interim final rules—that is, rules that take effect prior to a notice-and-comment period—or sub-regulatory guidance, the changes could take effect prior to the 2018 plan year.

However, any changes that go through the usual regulatory process—agencies issuing proposed rules, followed by a notice-and-comment period, prior to the rules taking effect—likely would not take effect until the 2019 plan year. While the Executive Order directed the agencies to “consider and evaluate public comment on any regulations proposed” pursuant to the Order, it did not specify whether the Departments must evaluate said comments before the regulations take effect.

Does the Order Represent a Regulatory Overreach?

Sen. Rand Paul (R-KY) was asked about this issue Thursday, given conservatives’ prior criticisms of Barack Obama’s “pen and a phone” strategy. In the case of short-term health plans and Health Reimbursement Arrangements, the Executive Order could lead the Departments merely to rescind President Obama’s prior regulations—which almost by definition cannot represent regulatory overreach.

However, with respect to Association Health Plans, some conservatives may take a more nuanced view. Conservatives generally support allowing individuals to purchase insurance across state lines, believing that such freedom would allow consumers to buy the plans that best suit their interests.

However, AHPs accomplish this goal not through Congress’ Commerce Clause power—i.e., explicitly allowing, for instance, an individual in Maryland to buy a policy regulated in Virginia—but instead through federal pre-emption—individuals in Maryland and Virginia buying policies regulated by Washington, albeit in a less onerous manner than Obamacare’s Exchange plans. As with medical liability reform, therefore, some conservatives may support a state-based approach to achieve regulatory relief for consumers, rather than an expanded role for the federal government.

Finally, if President Trump wants to overturn his predecessor’s history of executive unilateralism, he should cease funding cost-sharing reduction payments to health insurers. The Obama Administration’s unilateral funding of these payments without an appropriation from Congress brought a sharp rebuke from a federal judge, who called the action unconstitutional. If President Trump wants to end executive overreach, he should abide by the ruling, and halt the unilateral payments to insurers.

This post was originally published at The Federalist.

What to Do on Obamacare Now

The collapse of legislation proposed by senators Lindsay Graham (R-SC) and Bill Cassidy (R-LA), coupled with the near-simultaneous resignation of Health and Human Services Secretary Tom Price, presents a turning point in this year’s health-care debate. Given the dual disappointments, policymakers and voters looking for long-delayed progress may wonder whether, and what, conservatives can do to restore patient freedom to health-care markets.

Congress still retains procedural options to continue legislatively dismantling Obamacare. In the interim, the executive can seize important regulatory opportunities to lower premiums for millions of Americans—and it appears President Trump is finally doing just that. Press reports over the weekend suggest the administration is preparing to revoke Obama administration regulations sharply limiting the sale of short-term health insurance plans.

What Is Short-Term Health Insurance?

Short-term health insurance plans generally do not comply with Obamacare’s myriad new insurance mandates—the same mandates that have more than doubled average individual market premiums since Obamacare’s major provisions took effect. Previously, insurers sold short-term health insurance for durations of up to 364 days. However, when liberals noticed how some individuals started using short-term plans as a lifeboat to save themselves from Obamacare’s crushing premiums, Obama’s HHS crushed short-term plans.

The short-term plan regulations, finalized by the Obama administration one week before last year’s election, demonstrate how liberals hope “consumer protections” protect individuals from becoming consumers. Administration officials expressed “concern” that the policies have “significant limitations”—for instance, Obamacare’s essential health benefits requirements do not apply to short-term coverage—and “may not provide meaningful health coverage.” As a result, bureaucrats prohibited short-term plans from exceeding 90 days in duration, and banned carriers from automatically renewing such coverage.

Jimmy Kimmel forgot to mention it, but prohibiting coverage renewals harms individuals with pre-existing conditions, because it forbids customers who develop a pre-existing condition while on short-term plans from continuing their coverage. In discouraging these short-term plans, the Obama administration preferred individuals going without coverage entirely over seeing anyone purchase a policy lacking the full panoply of “government-approved” benefits. The Trump administration can and should rescind this coercive rule and its perverse consequences immediately.

What Else the Trump Administration Can Do

Upon completing regulatory action to return to the status quo ante on short-term plans, the administration can take action it should have taken months ago: Restoring constitutional order by stopping the unilateral payment of cost-sharing reduction subsidies to insurers. Congress could also repeal the individual mandate penalty, allowing those who wish to purchase non-compliant short-term plans rather than taxing them for not buying costly Obamacare coverage.

Heretofore, administration officials had declined to act on short-term plans—the same reluctance that has prevented the administration from ending the unilateral payments to insurers. Perhaps federal bureaucrats fear de-stabilizing rickety insurance exchanges. But because this series of administrative actions would open new insurance options, failing to act perpetuates Obamacare, consigns millions of families to perpetually higher premiums, and in the case of the unilateral insurer payments, undermines the rule of law—all higher priorities than the “stability” of insurers whose profits nearly doubled during the Obama administration.

Obamacare advocates may complain that this series of actions would bifurcate insurance markets—a reasonable assumption. The exchanges would likely morph into something approaching a high-risk pool, with federal subsidies available to cover the cost of more expensive insurance for individuals with pre-existing conditions. Meanwhile, other individuals would have more, and more affordable, options.

That said, executive action should not prompt Congress to walk away from attempts to reform health care (or vice versa, for that matter). Whether through reconciliation instructions in the fiscal year 2018 budget this fall, the fiscal year 2019 budget next year, or other means, Congress should keep searching for opportunities to return patient-centered forces to health care, and provide needed relief from skyrocketing premiums.

When they next face voters, both President Trump and Republicans in Congress should prepare to tell them they did everything they could to fulfill their eight-year promise to repeal and replace Obamacare. They have much work yet to do to make such a claim credibly. Following the setback on Graham-Cassidy, they should roll up their sleeves and do just that.

This post was originally published at The Federalist.

On Health Care Bill, Federalism to the Rescue

Temporary setbacks can often yield important knowledge that leads to more meaningful accomplishments—a lesson senators should remember while pondering the recent fate of their health-care legislation. This past week, frictions caused by federalism helped create the legislative stalemate, but the forces of federalism can also pave the way for a solution.

Moderates opposed to the bill raised two contradictory objections. Senators whose states expanded Medicaid lobbied hard to keep that expansion in their home states. Those same senators objected to repealing all of Obamacare’s insurance mandates and regulations, insisting that all other states keep adhering to a Washington-imposed standard.

But those Washington-imposed regulatory standards have prompted individual insurance premiums to more than double since Obamacare first took effect four years ago. While the current draft of the Senate bill allows states to waive out of some of those regulations, it outright repeals none—repeat, none—of them.

The High Prices Are The Fault of Too Many Rules

As the Congressional Budget Office score of the legislation indicates, the lack of regulatory relief under the bill would create real problems in insurance markets. Specifically, CBO found that low-income individuals likely would not purchase coverage, because such individuals would face a choice between low-premium plans with unaffordable deductibles or low-deductible plans with unaffordable premiums.

The budget analysts noted that this affordability dilemma has its roots in Obamacare’s mandated benefits package. Because of the Obamacare requirements not repealed under the bill, insurers would be “constrained” in their ability to offer plans that, for instance, provide prescription drug coverage or coverage for a few doctor visits before meeting the (high) deductible.

CBO concluded that the waiver option available under the Senate bill would, if a state chose it, ease the regulatory constraints on insurers “at least somewhat.” But those waivers only apply to some—not all—of the Obamacare regulations, and could be subject to changes in the political climate. With governors able to apply for—and presumably withdraw from—the waiver program unilaterally, states’ policy decisions could swing rapidly, and in ways that exacerbate uncertainty and instability.

If You Want Obamacare, You Can Enact It at the State Level

The Senate should go back to first principles, and repeal all of the Obamacare insurance regulations, restoring the balance of federalism under the Tenth Amendment, and the principle of state regulation of insurance that has existed since Congress passed the McCarran-Ferguson Act in 1947. If Obamacare is as popular as its supporters claim, states could easily reprise all its regulatory structures—as New York, New Jersey, and others did before the law’s passage. Likewise, senators wanting their colleagues to respect their states’ wishes on Medicaid expansion should respect those colleagues’ wishes on eliminating the entire Obamacare regulatory apparatus from their states.

On Medicaid, conservatives have already granted moderates significant concessions, allowing states to keep their expansions in perpetuity. The controversy now stems around whether the federal government should continue to keep paying states a higher federal match to cover childless adults than individuals with disabilities—a proposition that tests standards of fairness and equity.

However, critics of the bill’s changes to Medicaid raise an important point. As CBO noted, states “would not have additional flexibility” under the per capita caps created by the bill to manage their Medicaid programs. Without that flexibility, states might face greater pressure to find savings with a cleaver rather than a scalpel—cutting benefits, lowering reimbursement rates, or restricting eligibility, rather than improving care.

Several years ago, a Medicaid waiver granted to Rhode Island showed what flexibility can do for a state, reducing per-beneficiary spending for several years in a row by better managing care, not cutting it. When revising the bill, senators should give all Medicaid programs the flexibility Rhode Island received from the Bush administration when it applied for its waiver in 2009. They should also work to ensure that the bill will not fiscally disadvantage states that choose the additional flexibility of a block grant compared to the per capita caps.

If senators’ desire to protect their home states helped prompt this week’s legislative morass, then a willingness to allow other senators to protect their home states can help unwind it. Maintaining Obamacare’s regulatory structure at the federal level, while cutting the spending and taxes used to alleviate the higher costs from that structure, might represent the worst of all possible outcomes—an unfunded mandate passed down to millions of Americans. By contrast, eliminating the Washington-based regulatory apparatus and giving states a free choice whether to re-impose it would represent federalism at its best.

This post was originally published at The Federalist.

CBO Analysis of Senate Republican Health Legislation

On June 26, the Congressional Budget Office (CBO) released its score of the Senate Republican Obamacare legislation. (Text is available here, and a summary here.) CBO found that the bill would:

  • Reduce deficits by about $321 billion over ten years—$202 billion more than the House-passed legislation.
  • Increase the number of uninsured by 15 million in 2018, rising to a total of 22 million by 2026—a slight short-term increase, and slight long-term decrease, of the uninsured numbers compared to the House bill.
  • Generally increase individual market insurance premiums between now and 2020, followed by a reduction in most parts of the country. However, impacts would vary based on states’ decisions regarding benefit structures, as listed below.
  • Reduce Medicaid spending by less than the House-passed measure ($772 billion vs. $834 billion), but have greater net savings with respect to insurance subsidies ($408 billion in deficit reduction vs. $276 billion for the House bill)—calculated as repeal of the Obamacare cost-sharing and premium subsidies, offset by the new spending on “replacement” subsidies.

In its analysis, CBO noted that it continues to use the March 2016 baseline to score the reconciliation legislation (as it did with the House bill). It has done so largely because 1) its updated January 2017 baseline was not available at the time Congress passed the budget resolution in early January and 2) the ten-year timeframe of the March 2016 baseline synchs with the timeframe of the current budget resolution. Had CBO used the January 2017 budget baseline to score the bill, coverage losses would likely have been smaller—CBO has reduced its estimates of Exchange coverage due to anemic enrollment. However, because premiums spiked in 2017, thus raising spending on subsidies, the fiscal effects likely would have been similar.

Premiums:    CBO believes premiums will rise by 20 percent compared to current law in 2018, and by about 10 percent compared to current law in 2019. The increases would stem largely from the effective repeal of the individual mandate (penalty set to $0), which would lead healthy individuals to drop coverage—offset in part by new “stability” funding to insurers.

In 2020, premiums would decline by about 30 percent compared to current law, and by 2026, premiums would be about 20 percent lower than current law (premium reductions declining slightly as “stability” funding declines in years after 2021). The premium reductions would come largely because of a decrease in the actuarial value (i.e., the average percentage of health expenses covered by insurance) of plans.

CBO believes that “few low-income people would purchase coverage” despite subsidies provided under the bill, because in its estimation, deductibles for low-premium plans would be prohibitively expensive for low-income individuals—and premiums for low-deductible plans would also be prohibitively expensive. In general, CBO believes out-of-pocket expenses would rise for most individuals purchasing coverage on the individual market.

Changes in Insurance Coverage:               CBO believes that under the bill, the number of uninsured would rise by 15 million in 2018, and 22 million in 2026. Moreover, “the increase [in the uninsured] would be disproportionately larger among older people with lower income—particularly people between 50 and 64 years old” with income under twice the poverty level. With respect to Medicaid, 15 million fewer people would have coverage than under current law; however, about five million of those individuals “would be among people who CBO projects would, under current law, become eligible in the future as additional states adopted” Medicaid expansion.

CBO believes that the individual insurance market would decline by 7 million in 2018, 9 million in 2020, and 7 million in 2026. The estimate notes CBO’s belief that “a small fraction of the population” will reside in areas where no insurers would participate. A reduction in subsidies would 1) make insurers’ fixed costs a higher percentage of revenues, discouraging them from participating, and 2) reduce the overall percentage of subsidized enrollees—giving some markets a disproportionate number of unsubsidized enrollees with higher health costs. However, in these cases, CBO believes that states could take steps to restore the markets within a few years, whether by obtaining waivers and/or “stability fund” dollars.

CBO believes that effectively repealing the individual mandate would, all things equal, increase premiums in the individual market; lead some employers not to offer employer-based coverage; and discourage individuals from enrolling in Medicaid. However, CBO “do[es] not expect that, with the [mandate] penalty eliminated under this legislation, people enrolled in Medicaid would disenroll.”

Waivers:         With respect to the state waivers for insurance regulations—including essential health benefits and other Obamacare requirements—CBO believes that “about half the population would be in states receiving substantial pass-through funding” under the Obamacare Section 1332 waiver provision, which the bill would revamp. States could receive pass-through funding to reflect savings to the federal government from lower spending on insurance subsidies from the waivers. Those pass-through funds could be used to lower premiums or cost-sharing for individuals.

While CBO believes that many states would apply for waivers with respect to insurance regulations or other requirements, few would “make significant changes” to the subsidy regime, to avoid administering said regime themselves—leaving this task to the Internal Revenue Service instead. However, CBO believes that about one-fifth of the total subsidy dollars available will be provided through the waiver pass-through, rather than directly to individuals.

CBO believes that, particularly in the first few years of the waiver regime, these waivers would actually increase the budget deficit—despite a requirement in the legislation that they not do so. CBO believes that states with waivers currently pending—who can choose whether their waiver would apply under the current regime or the “new” one created by the bill—would use this arbitrage opportunity to pick the more advantageous position for their state. Likewise, the agency notes that states would use overly optimistic data estimates when defining “budget-neutrality”—and that in the first few years of the bill, “the Administration would not have enough data about experience under this legislation to fully adjust [sic] for that incentive.”

In its analysis, CBO concludes that “the additional waivers would have little effect on the number of people insured, on net, by 2026.” Most waivers would be used to narrow the essential health benefits, lowering premiums and giving savings to states as pass-through funds. While lower premiums would increase individual market coverage, it would in CBO’s estimate encourage some employers to drop coverage. Moreover, “people eligible for subsidies in the non-group market would receive little benefit from the lower premiums, and many would therefore decline to purchase a plan providing fewer benefits.” A small fraction of individuals might live in states that “substantially reduce the number of people insured,” either by re-directing subsidy assistance to those who would have purchased coverage even without a subsidy, or by taking pass-through funds and re-directing them for purposes other than health insurance coverage.

CBO believes that, in cases where states use waivers to narrow essential health benefits, “insurance covering certain services [could] become more expensive—in some cases, extremely expensive.” While states could use pass-through funding to subsidize coverage of these services, CBO “anticipate[s] that the funding available to help provide coverage for those high-cost services would be insufficient.”

Other Regulatory Changes:            CBO notes the two “stability funds”—the one short-term fund for insurers, and the second longer-term fund for states—and believes that about three-quarters of the $62 billion provided to states from 2019 through 2026 would go to arrangements with insurers to reduce premiums in the individual market—whether reinsurance, direct subsidies, or some other means.

CBO believes the six-month waiting period added to the legislation would “slightly increase the number of people with insurance, on net, throughout the 2018-2026 period—but not in 2019, when the incentives to obtain coverage would be weak because premiums would be relatively high.”

The changes in age-rating rules—allowing states to charge older applicants five times as much as younger ones, unless a state chooses another ratio—“would tend to reduce premiums for younger people and increase premiums for older people, resulting in a slight increase in insurance coverage, on net—mainly among people not eligible for subsidies,” as the subsidies would insulate most recipients from the effects of the age rating changes. However, net premiums for older individuals not eligible for subsidies would rise significantly.

CBO believes that about half the population will reside in states that will reduce or eliminate current medical loss ratio requirements. “In those states, in areas with little competition among insurers, the provision would cause insurers to raise premiums and would increase federal costs for subsidies,” CBO expects. However, this provision “would have little effect on the number of people coverage by health insurance.”

Insurance Subsidies:           In general, average subsidies under the bill “would be significantly lower than the average subsidy under current law,” despite some exceptions. For instance, while net premiums would be roughly equal for a 40-year-old with income of 175 percent of poverty, “the average share of the cost of medical services paid by the insurance purchased by that person would fall—from 87 percent to 58 percent,” thereby raising deductibles and out-of-pocket expenses. The changes “would contribute significantly to a reduction in the number of lower-income people” obtaining coverage under the bill when compared to current law.

CBO believes that the high cost of premiums and/or deductibles under the bill would discourage many low-income individuals eligible for Medicaid under current law, and who would instead be eligible for subsidies under the bill, from enrolling. “Some people with assets to protect or who expect to have high use of health care would” enroll, but many would not.

CBO also notes that “it is difficult to design plans” that might be “more attractive to people with low income” because of the mandated benefit requirements under Obamacare. For instance, it would be difficult to design plans that provide prescription drugs with low co-payments, or services below the plan’s high deductible, while meeting the 58 percent actuarial value benchmark in the bill. However, waivers could lessen these constraints somewhat, potentially yielding more attractive benefit designs.

While the bill eliminates eligibility for subsidies for individuals making between 351-400 percent of poverty, CBO believes that net premiums for individual (but not necessarily for family) coverage would be relatively similar under both current law and the bill. With respect to age, CBO believes that the addition of age as a factor in calculating subsidies, coupled with the changes to age rating in the bill, would mean that a larger share of individual market enrollees will be younger than under current law.

Medicaid Per Capita Caps and Block Grants:                         CBO believes that, in the short term (2017 through 2024), per capita caps would reduce outlays for non-disabled children and non-disabled adults, because spending would grow faster (4.9 percent) than the medical inflation index prescribe in the law (3.7 percent). However, spending on disabled adults or seniors would grow much more slowly (3.3 percent) than medical inflation plus one percent (4.7 percent). “In 2025 and beyond, the differences between spending growth for Medicaid under current law and the growth rate of the per capita caps for all groups would be substantial,” as CBO projects general inflation will average 2.4 percent.

With respect to the block grant option, CBO believes it “would be attractive to a few states that expect to decline in population (and not in most states experiencing population growth, as it would further constrain federal reimbursement).” Therefore, CBO considers the block grant to have little effect on Medicaid enrollment.

In CBO’s opinion, “states would not have substantial additional flexibility under the per capita caps. Under the block grant option, states would have additional flexibility to make changes to their Medicaid program—such as altering cost sharing and, to a limited degree, benefits.” In the absence of flexibility, CBO believes states facing the per capita caps would reduce provider reimbursements, eliminate optional services, restrict enrollment through work requirements, and/or deliver more efficient care. Specifically, “because caps on federal Medicaid spending would shift a greater share of the cost of Medicaid to state over time,” states would use work requirements to “reduce enrollment and the associated costs.”

Over the longer term, “CBO projects that the growth rate of Medicaid under current law would exceed the growth rate of the per capita caps for all groups covered by the caps starting in 2025.” As a result, CBO believes Medicaid enrollment would continue to decline after 2026 relative to current law.

Medicaid Expansion:           Currently, about half of the population resides in the 31 states (plus the District of Columbia) that have expanded Medicaid. CBO believes that, under current law, that percentage will rise to 80 percent of the newly eligible population by 2026. Under the bill, CBO believes that no additional states will expand Medicaid—resulting in coverage “losses” compared to current law, albeit without individuals actually losing coverage. Moreover, as the enhanced federal matching rate for the Medicaid expansion declines under the bill CBO believes the share of the newly eligible population in states that continue their Medicaid expansion will decline to 30 percent in 2026.

CBO Estimate of American Health Care Act, As Passed by the House

On May 24, the Congressional Budget Office (CBO) released its score of the American Health Care Act, as passed by the House on May 4. CBO found that the bill would:

  • Reduce deficits by about $119 billion over ten years—$133 billion in on-budget savings, offset by $14 billion in off-budget (i.e., Social Security) costs.
  • Increase the number of uninsured by 14 million in 2018, rising to a total of 23 million by 2026—a slight reduction from its earlier estimates.
  • Generally reduce individual market insurance premiums, “in part because the insurance, on average, would pay for a smaller proportion of health care costs.” However, those reductions would vary widely, as detailed further below.

Most of the CBO analysis focused on changes to the legislation made since the bill was originally introduced—and specifically the effects on insurance markets. The current CBO report therefore should be read in conjunction with the prior report (found online here, and my summary of same here).

Waivers:         With respect to the state waivers for insurance regulations—specifically, essential health benefits and community rating requirements—CBO categorized states as adopting one of three general approaches, based in part on the way states regulated their insurance markets prior to Obamacare. CBO did not attempt to determine which states would make which decisions, but used three categories to describe their attitude toward the waivers:

  • About half of the population would live in states that would not adopt the waivers;
  • About one-third of the population would live in states adopting “moderate” waivers; and
  • About one-sixth of the population would live in states adopting “substantial” waivers.

No Waiver States:       CBO estimated that in these states, premiums would fall by an average of 4 percent by 2026, due largely to a younger and healthier population purchasing insurance. Specifically, the greater variation in age rating that the bill permits for insurers, beginning in 2019, would raise premiums for older people while “substantially” lowering them for younger individuals.

Moderate Waiver States:        CBO estimated that in these states, premiums would fall by an average of 20 percent, with significant variations. “The estimated reductions in average premiums range from 10 percent to 30 percent in different areas of the country,” and reductions for younger people would be greater than those for older individuals. The premium reductions would come because “on average, insurance policies would provide fewer benefits;” however, plans “would still offer financial protection from most major health risks.”

CBO noted that states making moderate changes might eliminate such requirements as maternity care, mental health, substance abuse, rehabilitative and habilitative care, and pediatric dental care. In general, insurers “would not want to sell policies that included benefits that were not mandated by state law.” Carriers could sell supplemental riders for such coverage, but CBO concluded most individuals purchasing those riders would utilize them, potentially resulting in “substantially higher out-of-pocket costs” for said individuals.

In the case of states making moderate changes via waivers, CBO estimated that while premiums would be lower for individual insurance, employers would be more likely to continue offering group coverage, and therefore fewer employees would switch from employer to individual market policies. CBO estimated that, compared to the previous estimate, “slightly more people would have insurance in those states, but fewer of them would be enrolled through the non-group market.”

Substantial Waiver States:    In these states, CBO estimated that, while waivers would result in “significantly lower premiums” for those with low expected health costs, the changes could destabilize markets over time, such that less healthy individuals might be “unable to purchase comprehensive coverage with premiums close to those under current law and might not be able to purchase coverage at all.”

Essentially, CBO believes that waiving the community rating provision will create an arbitrage opportunity, whereby healthy individuals will want to undergo medical underwriting to lower premiums, while sick individuals will be unable to do so. CBO wrote that some healthy individuals will actually attempt to hide proof of continuous health insurance coverage, because they could achieve lower premiums by doing so:

CBO and JCT anticipate that, in states making substantial changes to market regulations, most healthy people applying for insurance in the nongroup market would be able to choose between underwritten premiums and community-rated premiums. If underwritten premiums were to their advantage, healthy applicants could fail to provide proof of continuous coverage when first applying for nongroup insurance—or allow their coverage to lapse for more than 63 days before applying. Moreover, insurers and states might have difficulty verifying that an applicant did not have continuous coverage. As a result, such a waiver would potentially allow the spread of medical underwriting to the entire nongroup market in a state rather than limiting it to those who did not have continuous coverage.

Essentially, CBO believes that this arbitrage opportunity could lead to a “death spiral” when it comes to coverage for individuals with high health needs—they may be unable to purchase coverage at any price. As a result, CBO concluded that in substantial waiver states, “employers would be even more likely to continue offering coverage than in states making moderate changes,” which would tend to keep individuals enrolled in group coverage, and decrease coverage in the individual insurance market overall.

CBO also noted that a “few million” (number not more specifically defined) individuals might purchase coverage that “would not cover major medical risks.” It noted the possibility that a secondary market would develop to sell insurance policies priced to match the amount of the bill’s tax credits: “Although such plans would provide some benefits, the policies would not provide enough financial protection in the event of a serious and costly illness to be considered insurance.”

Patient and State Stability Fund:            The estimate included additional details surrounding the Stability Fund, most of which CBO assumed “would be used by states to reduce premiums or increase benefits in the non-group market:”

  • The original $100 billion allocated to the fund would “exert substantial downward pressure on premiums in the non-group market and would help encourage insurers’ participation in the market.”
  • The $15 billion in invisible risk sharing funds, which “would be directed to insurers to reduce their risk of having high-cost enrollees…would have a small effect on premiums in 2018 and a larger effect on premiums in 2019.”
  • The $8 billion in funds for waiver states “would increase the number of states choosing such a waiver,” but CBO did not attempt to predict the precise way in which states would utilize those funds. While one section of the estimate alleges that “the funding would not be sufficient to substantially reduce the large increases in premiums for high-cost enrollees,” another section notes that only $6 billion of the funding would be spent over the decade—providing contradictory and unclear messages about whether the funding would be sufficient, and if it would not, why CBO thinks some of that supposedly insufficient funding would not be spent within a decade.
  • The $15 billion to cover maternity and mental health care would likely go to “health care providers rather than to insurers;” $14 billion would be spent over the decade.

Changes in Insurance Coverage:               CBO estimated that under the bill, the number of uninsured would rise by 14 million in 2018, 19 million in 2020, and 23 million in 2026. With respect to Medicaid, 14 million fewer people would have coverage than under current law; however, CBO noted that some of those individuals “would be among people who CBO projects would, under current law, become eligible in the future as additional states adopted” Medicaid expansion.

CBO estimated that the individual insurance market would decline by 8 million in 2018, 10 million in 2020, and 6 million in 2026. The estimate noted CBO’s belief that the individual market will shrink in 2020, only to expand in later years, because of implementation difficulties, particularly for states that apply for waivers and are therefore charged with certifying plans. “CBO and JCT expect that such implementation difficulties would result in some reduction in coverage and some occasions when individuals purchasing coverage would fail to get the credits. Those difficulties would probably decline over time in most markets.”

When compared to its original estimate of the bill, CBO concluded that:

  • Enrollment in the individual market would be 1 million lower in 2018 and 3 million lower in 2026, due to more employers continuing to offer coverage, while some otherwise uninsured individuals would choose to enroll in individual coverage due to lower premiums.
  • Employer based coverage would increase by 1 million in 2018 and 4 million in 2026, primarily because employers would be more likely to offer—and employees more likely to accept—group health coverage in states with insurance waivers.
  • The uninsured would decrease by 2 million in 2020 and 1 million in 2026, “primarily attributable to lower premiums for non-group coverage.” CBO concluded that, while coverage would be less robust under the waivers, “more people would choose to enroll rather than be uninsured.”

Administrative Complexity:          CBO included several passages noting the complexity and potential administrative/implementation challenges associated with the bill. It assumed that the state insurance waivers would not actually go into effect until 2020, as states would need time to prepare for same. For instance, CBO noted that Obamacare subsidies—which would remain in effect in 2018 and 2019 under the bill—are linked to the second-lowest cost silver plan. Determining the second-lowest cost silver plan in a state waiving some or all Obamacare regulations—where insurers could practice medical underwriting for individuals without continuous coverage—would require “substantial additional regulations or guidance.”

Further, because states accepting waivers would have to define qualified health plans beginning in 2020, those states would have to administer the tax credit program. The uncertainties surrounding whether and how states could administer the new programs led CBO to conclude that in waiver states “eligible people would initially be slower to take up the offer of tax credits, more claims would be made by people who are ineligible, and payments would be made for policies that do not qualify as insurance.”

Summary of “Repeal and Replace” Amendments

Ahead of tomorrow’s expected vote on the American Health Care Act, below please find updates on the amendments offered to the legislation. The original summary of the bill is located here.

The bill will be considered tomorrow in the absence of a Congressional Budget Office score of any of 1) the second-degree managers amendment; 2) the Palmer-Schweikert amendment; 3) the MacArthur-Meadows amendment; and 4) the Upton amendment. Some conservatives may be concerned that both the fiscal and policy implications of these four legislative proposals will not be fully vetted until well after Members vote on the legislation. Some conservatives may also be concerned that changes to the legislation made since the last CBO analysis (released on March 23) could change its deficit impact — which could, if CBO concludes the amended bill increases the deficit, cause the legislation to lose its privilege as a reconciliation matter in the Senate.

UPTON AMENDMENT: Adds an additional $8 billion to the Stability Fund for the period 2018-2023 for the sole purpose of “providing assistance to reduce premiums or other out-of-pocket costs of individuals who are subject to an increase in the monthly premium rate for health insurance coverage” as a result of a state adopting a waiver under the MacArthur/Meadows amendment. Gives the Secretary of Health and Human Services authority to create “an allocation methodology” for such purposes.

Some conservatives may note that the adequacy (or inadequacy) of the funding remains contingent largely upon the number of states that decide to submit relevant waiver requests. Some conservatives may also be concerned by the broad grant of authority given to HHS to develop the allocation with respect to such important details as which states receive will funding (and how much), the amount of the $8 billion disbursed every year over the six-year period, and which types of waiver requests (e.g., age rating changes, other rate changes, and/or essential health benefit changes) will receive precedence for funding.

MACARTHUR/MEADOWS AMENDMENT: Creates a new waiver process for states to opt out of some (but not all) of Obamacare’s insurance regulations. States may choose to opt out of:

  • Age rating requirements, beginning in 2018 (Obamacare requires that insurers may not charge older enrollees more than three times the premium paid by younger enrollees);
  • Essential health benefits, beginning in 2020; and
  • In states that have established some high-risk pool or reinsurance mechanism, the 30 percent penalty in the bill for individuals lacking continuous coverage, and/or Obamacare’s prohibition on rating due to health status (again, for individuals lacking continuous insurance coverage), beginning after the 2018 open enrollment period.

Provides that the waiver will be considered approved within 60 days, provided that the state self-certifies the waiver will accomplish one of several objectives, including lowering health insurance premiums. Allows waivers to last for up to 10 years, subject to renewal. Exempts certain forms of coverage, including health insurance co-ops and multi-state plans created by Obamacare, from the state waiver option.

Also exempts the health coverage of Members of Congress from the waiver requirement. House leadership has claimed that this language was included in the legislation to prevent the bill from losing procedural protection in the Senate (likely for including matter outside the jurisdiction of the Senate Finance and HELP Committees). The House will vote on legislation (H.R. 2192) tomorrow that would if enacted effectively nullify this exemption.

While commending the attempt to remove the regulatory burdens that have driven up insurance premiums, some conservatives may be concerned that the language not only leaves in place a federal regulatory regime, but maintains Obamacare as the default regime unless and until a state applies for a waiver — and thus far no governor or state has expressed an interest in doing so. Some conservatives may also question whether waivers will be revoked by states following electoral changes (i.e., a change in party control), and whether the amendment’s somewhat permissive language gives the Department of Health and Human Services grounds to reject waiver renewal applications — both circumstances that would further limit the waiver program’s reach.

PALMER/SCHWEIKERT AMENDMENT: Adds an additional $15 billion to the Stability Fund for the years 2018 through 2026 for the purpose of creating an invisible risk sharing program. Requires the Centers for Medicare and Medicaid Services to establish, following consultations with stakeholders, parameters for the program, including the eligible individuals, standards for qualification (both voluntary and automatic), and attachment points and reimbursement levels. Provides that the federal government will establish parameters for 2018 within 60 days of enactment, and requires CMS to “establish a process for a state to operate” the program beginning in 2020.

Some conservatives may be concerned that this amendment is too prescriptive to states — providing $15 billion in funding contingent solely on one type of state-based insurance solution — while at the same time giving too much authority to HHS to determine the parameters of that specific solution.

 

MARCH 24 UPDATE:

On Thursday evening, House leadership released the text of a second-degree managers amendment making additional policy changes. That amendment:

  • Delays repeal of the Medicare “high-income” tax until 2023;
  • Amends language in the Patient and State Stability Fund to allow states to dedicate grant funds towards offsetting the expenses of rural populations, and clarify the maternity, mental health, and preventive services allowed to be covered by such grants;
  • Appropriates an additional $15 billion for the Patient and State Stability Fund, to be used only for maternity and mental health services; and
  • Allows states to set essential health benefits for health plans, beginning in 2018.

Earlier on Thursday, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill. Note that this “updated” CBO score released Thursday afternoon does NOT reflect any of the changes proposed Thursday evening; scores on that amendment will not be available until after Friday’s expected House vote.

Updated ten-year costs for repeal of the Obamacare taxes include:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 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 $19.6 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 $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

MARCH 23 UPDATE:

On March 23, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill.

Updated ten-year costs for repeal of the Obamacare taxes include:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 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 $19.6 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 $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

 

Original post follows:

On the evening of March 20, House Republicans released two managers amendments to the American Health Care Act—one making policy changes, and the other making “technical” corrections. The latter amendment largely consists of changes made in an attempt to avoid Senate points-of-order fatal to the reconciliation legislation.

In general, the managers amendment proposes additional spending (increasing the inflation measure for the Medicaid per capita caps) and reduced revenues (accelerating repeal of the Obamacare taxes) when compared to the base bill. However, that base bill already would increase the deficit over its first five years, according to the Congressional Budget Office.

Moreover, neither the base bill nor the managers amendment—though ostensibly an Obamacare “repeal” bill—make any attempt to undo what Paul Ryan himself called Obamacare’s “raid” on Medicare, diverting hundreds of billions of dollars from that entitlement to create new entitlements. Given this history of financial gimmickry and double-counting, not to mention our $20 trillion debt, some conservatives may therefore question the fiscal responsibility of the “sweeteners” being included in the managers package.

Summary of both amendments follows:

Policy Changes

Medicaid Expansion:           Ends the enhanced (i.e., 90-95%) federal Medicaid match for all states that have not expanded their Medicaid programs as of March 1, 2017. Any state that has not expanded Medicaid to able-bodied adults after that date could do so—however, that state would only receive the traditional (50-83%) federal match for their expansion population. However, the amendment prohibits any state from expanding to able-bodied adults with incomes over 133% of the federal poverty level (FPL) effective December 31, 2017.

With respect to those states that have expanded, continues the enhanced match through December 31, 2019, with states receiving the enhanced match for all beneficiaries enrolled as of that date as long as those beneficiaries remain continuously enrolled in Medicaid. Some conservatives may be concerned that this change, while helpful, does not eliminate the perverse incentive that current expansion states have to sign up as many beneficiaries as possible over the next nearly three years, to receive the higher federal match rate.

Work Requirements:           Permits (but does not require) states to, beginning October 1, 2017, impose work requirements on “non-disabled, non-elderly, non-pregnant” beneficiaries. States can determine the length of time for such work requirements. Provides a 5 percentage point increase in the federal match for state expenses attributable to activities implementing the work requirements.

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education.

Medicaid Per Capita Caps:              Increases the inflation measure for Medicaid per capita caps for elderly, blind, and disabled beneficiaries from CPI-medical to CPI-medical plus one percentage point. The inflation measure for all other enrollees (e.g., children, expansion enrollees, etc.) would remain at CPI-medical.

Medicaid “New York Fix:”               Reduces the federal Medicaid match for states that require their political subdivisions to contribute to the costs of the state Medicaid program. Per various press reports, this provision was inserted at the behest of certain upstate New York congressmen, who take issue with the state’s current policy of requiring some counties to contribute towards the state’s share of Medicaid spending. Some conservatives may be concerned that this provision represents a parochial earmark, and question its inclusion in the bill.

Medicaid Block Grant:        Provides states with the option to select a block grant for their Medicaid program, which shall run over a 10-year period. Block grants would apply to adults and children ONLY; they would not apply with respect to the elderly, blind, and disabled population, or to the Obamacare expansion population (i.e., able-bodied adults).

Requires states to apply for a block grant, listing the ways in which they shall deliver care, which must include 1) hospital care; 2) surgical care and treatment; 3) medical care and treatment; 4) obstetrical and prenatal care and treatment; 5) prescription drugs, medicines, and prosthetics; 6) other medical supplies; and 7) health care for children. The application will be deemed approved within 30 days unless it is incomplete or not actuarially sound.

Bases the first year of the block grant based on a state’s federal Medicaid match rate, its enrollment in the prior year, and per beneficiary spending. Increases the block grant every year with CPI inflation, but does not adjust based on growing (or decreasing) enrollment. Permits states to roll over block grant funds from year to year.

Some conservatives, noting the less generous inflation measure for block grants compared to per capita caps (CPI inflation for the former, CPI-medical inflation for the latter), and the limits on the beneficiary populations covered by the block grant under the amendment, may question whether any states will embrace the block grant proposal as currently constructed.

Implementation Fund:        Creates a $1 billion fund within the Department of Health and Human Services to implement the Medicaid reforms, the Stability Fund, the modifications to Obamacare’s subsidy regime (for 2018 and 2019), and the new subsidy regime (for 2020 and following years). Some conservatives may be concerned that this money represents a “slush fund” created outside the regular appropriations process at the disposal of the executive branch.

Repeal of Obamacare Tax Increases:             Accelerates repeal of Obamacare’s tax increases from January 2018 to January 2017, including:

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • 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—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

Retroactive Eligibility:       Strikes Section 114(c), which required Medicaid applicants to provide verification of citizenship or immigration status prior to becoming presumptively eligible for benefits during the application process. The section was likely stricken for procedural reasons to avoid potentially fatal points-of-order, for imposing new programmatic requirements outside the scope of the Finance Committee’s jurisdiction and/or related to Title II of the Social Security Act.

Safety Net Funding:              Makes changes to the new pool of safety net funding for non-expansion states, tying funding to fiscal years instead of calendar years 2018 through 2022.

Medicaid Per Capita Cap:   Makes changes to cap formula, to clarify that all non-Disproportionate Share Hospital (DSH) supplemental payments are accounted for and attributable to beneficiaries for purposes of calculating the per capita cap amounts.

Stability Fund:          Makes technical changes to calculating relative uninsured rates under formula for allocating Patient and State Stability Fund grant amounts.

Continuous Coverage:         Strikes language requiring 30 percent surcharge for lack of continuous coverage in the small group market, leaving the provision to apply to the individual market only. With respect to the small group market, prior law HIPAA continuation coverage provisions would still apply.

Re-Write of Tax Credit:      Re-writes the new tax credit entitlement as part of Section 36B of the Internal Revenue Code—the portion currently being used for Obamacare’s premium subsidies. In effect, the bill replaces the existing premium subsidies (i.e., Obamacare’s refundable tax credits) with the new subsidies (i.e., House Republicans’ refundable tax credits), effective January 1, 2020.

The amendment was likely added for procedural reasons, attempting to “bootstrap” on to the eligibility verification regime already in place under Obamacare. Creating a new verification regime could 1) exceed the Senate Finance Committee’s jurisdiction and 2) require new programmatic authority relating to Title II of the Social Security Act—both of which would create a point-of-order fatal to the entire bill in the Senate.

In addition, with respect to the “firewall”—that is, the individuals who do NOT qualify for the credit based on other forms of health coverage—the amendment utilizes a definition of health insurance coverage present in the Internal Revenue Code. By using a definition of health coverage included within the Senate Finance Committee’s jurisdiction, the amendment attempts to avoid exceeding the Finance Committee’s remit, which would subject the bill to a potentially fatal point of order in the Senate.

However, in so doing, this ostensibly “technical” change restricts veterans’ access to the tax credit. The prior language in the bill as introduced (pages 97-98) allowed veterans eligible for, but not enrolled in, coverage through the Veterans Administration to receive the credit. The revised language states only that individuals “eligible for” other forms of coverage—including Medicaid, Medicare, SCHIP, and Veterans Administration coverage—may not qualify for the credit. Thus, with respect to veterans’ coverage in particular, the managers package is more restrictive than the bill as introduced, as veterans eligible for but not enrolled in VA coverage cannot qualify for credits.

Finally, the amendment removes language allowing leftover credit funds to be deposited into individuals’ health savings accounts—because language in the base bill permitting such a move raised concerns among some conservatives that those taxpayer dollars could be used to fund abortions in enrollees’ HSAs.

Important Concerns about the State Waiver Process

On Tuesday evening, legislative language emerged regarding a proposal negotiated by conservative and centrist House Republicans. The proposal, which would further amend the Obamacare “repeal-and-replace” legislation, would allow states to waive some (but not all) of the law’s major insurance regulations.

Specifically, states could request a waiver to:

  • Beginning in January 2018, vary rating by age more than Obamacare (current law says that insurers cannot charge older individuals more than three times the premiums paid by younger enrollees);
  • Beginning in January 2020, set their own essential health benefits—the categories of services all insurance sold must cover; and
  • Beginning after the 2018 open enrollment period, permit insurers to vary premiums by health status and/or eliminate the mandatory 30 percent penalty for individuals who do not maintain continuous insurance coverage—provided that the state has established a program of actual or invisible high-risk pools, or some other mechanism through the bill’s Stability Fund to stabilize its insurance markets.

Some conservatives may have philosophical concerns with this approach, on several levels. It perpetuates a federal regulatory regime for health insurance, maintaining Obamacare as the default option. Not only does the bill take the position that “If you like your Obamacare, you can keep it,” it ensures that states will keep Obamacare unless and until they affirmatively do something to opt out of the law—a position that turns federalism on its head.

Over and above those philosophical concerns, two very practical matters lurk.

How Many States Will Actually Apply for Waivers?

While Washington has discussed this waiver concept for nearly a month, exactly zero Republican governors have publicly expressed an interest in applying for a waiver. Granted, details have been scarce to find, and frequently changing. But with Republicans occupying literally two-thirds of the nation’s governorships, the silence from state houses seems deafening.

Two plausible theories could explain the silence. First, in some states, governors need explicit authority from their legislatures to take an action like applying for a waiver. Unless and until their legislatures provide explicit authorization, governors cannot apply for anything, even if they wanted to.

With most legislatures heading out of session, and filing deadlines for the 2018 plan year fast approaching, it seems a stretch to think that many, if any, states will apply for a waiver for next year, even if the bill gets signed into law within a month. And with 36 governors’ races on the line next fall, how many governors will want to implement waivers for the 2019 plan year—thus guaranteeing Obamacare will be an issue in the last week of their campaigns, with open enrollment starting mere days before the November 6 plebiscite?

Moreover, on the political front, the waiver process essentially punts to the states a decision—repeal of the Obamacare regulatory regime—that Congress can, and should, have taken on its own. Why should anyone believe that states will request waivers from the Obamacare regulations, when it was Congress’ own lack of political will that shifted the decision to the states in the first place?

Can a Future Administration Deny Waiver Renewals?

Supporters of the waiver concept have attempted to reassure conservatives that the state waivers would be automatic from Washington, and could not be held up by a future Democrat Administration. And with respect to initial approval of waiver applications, the language released does seem fairly straight-forward: It allows states to self-certify they are applying to achieve at least one of several stated objectives, and deems waivers approved, allowing the Secretary of Health and Human Services (HHS) to deny them only in the case of an incomplete application.

But the language in subsection (4)(A), reproduced in full below, suggests that extending waivers once granted could be far from a sure thing:

No waiver for a State under this subsection may extend over a period of longer than 10 years unless the State requests continuation of such waiver, and such request shall be deemed granted unless the Secretary, within 90 days after the date of its submission to the Secretary, either denies such request in writing or informs the State in writing with respect to any additional information which is needed in order to make a final determination with respect to the request. [Emphasis mine.]

The bill text distinguishes between “an application submitted in paragraph (1)”—the initial waiver application—and a “continuation of such waiver.” That distinction, coupled with the permissive language given to the HHS Secretary—who has the power to “den[y] such request in writing,” for reasons not explicitly stated—could give a future Administration all the opening it needs to deny future waiver extensions.

A Better Solution

The above concerns notwithstanding, the waiver debate has put paid to the notion that Congress cannot repeal Obamacare’s major insurance regulations as part of a repeal bill passed through budget reconciliation. In other words, the question is not one of process, and what the Senate parliamentarian will allow, but one of political will—whether Republicans want to repeal Obamacare or not. Rather than punting those decisions off to governors, and keeping the law’s regulatory structure firmly intact in Washington, Congress should finish its job and deliver the repeal it has promised the American people for the past seven years.

The Binary Choices of “Repeal-and-Replace”

During the run-up to the aborted vote on House Republicans’ Obamacare “repeal-and-replace” legislation, Speaker Paul Ryan repeatedly called the vote a “binary choice”: Republicans could support the leadership-drafted legislation, or, by failing to do so, effectively choose to keep Obamacare in place.

The rhetoric led to criticism of the speaker for attempting to bully or rush members of Congress into supporting legislation despite policy concerns and political unpopularity. That said, health care policy does involve several largely binary choices. They do not break down along the political fault lines the speaker proposed—support the leadership bill, or support Obamacare—but they demonstrate how health policy involves significant trade-offs that should be made very explicit as part of the policy-making process. Here are just three.

1: Obamacare’s Regulations Are (Mostly) All-or-Nothing

Just prior to the scheduled vote, Republican leadership and the Trump administration found themselves in trouble when they proposed eliminating Obamacare’s essential health benefits, for both legal and policy reasons. A more clearly drafted policy could minimize the former, but likely not the latter.

Here’s the problem: As long as insurers are required to accept all applicants regardless of health status or pre-existing conditions—a requirement known as guaranteed issue, and included in Obamacare—removing at least three other important Obamacare regulations would likely lead to unsustainable and perverse outcomes:

Community rating: Theoretically, insurers would have little problem with a requirement to accept all applicants, so long as they can charge those applicants an actuarially fair rate. However, “offering” a cancer patient an insurance policy priced at $50,000 per month would likely yield few acceptances (and would be politically unsustainable).

Obamacare allowed insurers to vary premiums only by age, family size, geography, and tobacco use. The House bill expanded the permissible rating variation, but only with respect to age. While this change would lower premiums for younger applicants, encouraging them to purchase insurance, it might not change insurers’ underlying assumption that applicants will be sicker-than-average.

Essential benefits: Requiring insurers to accept all applicants regardless of health status, but allowing them to vary benefit packages, would create incentives for insurers to structure their policies in ways that discourage sick people from applying.

For instance, no rational insurer would provide much (if any) coverage of expensive chemotherapy drugs, because doing so would prompt a flood of cancer patients to purchase coverage and run up large bills. Since Obamacare’s passage, HIV patients have already faced discrimination because of these inherent flaws in the law, even with the essential benefit requirements in place. Removing them would only accelerate a “race to the bottom.”

Actuarial value: Here again, removing the requirement that plans cover a certain percentage of expenses would lead to a rapid downsizing of generous plans from the marketplace—again, so insurers can avoid sick patients. Platinum plans have already become a rare breed on the Obamacare exchanges; removing the requirements would likely cause gold and silver plans to disappear as well.

These four major regulations—guaranteed issue, community rating, essential health benefits, and actuarial value—are inextricably linked. Repealing only one or two without repealing all of them, particularly the guaranteed issue requirements, would at best fail to lower premiums (largely what the Congressional Budget Office, or CBO, concluded about the House bill) and at worst could severely disrupt the market, while making the sickest individuals worse off.

The CBO largely agrees with this analysis. In a January document, CBO noted that Obamacare included major regulatory changes that require insurers to: “Provide specific benefits and amounts of coverage”—essential health benefits (the types of services covered) and actuarial value (the amount of that coverage), respectively; “Not deny coverage or vary premiums because of an enrollee’s health status or limit coverage because of pre-existing medical conditions”—guaranteed issue; and “Vary premiums only on the basis of age, tobacco use, and geographic location”—community rating.

CBO views these four interlinked changes as at the heart of the Obamacare regulatory regime. While lawmakers could repeal piecemeal other mandates beyond the “Big Four,” such as the requirement to cover “dependents” under age 26, or the preventive services mandate, doing so would have a much smaller effect on reducing premiums than the four changes referenced above.

2: Keeping Obamacare Regulations Requires Significant Insurance Subsidies

The January CBO analysis of the 2015 repeal bill passed under reconciliation illustrates the second binary choice. Because that 2015 reconciliation bill repealed Obamacare’s insurance subsidies (after a delay) and mandate to purchase coverage, but not its regulatory requirements on insurers, CBO concluded that the bill would severely damage the individual health insurance market. By 2026, premiums would double, and about three-quarters of the country would have no insurers offering individual insurance coverage, in CBO’s estimate.

The analysis revealed one big reason why: Eliminating subsidies for insurance would result in a large price increase for many people. Not only would enrollment decline, but the people who would be most likely to remain enrolled would tend to be less healthy (and therefore more willing to pay higher premiums). Thus, average health-care costs among the people retaining coverage would be higher, and insurers would have to raise premiums in the non-group market to cover those higher costs.

In short, CBO believed repealing Obamacare’s subsidies while retaining its insurance regulations would lead to an insurance “death spiral.”

By contrast, CBO concluded that this year’s House Republican bill, which (largely) retained Obamacare’s regulations and included a new subsidy for insurance, would lead to a stable marketplace: “Key factors bringing about market stability include subsidies to purchase insurance, which would maintain sufficient demand for insurance by people with low health care expenditures…”

The obvious conclusion: While the individual health insurance market remained relatively stable without subsidies prior to Obamacare, and repealing both the law’s subsidies and its regulations would restore that sustainable market, as long as the regulatory changes wrought by the law remain in place, the market will require heavy insurance subsidies to remain stable.

3: Banning Pre-Existing Condition Consideration Versus Repealing Obamacare

This binary choice follows from the prior two. If the “Big Four” insurance regulations are so interlinked as to make them a binary proposition, and if a market with those “Big Four” requires subsidies to remain stable, then Republicans have a choice: They can either retain the ban on pre-existing condition discrimination—and the regulations and subsidies that go with it—or they can fulfill their promise to repeal Obamacare.

Consider, for instance, Ryan’s response to a reporter on February 16 questioning the similarities between the refundable tax credits in the House plan (later the House bill) and Obamacare: “They call them refundable tax credits—they’re subsidies. And they’re subsidies that say ‘We will pay some people some money if you do what the government makes you do.’ That is not a tax credit. That is not freedom. A tax credit is you get the freedom to do what you want, and buy what you need—and your choice.”

Based on Ryan’s own definition, the House bill qualifies as an Obamacare-esque subsidy, and not a tax credit. It gives some people (those with employer coverage or other insurance do not qualify) some amount—the credits had to be means-tested to solve major CBO scoring issues—if they buy insurance that meets government requirements.

For an individual “buy[ing] what [they] need,” the option to purchase health insurance without under-26 “dependent” coverage, or without maternity coverage for males, did not exist. So it’s not that others derided the House bill as “Obamacare Lite,” it’s that the bill qualifies as such under Ryan’s own definition.

Much of the problem lies in House Republicans’ Better Way proposal released last summer, which stated a desire to retain Obamacare’s pre-existing condition provision. The import of this proposal was not clear at the time. There are other, simpler ways to provide coverage to individuals with pre-existing conditions (such as high-risk pools), and as Yuval Levin has pointed out, prior conservative health proposals did not include promises on pre-existing conditions. But Republicans’ unwillingness to upset the Obamacare standards for pre-existing conditions has significantly boxed in the party’s policy options regarding repeal.

To Govern Is To Choose

As with Barack Obama in 2008, Republicans face a self-inflicted dilemma, having over-promised voters by claiming they could keep the popular portions of Obamacare (pre-existing condition protections) while repealing the law.

But Republicans face what looks increasingly like a binary choice: going back to the status quo ante on pre-existing conditions, or breaking their seven-year-long pledge to repeal Obamacare. As the saying goes, to govern is to choose—but in this case, failing to govern may be the worst choice of all.

This post was originally published in The Federalist.

Updates to House Republicans’ Managers Amendments

On Thursday evening, House leadership released the text of a second-degree managers amendment making additional policy changes. That amendment:

  • Delays repeal of the Medicare “high-income” tax until 2023;
  • Amends language in the Patient and State Stability Fund to allow states to dedicate grant funds towards offsetting the expenses of rural populations, and clarify the maternity, mental health, and preventive services allowed to be covered by such grants;
  • Appropriates an additional $15 billion for the Patient and State Stability Fund, to be used only for maternity and mental health services; and
  • Allows states to set essential health benefits for health plans, beginning in 2018.

Earlier on Thursday, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill. Note that this “updated” CBO score released Thursday afternoon does NOT reflect any of the changes proposed Thursday evening; scores on that amendment will not be available until after Friday’s expected House vote.

Updated ten-year costs for repeal of the Obamacare taxes include:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 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 $19.6 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 $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

CBO Score 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.